In December 2024 the English high court held that a clause requiring the parties to use “reasonable endeavours” to agree a binding process for an expert determination to value and divide disputed businesses was an unenforceable agreement to agree.
The disputing parties entered into a settlement agreement to resolve litigation which was ongoing at the time involving what the parties called their African Business. The settlement agreement provided that if an agreed conciliation process failed “the Parties agree to use reasonable endeavours to agree a binding process for an expert determination to value and divided the African Business. It is currently anticipated that such agreement might include the following terms and steps [which were then set out in nine subparagraphs]”.
The court held that a commitment to use reasonable endeavours to try to reach an agreement is meaningless, because it imposes no real limit to the parties’ freedom of action. Even applying a value judgment only leads to the conclusion that the parties can reasonably do whatever they want in their own interest, provided they do not mislead each other. There is no meaningful yardstick against which their behaviour can be assessed. Therefore, there is no enforceable contractual obligation between them. The problem is obviously magnified and a case like the present where each of the parties was entitled to act in their own self-interest in deciding what to do. Just because the words appear in a contract, that does not mean they must have a binding effect. The best that could be achieved by the parties was a commitment to at least try to agree on the expert determination in the future, if it became necessary to do so. At very least, it provided a prompt for a future attempt at negotiation. Where a party is required to use ‘reasonable endeavours’ or to ‘reasonably agree’ some matter, it remains permitted for it to negotiate in accordance with its own commercial interests. The language of the clause reflected an agreement to agree which was not enforceable. To agree to separate and divide a pool of assets is meaningless if the parties have not agreed on any terms for doing so including (crucially) the price.
Salem & Anor v Salem & Ors [2024] EWHC 3311 (Ch) (20 December 2024)