High Court rules that "reasonable endeavours" did not save an agreement to agree

In Salem & Anor v Salem & Ors [2024] EWHC 3311 (Ch), the High Court found that a clause in which the parties agreed to use "reasonable endeavours" to agree on a process for binding expert determination was unenforceable. The clause was as an agreement to agree and including the reasonable endeavours wording did not save it. The language of the clause was too aspirational and not sufficiently certain – “everything was still up for grabs”. This decision is a reminder of the need for clarity in drafting to ensure that an obligation is enforceable.

Background

The disputed clause was part of a settlement agreement intended to resolve ongoing litigation among members of the Salem family, regarding their stakes in several UK properties and a significant trading enterprise in West Africa (the African Business).

The settlement agreement aimed to divide the African Business through a two-stage process, the first of which was conciliation. If that failed, the following clause 6.5 would apply:

“If the Conciliation Process does not result in an agreed division of the African Business … then, unless an extension is agreed by the Parties in writing, by 1 February 2017 the Parties agree to use reasonable endeavours to agree a binding process for an expert determination to value and divide the African Business. It is currently anticipated that such an agreement might include the following terms and steps: […]”

There followed a list of terms and steps relating to the expert determination process.

While there were other parties to the settlement agreement, the relevant parties to the conciliation process and this application were Moussy Salem (the claimant) and his uncles, Freddy and Beno Salem (the defendants).

Ultimately, the conciliation process failed, and the parties did not reach agreement on the expert determination process. The claimant applied to the High Court for a declaration that "the parties remain subject to the obligation to continue to use reasonable endeavours" to "agree a binding process for Expert Determination", i.e., enforcement of clause 6.5. In the alternative, the claimant sought a declaration that the defendants were in breach of the settlement agreement.

The defendants applied for a strike out of the application or alternatively an order for reverse summary judgment.

The decision

The Court had to decide whether the claimant had reasonable grounds for arguing that clause 6.5 was enforceable and on its proper construction imposed a continuing (not a time-limited) obligation, and/or that he could show a real prospect of success in advancing that case.

Was clause 6.5 sufficiently certain to be binding?

The Court held that the clause was an unenforceable agreement to agree. Key to the Court’s decision was the “aspirational” language of clause 6.5. It described what the parties wished to try to agree on, using their reasonable endeavours, if the conciliation process failed. Agreement on a binding process for expert determination was a possible future event.

The Court considered Longmore LJ’s decision in Jet2.com Ltd v Blackpool Airport Ltd [2012] EWCA Civ 417 regarding the enforceability of endeavours clauses:

“an obligation to use best endeavours should usually be held to be an enforceable obligation unless (i) the object intended to be procured by the endeavours is too vague or elusive to be itself a matter of legal obligation; or (ii) the parties have… provided no criteria on the basis of which it is possible to assess whether best endeavours have been, or can be used…”

In this case, the Court found that even if the “object” to be procured was certain (i.e. “a binding process for an expert determination”) there was still a major difficulty in identifying sufficiently objective criteria by which to evaluate the reasonableness of the parties’ endeavours to try and achieve such an agreement.

The Court also referred to the judgment of Lord Ackner in Walford v Miles [1992] 2 AC 128 in which the court held that an agreement to negotiate was unenforceable:

“the concept of a duty to carry on negotiations in good faith is inherently repugnant to the adversarial position of the parties when involved in negotiations. Each party to the negotiations is entitled to pursue his (or her) own interest, so long as he avoids making misrepresentations.”

In the context of a negotiation where parties are acting in their own self-interest, an obligation to act reasonably has no real meaning since it provides no meaningful yardstick against which their behaviour can be assessed.

The Court was also not persuaded by an argument that the parties had agreed that there should be an "expert determination to value and divide the African Business", and that was an enforceable obligation, even if the commitment to try and agree on a "process" for it was not. Based on a plain reading of the relevant language of clause 6.5, the parties had accepted there would be an expert determination to value and divide the African Business only if they could agree on "a binding process" for it, but not otherwise.

Was clause 6.5 time limited?

The Court found that the language of clause 6.5 was clear that 1 February 2017 was the cut-off for agreeing a binding process.

The Court was not persuaded by the claimant’s argument that the clause obliged the parties to commence their reasonable endeavours by 1 February 2017, but not to stop after that date. The claimant relied on the decision of Leggatt J in Astor Management A.G. [2017] EWHC 425 (Comm) in which he held that a requirement to “use all reasonable endeavours” to obtain a senior debt facility and “to procure the restart of mining activities” continued after a specified deadline. The Court distinguished the context of that case: the restart of mining operations was complex and difficult, so it was sensible to construe the relevant clause as stating an aspirational target date rather than a drop-dead date.

By contrast, the parties in this case would already have engaged in the conciliation process. In that context, a one-month period to seek to agree a process for expert determination as a back-up was not ambitious or unrealistic.

Key takeaways

This judgment reiterates that for endeavours obligations and stepped dispute resolution clauses to be binding, there needs to be sufficient certainty and specificity.

In recent years, the English courts have been more willing to enforce agreements to negotiate in certain circumstances. However, the Court must be able to reach a decision on whether a party’s proposal should have been accepted by relying on either objective criteria or criteria agreed to by the parties. Parties should specify the terms of their agreement at the time of contracting where possible.

Similar principles apply to stepped dispute resolution clauses in agreements. In this case, the Court emphasised that, although commercial parties are encouraged to resolve disputes through alternative dispute resolution methods such as expert determination, any agreement for such a process must include the necessary detail to ensure that the process is workable and enforceable. The Court noted that there must be more than just an intention to agree, and that that any such clauses should set out a clear framework and method by which the dispute would be resolved.  For an expert determination, for example, the parties should specify the method for selecting an expert, the steps in the process and the timeline.

With thanks to Kathy Williams for her assistance in preparing this post.