Businesses should exercise caution when performing their
contractual obligations, or face the risk of litigation – particularly where they
are subject to an obligation to use ‘reasonable endeavours’. The
specialist commercial lawyers at Bahamas law firm Parris Whittaker are
experienced in successfully advising commercial clients on their contractual
duties and potential disputes.
A
noteworthy ruling from the UK’s Court of Appeal, which has important persuasive
authority on the courts in The Bahamas, illustrates the importance of not
dragging your feet when complying with the terms of the contract.
A requirement to use ‘reasonable endeavours’, in simple terms, usually means the party must take a reasonable course of action. If there is an obligation to use ‘best endeavours’ a higher standard is required, such as taking all available reasonable courses of action to perform a contractual obligation.
What’s the background?
In Gaia Ventures1, the defendant delayed what it was contractually required to do in order to avoid its obligations. The claimant argued that it had failed in its duty to use reasonable endeavours to trigger the conditions for a £1.4 million payment of over ageas soon as reasonably practicable, or by the longstop date agreed.
The claimant (as assignee of the
benefit of the covenant) issued legal proceedings.
The defendant argued that it was
entitled to prioritise its own commercial interest because it would have been
“commercially irresponsible” to make certain commitments to satisfy
the conditions to the payment of overage without securing funding for the
development concerned.
The Court of Appeal disagreed. It ruled that the defendant had not used reasonable endeavour to achieve the required outcome and had, instead, manipulated the timetable to delay matters. Had steps been taken “as soon as reasonably practicable, the… [condition] … would have been satisfied well before mid-June 2013”.
The
Court also found that the “restriction” of securing funding was
“self-imposed” by the defendant.
Therefore, it was open to the High Court judge to find that, even if
funding was a permissible consideration, the defendant could not rely on this
to show it had satisfied the required conditions in accordance with its “reasonable
endeavours” obligation.
As one of the appeal judges stated, the defendant “devoted its energies to ensuring that the outcome would not be achieved until after the date when it would escape liability to make the overage payment”.
What does this mean?
Complying with a ‘reasonable’ or ‘best’ endeavours obligation can be challenging, not least because it will usually be subjective in nature. Each case will turn on the particular facts of the case, making it vital for businesses to take robust legal advice when required.
How can we help?
We
advise and represent a wide range of business clients in their contractual
obligations and in commercial disputes. If you have any concerns in relation to
your contractual duties or there is a potential claim, contact the expert commercial
lawyers at ParrisWhittaker for strategic advice and representation.
