Beware of handing matters over to the court’s discretion
16 June 2017
How often in negotiations do parties “duck” issues deemed “too difficult” and try to cope with them by adopting “reasonable” (or other) “endeavours” obligations?
The case of Astor Management AG v Atalaya Mining plc not only examines the legal implications but also demonstrates that generally if you want a result, provide for it explicitly to avoid possible disappointment, delay and significant legal costs.
The provision which the court had to construe related to deferred consideration, payment of which would be triggered when Atalaya had obtained “senior debt finance…for a sum sufficient for the restart of mining operations”. Atalaya was required to use “all reasonable endeavours” to obtain such finance by 31 December 2010. When Atalaya failed to do this and instead raised the necessary funds from its parent, Astor Management claimed that the deferred payment was triggered.
The judge, Leggatt J, found:
- that his role was “to give effect to what the parties have agreed, not to throw [his] hands in the air and refuse to do so” because this would be too difficult for him to do so;
- that the wording used made the obtaining of senior debt finance a precondition to the payment of the deferred consideration and that the 31 December 2010 date was a target date which, if not met, did not bring the obligation to an end; and
- that any particular contract had to be interpreted in accordance with the usual rules of interpretation, rejecting the so-called “principle of futility” which, Astor Management argued, allowed the court to ignore the precondition if “it is considered by the court to serve no useful purpose”.
This left the court to decide whether as a matter of fact Atalaya had performed its obligation to obtain senior debt finance or not and to make a value judgement as to whether the subjective obligation (to use all reasonable endeavours) had been complied with or not. It was up to Astor Management to prove (on the balance of probabilities) that Atalaya had failed to comply with its obligation. Leggat J found that Astor had failed to show that there had been a breach of that obligation.
He also refused to imply a duty to act in good faith on the part of Atalaya and suggested that, even if such a duty could be implied, that duty was no more than a duty not to act to frustrate the purpose of the contract or in a way which reasonable and honest people would regard as unacceptable.
The moral of the story, for both lawyers and their clients, is that issues don’t become less difficult by being fudged. The court is likely to hold the parties to its view of the bargain that has been struck as stated in the document being considered. The court will reach its view on the basis of its usual rules of interpretation, no matter what each party may argue as to what that bargain was (or was intended to be).
So if you want to help the court, set out the minimum steps you can envisage will constitute (in this case) the use of “all reasonable endeavours” (such as a set of minimum efforts to be performed by stated dates, an obligation to report back in a specified timetable, whether the result can be reached by other means…). It is better to spend time and money negotiating and documenting a bargain, than to create a situation in which it is left to the court to tell you what the bargain was that you in fact had struck.
Here is a link to the case: Astor Management AG v Atalaya Mining plc , EWHC 425 (Comm)