Dany Lions Ltd v Bristol Cars Ltd

An obligation to use reasonable or best endeavours is enforceable only where the object of the endeavours is sufficiently certain and there are objective criteria by which performance can be assessed. An obligation to use reasonable endeavours to enter into a future agreement with a third party will usually be unenforceable where essential terms, such as price, remain open to negotiation. The obligation does not require a party to act contrary to its own commercial interests. Once all reasonable steps have been exhausted, the obligation ceases. Damages for breach of contract aim to place the claimant in the position it would have occupied had the contract been performed.

The claimant purchased a classic car from the defendant and agreed a fixed price for restoration works. After the defendant failed to perform, the parties entered into a Settlement Agreement under which the claimant was to use reasonable endeavours to enter into an agreement with a specialist restorer by a specified deadline. The proposed agreement left price and other terms open.

The claimant did not contract with the restorer before the deadline. It later contracted on substantially more expensive, open-ended terms and claimed damages against the defendant under the original restoration contract. The central issues were whether the reasonable endeavours clause was enforceable, whether it had been breached, whether any breach caused loss, and the proper measure of damages.

Claim allowed. The claimant was entitled to damages of £118,155.50, together with interest of £6,057.87, making a total judgment sum of £124,173.37.

1. An obligation to use reasonable or best endeavours is not inherently uncertain. Enforceability requires both a sufficiently certain object and objective criteria by which the endeavours can be evaluated. These requirements apply whether the object involves contracting with the other contracting party or with a third party.
2. Clause 2 identified the subject matter and scope of the proposed restoration works, but left price, payment arrangements and other essential terms for future negotiation with JSW. There were no objective criteria by which the reasonableness of refusing particular terms could be judged. The clause was therefore no more than an unenforceable agreement to agree.
3. In any event, the claimant had used reasonable endeavours. It was entitled to investigate the likely financial exposure and seek a price cap. Once JSW made clear that its figure was not a ceiling and that the cost could be significantly higher, the claimant was entitled to conclude that further reasonable steps would not achieve the object. Reasonable endeavours did not require the claimant to borrow substantial additional sums, obtain personal security from its director, or commit itself to an open-ended price contrary to its commercial interests.
4. Even if the clause had been enforceable and breached, the defendant failed to prove causation. It was not established on the balance of probabilities that an agreement would have been concluded by the deadline. The defendant therefore had no defence to liability. The mitigation argument also failed.
5. Damages were measured by comparing the original net contract price with the reasonable actual or estimated net cost of completing the restoration. No deduction was made for the abandoned automatic-transmission conversion, since the claimant’s loss had not been increased by retaining the manual gearbox. The claim for lost commercial rental and media income failed because that loss was not shown to have been within the parties’ reasonable contemplation when the contract was made.