Shaker v Vistajet Group Holding SA

An agreement to use good faith and reasonable endeavours to negotiate or agree further agreements is unenforceable where there are no objective criteria by which compliance can be assessed. The same applies where such an obligation is framed as a condition precedent to repayment of a deposit. Parties may, however, agree a factual basis for extending a contractual deadline, giving rise to contractual estoppel. An acknowledgment of an existing state of affairs may constitute that agreed factual basis. On the facts, the defendant had no real prospect of showing that the claimant failed to act in good faith or use reasonable endeavours during the relevant period.

The claimant sought summary judgment for the return of a US$3.55 million deposit paid under a letter of intent concerning a proposed aircraft transaction. The letter required the parties to use good faith and reasonable endeavours to agree transaction documents, and required repayment if those documents were not agreed by the cut-off date despite that exercise.

The defendant disputed repayment, alleging failures by the claimant to act in good faith and use reasonable endeavours. The claimant argued that the alleged condition was unenforceable, that the parties were contractually estopped by a later extension amendment, and that no triable issue arose for the final period before expiry. A counterclaim for flight costs was also pending.

1. Enforceability. The claimant’s obligation to proceed in good faith and use reasonable endeavours to agree the transaction documents and obtain financing confirmation was unenforceable. The letter’s non-binding clause reinforced that conclusion. Agreements to negotiate or agree further agreements are unenforceable where there are no objective criteria by which the court can assess reasonableness: [1992] 2 AC 126, [2006] EWHC 1341, [2012] EWCA Civ 548 and [2009] CSOH 171.

2. The same reasoning applied even if the repayment provision created a condition precedent requiring the claimant to have exercised good faith and reasonable endeavours. The court could not police that condition where the parties had provided no objective criteria. The existence of binding provisions concerning the deposit, or the defendant’s obligation not to sell the aircraft before the cut-off date, did not alter that analysis. The distinction in Petromec v Petroleo Brasileiro was that objective criteria existed there for assessing the additional cost to be negotiated. The present agreement contained no equivalent criteria.

3. Contractual estoppel. Alternatively, the later amendment clearly acknowledged both that the transaction documents and financing confirmation would not be obtained by the cut-off date and that the parties had exercised good faith and reasonable endeavours. That statement was not merely parenthetical. An acknowledgment can form the factual basis of a contractual estoppel, and the commercial sense of the amendment confirmed that conclusion. The defendant was therefore estopped from alleging failure by the claimant before 10 December 2010.

4. Final period and disposition. The undisputed evidence showed that the parties were awaiting the financier’s response, and that the claimant had less than a week to consider the indicative terms before the cut-off date. The claimant’s conduct did not realistically evidence bad faith or a failure to use reasonable endeavours. The defendant had not raised a triable issue and had no real prospect of successfully defending the deposit claim. Judgment was entered for the claimant. Execution was stayed to the extent of the defendant’s counterclaim.