FIRST DIVISION, INNER HOUSE, COURT OF SESSION
Lord President Lord Reed Lord Drummond Young	[2010] CSIH 96 CA63/08 OPINION OF THE LORD PRESIDENT in Reclaiming Motion by R & D CONSTRUCTION GROUP LIMITED Pursuer and Reclaimer; against HALLAM LAND MANAGEMENT LTD Defender and Respondent: _______

Act: Clark, Q.C.; Maclay Murray & Spens LLP

Alt: Borland; Harper MacLeod LLP

10 December 2010

Introduction

[1] In November 1999 the respondent entered into an option agreement to purchase up to 21.1 acres of land from Barbara Kerr ("Mrs Kerr"). In October 2003 the reclaimer concluded missives with the respondent to purchase from it 4.685 acres of that land at a price of £571,314. Clause 4.1.10, introduced in the respondent's qualified acceptance of 24 September 2003, contained a suspensive condition in the following terms:

"The Missives shall be essentially conditional upon:-

...

4.1.10 the Seller [the respondent] agreeing a purchase price for the Subjects with the current proprietor in terms wholly acceptable to the Seller (the Seller being required to use all reasonable endeavours in this regard)"

[2] On 26 May 2004, having failed to agree a price with Mrs Kerr, the respondent purported to resile from the purchase contract. The reclaimer brought an action for breach of contract, founding on the parenthetical requirement in clause 4.1.10. The respondent argued that the requirement was unenforceable, being no more than an agreement to agree, or, alternatively, being concerned with an object which was too vague and uncertain to have contractual force. On 16 September 2009, following proof, the Lord Ordinary decided that the requirement was enforceable, but that, on the acceptable evidence, the respondent was not in breach of contract ([2009] CSOH 128). Against that decision this reclaiming motion has been brought. The respondent has lodged grounds of cross-appeal, challenging the Lord Ordinary's decision as regards the enforceability of the requirement.

Background

[3] The Opinion of the Lord Ordinary sets out in detail the contractual context and the chronology of events (at paras [4] - [31]). A summary of the main matters relevant to the submissions made in this reclaiming motion, which focussed on events in March 2004, is set out below.

Contractual context

[4] Under the option agreement the "purchase price" for any land was to be the higher of: (i) seventy five percent of the Open Market Value; or (ii) £75,000 (schedule 2). Clause 6 set out the procedure for exercising the option. Before doing so, the respondent had to obtain planning permission with which it was satisfied. It could then serve a provisional notice, which fixed the valuation date and obliged Mrs Kerr to negotiate the amount of the purchase price. Both parties were required to use all reasonable endeavours in that regard. If no agreement was reached within twenty working days, either party could refer the matter to a decision of an expert. The respondent was entitled, but not bound, to exercise the option within one calendar month of the amount of the purchase price being agreed or determined. Clause 12 provided for the agreement of parties, acting reasonably, concerning the routes over which any "rights, servitudes and wayleaves" were to be granted, and for the provision of such rights and servitudes of vehicular and pedestrian access to, and egress from, any retained land as were required by Mrs Kerr acting reasonably.

[5] As well as clause 4.1.10, the purchase agreement between the reclaimer and respondent contained a number of other suspensive conditions. In particular, clause 4.1.5 of the initial offer provided that missives were conditional upon the reclaimer obtaining a site survey, ground conditions report and environmental assessment in terms wholly acceptable to it. Clause 10 of the respondent's qualified acceptance introduced a long-stop date: it had seven months from the receipt of written notice that the reclaimer had purified or waived condition 4.1.5 to complete the purchase, failing which it was entitled to resile from the agreement without penalty.

Chronology of events

[6] The reclaimer's offer of £571,314 was based on a residential development of thirty five units. On 6 October 2003 the reclaimer's solicitors, Burness LLP, notified the respondent's solicitors, MacRoberts, of the purification of clause 4.1.5, from which date the seven month long-stop period began. Following a meeting with her in early November 2003, a representative of the respondent reported that Mrs Kerr appeared happy with an Open Market Value of £571,314, subject to two matters: (i) vouching of sufficient marketing of the land; and (ii) her being allowed to reserve a strip of ground to permit vehicular access to the remaining land for the purposes of future residential development. The respondent sent Mrs Kerr a provisional notice in terms of the option agreement on 12 December 2003, thereby fixing that date as the date at which the Open Market Value was to be determined.

[7] In January 2004 it became clear that the respondent was minded to provide only agricultural access to land retained by Mrs Kerr, thus controlling its development. In the same month, correspondence from Mr Dale, Mrs Kerr's solicitor, made clear that Mrs Kerr's valuation of the purchase subjects was £630,000. On 15 January 2004 he wrote to Mrs Kerr asking her to solicit a written offer for that amount from another interested company, Aftondale Ltd. It made such an offer, subject to planning permission and satisfaction as to ground conditions, on 20 January 2004. At a meeting with Mr Hopkins, an employee of the respondent, on 16 January 2004 the reclaimer was made aware of Mrs Kerr's position. On around 19 January 2004 John Hume, the reclaimer's chairman and chief-executive, instructed its sales and marketing director, Derick Reid, to write to Mr Hopkins offering to increase the price it would pay to £610,000 and suggesting that the respondent "take the hit" for the £20,000 shortfall between that figure and £630,000. Mr Reid gave evidence that he telephoned Mr Hopkins that day, but that the proposal was refused. Mr Hopkins could not recall that conversation, but gave evidence that the respondent would not have accepted an offer which resulted in their receiving as profit less than 25% of the difference between the Open Market Value and the option price.

[8] On 2 March 2004 Mr Hume spoke with Mr Hopkins on the telephone. Mr Hume could not recall the conversation in detail. However, he was referred to a file note, dated 3 March 2004, of a meeting between representatives of the respondent, its in-house solicitor, Chris King, and Anne Fergusson of Burness, who drafted the note. He inferred from that note that during the conversation on 2 March he had offered to increase the price which the reclaimer would pay to £630,000. Mr Hopkins did not recall that offer, but gave evidence that he would not have acted on it without a formal written amendment of the price in the missives. Also on 2 March 2004 Mr Dale wrote to Mr Hopkins seeking agreement of a "purchase price", by which, parties agreed, he actually meant an Open Market Value, of £606,000. Again on 2 March, following their telephone conversation, Mr Hume wrote to Mr Hopkins. The letter, drafted by Mr Reid, referred to Mrs Kerr's request for access. While making clear that the preferred choice was a more restricted right of access, the letter stated:

"We would be willing to keep our purchase price for the land at the same value, i.e. £565,000 even with the loss of two units, reducing the overall development from 35 units to 33."

The "rogue" figure of £565,000 was described by Mr Hume and Mr Reid as a typographical error.

[9] Only Mr Hopkins gave evidence about the meeting to which the file note of 3 March 2004 related and his recollection was unclear. The note itself recorded that Mr Dale had accepted an Open Market Value of £606,000, with his client receiving 75% of that sum; that the reclaimer was willing to pay up to £630,000 but that the respondent "would just turn the deal at £606k"; that Mr Hopkins had informed the meeting that the reclaimer would accept the access rights demanded by Mrs Kerr; and that he would fax Ms Fergusson the correspondence and plans to allow her to write to Burness to confirm how the deal was to be structured. In the event, there was no evidence that such action was taken. The Lord Ordinary accepted that the file note reflected the respondent's position on that date. However, he noted that there was no evidence that confirmed the "structure of the deal" to be agreed with Burness or that Mr Hume's letter of 2 March 2004 had reached the respondent in time to be considered - he inferred from the terms of the file note that it had not.

[10] Nor was there evidence that, at the beginning of March, the reclaimer was aware of the respondent's proposal to take £630,000 from it, while paying only 75% of £606,000 to Mrs Kerr. Mr Hume's position was that he had not agreed to such a deal at that time. However, the Lord Ordinary found that, in principle, a deal on those terms was agreed at a meeting on 24 March 2004 between Mr Hume, Mr Reid and Mr Hopkins. The reclaimer agreed to pay the respondent £606,000 by 30 April 2004, with a further £25,000 being paid in May 2004 as a "finder's fee". That allowed the missives to be amended to show a price of £606,000, preventing disclosure to Mrs Kerr of the further payment were she to seek sight of them. Mr Hume and Mr Reid's evidence, accepted by the Lord Ordinary, was that they understood the respondent to have already agreed the price of £606,000 with Mrs Kerr and that a deal had been struck which could then be formalised. Mr Hopkins accepted that such a proposal may have been made, but stated that he was not authorised to accept it and would have to place it before the respondent's board of directors. This assertion of lack of authority was not accepted by the Lord Ordinary.

[11] Meanwhile, on 17 March 2004, Mr Dale had received an offer of £675,000 on behalf of Home Park Builders Limited to purchase the land. He forwarded this offer to Mr Hopkins on 24 March 2004, indicating that it was made without deductions. In a letter of 26 March 2004, Ms Fergusson intimated on behalf of the respondent that this offer was irrelevant to the determination of the Open Market Value on the valuation date of 12 December 2003. On 30 March 2004 MacRoberts wrote to Ms Fergusson intimating that several of the suspensive conditions in the missives had been purified. On the same day, on behalf of the respondent, Ms Fergusson sent a fax to Mr Dale referring to his letter of 2 March 2004 and seeking confirmation that Mrs Kerr accepted the Open Market Value of £606,000. However, following further correspondence between the parties over some months, the respondent was unable to agree a price with Mrs Kerr. In a letter of 26 May 2004, MacRoberts informed Burness that the respondents had resiled from the purchase agreement, having failed to complete the purchase of the subjects within the long stop period.

[12] In June 2004 the respondent appointed an expert to fix the Open Market Value of the purchase subjects on the valuation date. The expert fixed that value at £701,000. In March 2005 Mrs Kerr sold the purchase subjects to the respondent for 75% of the expert's valuation (£525,750). The subjects were subsequently sold to a third party for £875,000 plus VAT.

Submissions on behalf of the reclaimer

[13] The reclaimer's first five grounds of appeal focussed on the significance of the file note of 3 March 2004 and the fax of 30 March 2004. Mr Clark submitted that, as the Lord Ordinary had misconstrued the meaning and bearing of both documents, and their relation to the other evidence led, his decision on the facts could be reviewed (Dunn v Dunn's Trustees 1930 SC 131, per Lord President Clyde at page 146).

[14] The first ground was that he erred in failing to hold that, in light of the file note, a price based on an Open Market Value of £606,000 was wholly acceptable to the respondent as at 3 March 2004 and that it failed in its obligation to take all reasonable endeavours to agree that price with Mrs Kerr. She would have accepted that valuation from 2 to 17 March 2004, when she received the higher Home Park offer. The inference that the delay was caused by the reclaimer's changing position as regards the price was not supported by the evidence (cf Lord Ordinary at para [68]). The only explanation from the respondent was that provided by Mr Hopkins, namely the absence of formally amended missives in that amount. As that explanation did not fit with the other evidence, it fell to be rejected.

[15] The second ground was that the inference that Mr Hume's letter of 2 March 2004 had not reached the respondent in time to be considered before the meeting on 3 March 2004 was unsupported by the evidence (cf Lord Ordinary at para [24]). The minutes and letter both referred to the reclaimer being willing to pay up to £630,000 for the land and to accommodate Mrs Kerr's access demands. If the letter had been received it undermined any suggested confusion as to the figure of £565,000. Mr Clark however accepted that the information in the note could have come from the telephone conversation of 2 March 2004 between Mr Hume and Mr Hopkins.

[16] The third ground was that, having recognised that the fax of 30 March demonstrated the respondent's willingness to agree an increased price absent formal amendment of the missives (at para [69]), the Lord Ordinary ought to have held that it undermined the sole reason provided for the delay in not agreeing a price at the beginning of March. The inference that the respondent might have changed its position due to the assurance provided by the deal agreed on 24 March 2004 contradicted Mr Hopkins' evidence that formally concluded missives were still required at that stage. His position was that the fax was an attempt to clarify whether the figure of £606,000, quoted by Mr Dale in his letter of 2 March, referred to the Open Market Value or the purchase price. This was related to the fourth ground, namely that the Lord Ordinary erred in failing to reject Mr Hopkins' evidence on the need for formally amended missives. That was also contradicted by the file note. There was a "straight choice" to be made between Mr Hopkins' evidence and the veracity of those contemporaneous documents. No judge, acting reasonably, could have accepted Mr Hopkins' explanation.

[17] The fifth ground was that, due to the existence of unpurified suspensive conditions, the Lord Ordinary erred in failing to hold that an increased oral offer would have given the defender no more certainty than a formal offer. While in the month available to the respondent between agreeing a price with Mrs Kerr and exercising the option it could have sought purification of those conditions, it could also have sought a formal written offer (cf Lord Ordinary at para [64]).

[18] The final ground of appeal focussed on the construction of clause 4.1.10. Mr Clark submitted that the obligation to use "all reasonable endeavours" included a duty to disclose to the reclaimer the Open Market Value which Mrs Kerr was willing to agree and to advise it of the need, if there was a need, for an increased formal offer which would match or exceed that value. This construction did not differ materially from that suggested by the Lord Ordinary, namely, that the respondent was obliged to accept a formal offer from the reclaimer in a sum which was acceptable to them (at para 75); on one view it was less onerous. Mr Clark accepted, however, that if the purchase contract had to be viewed only in the context of the offer of £571,314 matters were at an end when that figure was rejected by Mrs Kerr.

[19] Mr Clark moved that the reclaiming motion be allowed.

Submissions on behalf of the respondent

Reclaiming motion

[20] Mr Borland submitted that clause 4.1.10 could not bear the construction advanced by the reclaimer. It only concerned dealings between the respondent and Mrs Kerr. The end towards which the "reasonable endeavours" were to be directed was a price "wholly acceptable" to the respondent, a purely subjective criterion. The clause had to be read in the context of the contract of which it formed part, which agreed a price of £571,314. It did not contemplate that a party would be bound to initiate a process whereby that figure might be altered. The reclaimer's construction was not supported by authority. Even if enforceable, an obligation to use "reasonable endeavours" did not require a party to sacrifice its own self-interest. Moreover, there was no basis in the pleadings for the construction contended for by the reclaimer. The issue had not been characterised in that way before the Lord Ordinary. It ought not to be open to the reclaimer to argue the point on appeal.

[21] Addressing the first ground of appeal, Mr Borland submitted that the Lord Ordinary's analysis (at para [68]), considered in the context of the evidence led, was both reasonable and rational. It could not be said that no judge, acting reasonably, could have reached the same decision. The suggestion that whether a price was "wholly acceptable" to the respondent depended, in part, on the "comfort" which it received from the reclaimer was unobjectionable. It was legitimate to rely on the fact that the reclaimer at no stage made any offer in writing, whether formal or informal, which increased the sum to be paid under the missives, and to conclude that the only written communication, offering £565,000, might, as the Lord Ordinary put it, have "muddied the waters". That was supported by Mr Hopkins' evidence that the reclaimer's position was "unclear". Moreover, his evidence that the underlying premise of the deal discussed in the file note of 3 March 2004 was a formal offer of £630,000 from the reclaimer, which was never received, provided an explanation as to why it was not followed up.

[22] As regards the second and third ground of appeal, it was submitted that the inferences to be drawn were pre-eminently a matter for the Lord Ordinary, who had heard the evidence. This court should be hesitant about disturbing any conclusions which he had reached (Caledonia North Sea Ltd v London Bridge Engineering Ltd 2000 SLT 1123, per Lord President (Rodger) at pages 1165-1166). It could not be said that those inferences were ones which no judge, acting reasonably, could have drawn. There was no direct evidence that the letter of 2 March had reached the respondent before the meeting on 3 March 2004. The file note made no mention of it, or a figure of £565,000. In context, the fax of 30 March 2004 merely sought confirmation of whether Mrs Kerr still accepted an Open Market Value of £606,000. It was not a de plano acceptance of the figure of £606,000 quoted by Mr Dale in the letter of 2 March 2004. That interpretation was consistent with its initial description by the Lord Ordinary (at para [28]) and, if correct, not inconsistent with Mr Hopkins' evidence. However, even if the Lord Ordinary drew the inference that the fax demonstrated an actual, as opposed to "apparent", willingness to agree the valuation without amended missives (cf para [69]), his reasoning was still sound standing the material changes in circumstances from those which had prevailed at 3 March 2004 on which he relied. It was not a "straight choice" between the evidence of Mr Hopkins and the documentary evidence. The Lord Ordinary was entitled to draw his own conclusions.

[23] The reliability of Mr Hopkins, the subject of ground 4, was pre-eminently a matter for the Lord Ordinary who had the benefit of hearing his evidence. Again, this court should be very slow to disturb his assessment. He had recognised that Mr Hopkins' recollection of events was at times poor, but had formed the view that he was doing his best to recall events and accepted as accurate his general position regarding the need for greater certainty that the reclaimer would at least match any increased price agreed with Mrs Kerr. Again, on the evidence, it could not properly be said that that decision was one which no judge, acting reasonably, could have reached.

[24] Finally, the fifth ground of appeal should also be rejected. It was commonsense that a formal written offer would provide more comfort than an oral offer. Mr Hopkins had given evidence as regards his past experience of oral offers not translating into formal written offers. Similarly, Mr Reid and Mr Hume acknowledged the importance, in any property sale, of what was put in writing relative to the price. Again, Mr Hopkins's fears were justified given that the only other written offer received was in the sum of £565,000.

Cross-appeal

[25] The respondent's cross-appeal was based on two arguments: (i) that [the parenthetical requirement in] clause 4.1.10 was an agreement to agree and incapable of giving rise to enforceable legal obligations; and (ii) that in any event it was too vague and uncertain to be given contractual force. Mr Borland presented three main propositions. Firstly, an undertaking to use "all reasonable endeavours" to agree something was no different from an agreement to agree, both being equally uncertain and incapable of giving rise to an enforceable obligation (Little v Courage (1994) 70 P&CR 469, per Millett LJ at page 476; London and Regional Investments Ltd v TBI plc [2002] EWCA Civ 355, per Mummery LJ at para 39; Multiplex Construction (UK) Ltd v Cleveland Bridge UK Ltd 107 Con LR 1, per Jackson J at paras [633]-[637]). Secondly, the rationale for that approach consisted in three elements: (i) the difficulty of courts "policing" such an obligation (Phillips Petroleum Company UK Ltd v Enron Europe Ltd [1997] CLC 329, per Potter LJ at page 343; The Scottish Coal Company Ltd v Danish Forestry Company Ltd [2009] CSOH 171, per Lord Glennie at paras [60]-[61] at first instance); (ii) the frequent absence of an objective criterion against which to judge the issue (Phillips Petroleum Company UK Ltd v Enron Europe Ltd, per Potter LJ at pages 343-344; P & O Property v Norwich Union (1994) 68 P&CR 261, per Lord Browne-Wilkinson at page 268; Scottish Coal Company Ltd v Danish Forestry Company Ltd, per Lord Glennie at para [61] at first instance); and (iii) the fact that a court could not legitimately make the parties' bargain for them (Scottish Coal Company Ltd v Danish Forestry Company Ltd (2010) CSIH 56, per Lord President Hamilton in the Opinion of the First Division at para [17]). Thirdly, an agreement to do something the extent of which depended upon future negotiations lacked the certainty needed to make it enforceable (East Anglian Electronics Ltd v OIS plc 1996 SLT 808, per Lord President Hope at page 812; Scottish Coal Company Ltd v Danish Forestry Company Ltd, per Lord President Hamilton at para [17]).

[26] It was not merely that the end envisaged in clause 4.1.10, a price "wholly acceptable" to the respondent, was too vague and uncertain to have contractual force (cf Lord Ordinary at para [37]). The requisite steps to obtain that end, and the basis on which they could be judged, were also uncertain. The Lord Ordinary correctly decided that the "wholly acceptable" criterion was whole subjective (at paras [37] and [50]), that it excluded any question of subjective (from the respondent's point of view) or objective reasonableness (at para [47]). Having done so, he ought to have concluded that the clause was unenforceable. It was important that the object of the clause could be determined at the outset, notwithstanding that more facts might become available at a later date: id certum est quod certum reddi potest (May and Butcher Ltd v The King [1934] 2 KB 17, per Viscount Dunedin, at page 21). Chitty on Contracts did not support the Lord Ordinary's reasoning: it suggested that the requirements of certainty would be satisfied only if facts became ascertainable and were ascertained "without the need for further negotiation" (30^th ed. para 2.133; cf Lord Ordinary at para [15]). It was clear that further negotiations were required between the respondent and Mrs Kerr.

[27] The reclaiming motion ought to be refused and the cross-appeal allowed.

Reply by Mr Clark

[28] Mr Clark first dealt with the respondent's submissions regarding the pleadings. It was only after Mr Hopkins' evidence that the lack of formal amendments to the missives emerged as a reason for the delay, that not being put forward in the respondent's written Defences. The reclaimer then made submissions to the Lord Ordinary regarding the respondent's failure to progress matters (see paras [72]-[77]). The submission regarding their obligation of disclosure was a minor development on that theme.

[29] The Lord Ordinary's reasoning that the purchase contract was not an agreement to agree was unimpeachable (paras [35]-[50]). He was correct to distinguish Lord Ackner's comments in Walford v Miles [1992] 2 AC 128 (at page 138). It concerned a contract where both parties had to use reasonable endeavours to agree an end. The court in the present case had only to consider whether the respondent had applied its mind to the objective criteria which it required for a price "wholly acceptable" to it and whether those criteria had been met. In effect, the subjective element provided certainty. Authorities involving complex agreements to negotiate could similarly be distinguished (cf Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand [2002] 2 NZLR 433).

[30] Where a particular fact could be discovered by enquiry ex post facto, any possible uncertainty was removed. It did not matter that parties did not know that fact at the point at which the contract was made (Welsh Development v Export Finance [1992] BCLC 148, per Dillon LJ at page 159). In such circumstances, an obligation to use "best endeavours" could be upheld and a court should be slow to interfere with the intention of the contracting parties (IBM United Kingdom Ltd v Rockware Glass Ltd [1980] FSR 335, per Goff LJ at page 348; Total Gas Marketing Ltd v Arco British Ltd [1998] 2 Ll LR 209, per Lord Slynn of Hadley at page 214 and Lord Hope of Craighead at page 223). That was so even where a clause imposed an obligation to negotiate "in good faith" (Petromec Inc v Petroleo Brasileiro SA [2006] 1 Ll LR 121, per Longmore LJ at paras 120-121; Tramtrack Croydon Ltd v London Bus Services Ltd [2007] EWHC 107 (Comm), per Christopher Clarke J at para 90; Chitty on Contracts (30^th ed), Vol 1 at para 2-138). Finally, there may be greater scope for an agreement to be upheld where it involved an obligation on one party to use reasonable endeavours to agree a contract with another third party (Lambert v HTV Cymru (Wales) Ltd [1998] EMLR 629, per Morritt LJ at page 638).

Reply by Mr Borland

[31] Mr Borland submitted that each of the authorities on agreements to agree on which the reclaimer relied could be distinguished. They involved some form of objective criteria, such as the agreement of a "reasonable price" (Petromec Inc v Petroleo Brasileiro SA; Tramtrack Croydon Ltd v London Bus Services Ltd) or the ascertainment of an end which was definite and ascertainable (IBM United Kingdom Ltd v Rockware Glass Ltd; Total Gas Marketing Ltd v Arcos British Ltd)

Lambert v HTV Cymru (Wales) Ltd proceeded on the premise that no endeavours had been taken at all. The issue of how such endeavours might have been judged did not arise and relevant authorities were not cited (P & O Property Ltd v Norwich Union Life Assurance Society; Phillips Petroleum Company UK Ltd v Enron Europe Ltd).

Discussion
[32] In the Outer House the respondent contended that clause 4.1.10, in so far as relating to the clause in parenthesis, was unenforceable - either because it was in effect an agreement to agree or was otherwise so indefinite as not to be justiciable. The Lord Ordinary rejected that contention. It has been re-argued by way of cross-appeal in the reclaiming motion. On one view that issue might be considered to be logically prior to other matters raised in the Inner House. However, in my judgment, the first issue to be addressed is the meaning (or scope) of clause 4.1.10. It is only when that is ascertained that the question whether the clause, as construed, is enforceable can be answered.

The scope of clause 4.1.10

[33] Clause 4.1.10 entered the missives by way of the respondent's qualified acceptance (dated 24 September 2003) to the reclaimer's offer dated 29 January 2003. It introduced a further suspensive condition to the missives. By using, with respect to agreement with the current proprietor of a purchase price, the provision that any such price should be on terms "wholly acceptable to the Seller" it replicated equivalent suspensive conditions in the offer designed in favour of the Purchaser (see clauses 4.1.1, 4.1.3, 4.1.4, 4.1.5. and 4.1.9). It introduced, however, in parenthesis, "the Seller being required to use all reasonable endeavours in that regard". It is not in dispute that the price in question, being "wholly acceptable to the Seller", postulated a subjective state of mind of that party; no question arises of it being, on an objective basis, a reasonable price. What is framed by way of requirement in the parenthesis is that the Seller use "all reasonable endeavours in that regard". That points, in my view, to the requirement being directed, in the context of the missives of which it formed part, to all reasonable endeavours being used by the respondent to secure with the current proprietor agreement on a price which was wholly (and subjectively) acceptable to the respondent. In the context of missives in which the price as between the respondent and the reclaimer was and remained £571,314 (exclusive of any VAT), the requirement was to use all reasonable endeavours to secure with the proprietor a purchase price by the respondent that was wholly acceptable to it, regard being had to the back-to-back price agreed with the reclaimer. Discharge of that requirement might involve a number of steps. It might, for example, involve engaging meaningfully with the proprietor with a view to agreeing a price; it might also, in my view, involve diligently and effectively concluding with the proprietor a bargain at a price which was wholly acceptable to the respondent. What it did not include, in my view, was the taking of steps by the respondent towards securing a higher (amended) price between the respondent and the reclaimer so as to facilitate an agreement between the respondent and the proprietor which, against that amended price, would be wholly acceptable to the respondent. The requirement did not, in my view, entail the respondent alerting the reclaimer to the circumstance that the proprietor had given an indication that she would settle on the basis of an Open Market Value of £606,000 (which was not acceptable to the respondent standing the missives price) so that the reclaimer could offer, formally or informally, an enhanced price which would match or exceed that value. Nor did it involve the respondent taking any of the other steps postulated by Mr Clark - specifically inviting the reclaimer to offer to increase the price which it was prepared to pay or disclosing to the reclaimer, if it was the case, that the respondent was prepared to agree a price with the proprietor based on an Open Market Value of £606,000 but only if the price payable to it by the reclaimer was £630,000, the difference being retained by the respondent and that difference not being disclosed to the proprietor. The taking of such steps might have brokered or facilitated a resolution which was acceptable, at least on the face of matters, to all three parties. But the requirement in parenthesis did not, in my view, so extend.

[34] If that is correct, then on this short ground the reclaiming motion falls to be refused and I so move your Lordships. However, having regard to the careful submissions made to us on other aspects of the case - and of the general importance of the enforceability issue debated - I propose to add some further observations.

Enforceability

[35] The general proposition that an agreement to agree in the future is not a contract is well vouched (Foley v Classique Coaches Ltd [1934] 2 KB 1, per Maugham LJ at page 13). In May & Butcher Ltd v The King (reported only as a note, at page 17, to Foley) Viscount Dunedin said at page 21:

"To be a good contract there must be a concluded bargain, and a concluded contract is one which settles everything that is necessary to be settled and leaves nothing to be settled by agreement between the parties. Of course it may leave something which still has to be determined, but then that determination must be a determination which does not depend upon the agreement between the parties. In the system of law in which I was brought up, that was expressed by one of those brocards of which perhaps we have been too fond, but which often express very neatly what is wanted: 'Certum est quod certum reddi potest'".

The Latin may be rendered as "That is certain which can be made certain".

[36] In Little v Courage Ltd Millett LJ said at page 476:

"... an undertaking to use one's best endeavours to agree, however, is no different from an undertaking to agree, to try to agree, or to negotiate with a view to reaching agreement; all are equally uncertain and incapable of giving rise to an enforceable legal obligation."

That observation was made immediately after the statement:

"An undertaking to use one's best endeavours to obtain planning permission or an export licence is sufficiently certain and is capable of being enforced:"

The observation was made in a context of a submission that, in the bilateral contract between the parties, there should be implied a term "that [the respondent] would use its best endeavours to reach agreement with [the appellant] on a new Business Agreement and Business Plan" (or, alternatively, "that [the respondent] would take all reasonable steps to reach agreement with [the appellant] on a further Business Agreement and Business Plan"). The court declined to imply either of the suggested terms. In rejecting it Millett LJ referred to certain observations of Goff LJ in IBM United Kingdom v Rockware Glass Ltd at page 348 where he said:

"In Bower v Bantam Investments Ltd [[1972] 1 WLR 1120] I was not in any way suggesting that an obligation to use best endeavours is uncertain and cannot be enforced. The difficulty over uncertainty in Bower's case was that the object which the best endeavours were to be used to achieve ['promote' in original] was left wholly indefinite."

In Bower the duties of the defendants under the relevant contract at most required them "to use their best endeavours to procure if practicable the development of the property for the purposes of a marina with associated recreational facilities". Goff J, as he then was, asked himself rhetorically (at page 1126F) "... could anything be less specific or more uncertain?" He accordingly refused the interim injunction sought.

[37] Accordingly whether a provision to use best endeavours is or is not sufficiently definite to be enforceable turns, on this approach, on the object of the endeavour. It may, as with the obtaining of a specific planning permission or a particular export licence, involve persuading an authority or other third party to adopt a particular position. The same is true, in my view, of a provision to use all reasonable endeavours.

[38] In Walford v Miles the House of Lords held unanimously that a suggested implied term "requiring the vendors to continue to negotiate in good faith with the purchaser for as long as the vendors continued to desire to sell" was too uncertain to be enforced. The uncertainty lay in the fact that the alleged duty was "inherently inconsistent with the position of a negotiating party" who must normally be free to advance his own interests during the negotiations (see Chitty on Contracts (30^th ed.) para 2-136). Lord Ackner said (at page 138):

"The reason why an agreement to negotiate, like an agreement to agree, is unenforceable, is simply because it lacks the necessary certainty. ... This uncertainty is demonstrated in the instant case by the provision which it is said has to be implied in the agreement for the determination of the negotiations. How can a court be expected to decide whether, subjectively, a proper reason existed for the termination of negotiations?"

Although Lord Ackner emphasised the word "subjectively", that was in the context of the court having to adjudicate on whether a negotiating party had a "proper reason" to terminate negotiations. The circumstance that some other subjective state of mind might have to be addressed by the court was not considered. Lord Ackner in the same passage observed that the necessary uncertainty "does not apply to an agreement to use best endeavours".

[39] In the present case the object of the endeavours is not, in my view, uncertain. It is an agreement (presumably legally binding) between the respondent and a third party (the current proprietor) on a purchase price for the subjects "in terms wholly acceptable to [the respondent]". It may be difficult to prove, as at any particular point of time, what terms are (or were) wholly acceptable to the respondent; but, if that subjective state of mind can be proved, then the object of the reasonable endeavours is clear. It is to secure an agreement on such terms with the proprietor. That is not an aspirational provision which parties adopt "to make clear a future co-operative intention without providing for an enforceable legal obligation which in negotiations one or other may have refused to agree" (cf Phillips Petroleum Co UK Ltd v Enron Europe Ltd, per Potter LJ at page 342). Nor is it a purported obligation to procure co-operation with a view to negotiation of terms yet to be agreed (cf East Anglian Electronics Ltd v OIS plc). Rather it is, in my view, an obligatory provision which requires one party in certain defined circumstances to take certain definite steps in relation to a third party. The circumstance that the obligation is in relation to dealings with a third party rather than between the parties themselves may not be immaterial (see Lambert v HTV Cymru (Wales) Ltd [1998], per Morritt LJ at pages 637-8). While the purchase price wholly acceptable to the respondent may not have been known at the time when the missives were entered into, if it was ascertainable at the material time that, in my view, is sufficient (Welsh Development Agency v Export Finance Ltd, per Dillon LJ at page 159).

[40] For these reasons I would agree with the Lord Ordinary that the provision in parenthesis in clause 4.1.10 is sufficiently certain to be enforceable.

The factual issue

[41] There remains for consideration whether the reclaimer has proved that, as at about 2 March 2004, a purchase price from Mrs Kerr based on an Open Market Value of £606,000 was in the circumstances "wholly acceptable to [the respondent]". That is essentially a matter of fact which the Lord Ordinary answered in favour of the respondent. At para [71] of his Opinion he said:

"I am not satisfied that R & D have established that Mrs Kerr's apparent willingness on 2 March 2004 to accept a market value of £606,000 and Hallam's decision at the meeting of 3 March 2004 meant that there was then a price 'wholly acceptable' to Hallam without their having received from R & D the comfort of a formal offer to increase the price which they had offered."

Although the figure may have been acceptable as such, its acceptability in context depended, the Lord Ordinary held, on whether there was in place a formal offer from the reclaimer to purchase from the respondent at an appropriately enhanced price. No such offer was in place. The Lord Ordinary's assessment of this issue turned substantially on his assessment of Mr Hopkins as a witness. He was not entirely satisfied with that witness's evidence. He noted (para [65]):

"If Hallam's position was that they required a formal amendment of the price in the missives, it is surprising that there was no evidence that anyone from Hallam ever encouraged R & D to submit such an amendment."

But he continued:

"Nevertheless, I formed the view that Mr Hopkins was doing his best to recall events and I see no basis for refusing to accept as accurate the broad tenor of his evidence that Hallam was not prepared to settle the price with Mrs Kerr until they had greater certainty than they received that R & D would at least match that price."

[42] Mr Clark accepted that, in order to succeed on this aspect of the case, he would require to satisfy us that no Lord Ordinary acting reasonably could have accepted Mr Hopkins' evidence to that effect. I am not so satisfied. The Lord Ordinary took into account the terms of the file note of 3 March 2004 (recording matters discussed in relation to this building site, as well as to other sites, at a meeting on that day attended by Mr Hopkins, by the respondent's in-house solicitor and by the respondent's Scottish solicitor) and a fax dated 30 March 2004 from the respondent's Scottish solicitors to the solicitor for the proprietor, Mrs Kerr (in which the addressee is asked to confirm that the proprietor has accepted the Open Market Value of £606,000). The inference which the Lord Ordinary was asked by the reclaimer to draw from these documents was that, as at about 3 March, the respondent was in fact "wholly satisfied" with a purchase price from the proprietor based on an Open Market Value of £606,000. The critical issue, as the Lord Ordinary saw it, was not whether such a price at that time was in principle acceptable to the respondent but whether it was "wholly satisfied" with that price. That issue took into account, the Lord Ordinary held, not only the figure but whether there was in place a sufficiently secure back-to-back agreement with the reclaimer for the resale of the subjects to it at a price which would provide to the respondent an acceptable margin of profit. The Lord Ordinary accepted the broad tenor of Mr Hopkins' evidence that the respondent was not prepared to settle with Mrs Kerr until they had "greater certainty". The "greater certainty" desiderated was in effect a legally enforceable bargain that at least a matching resale price would be paid. I am not persuaded that the Lord Ordinary was precluded from holding on the evidence that Mr Hopkins (the respondent's representative in this matter) genuinely regarded the proposal, in the absence of such certainty, as not wholly acceptable. The Lord Ordinary was in the best position to assess the reliability of Mr Hopkins' evidence against the contemporary documentation which bore upon that evidence. While I would not myself have adopted all the reasoning of the Lord Ordinary - I doubt whether, on the evidence, the reclaimer's letter of 2 March 2004 in fact "muddied the waters" as the Lord Ordinary postulated at para [68] - that reasoning is, in my view, essentially sound. In these circumstances the reclaimer's challenge to the Lord Ordinary's factual conclusion must fail.

Disposal

[43] However, for the reasons given in para [33] above, the reclaiming motion, in my opinion, fails and I move your Lordships to refuse it.

FIRST DIVISION, INNER HOUSE, COURT OF SESSION
Lord President Lord Reed Lord Drummond Young	[2010] CSIH 96 CA63/08 OPINION OF LORD REED in Reclaiming Motion by R & D CONSTRUCTION GROUP LIMITED Pursuer and Reclaimer; against HALLAM LAND MANAGEMENT LTD Defender and Respondent: _______

Act: Clark, Q.C.; Maclay Murray & Spens LLP

Alt: Borland; Harper MacLeod LLP

10 December 2010

Introduction

[44] The reclaiming motion in the present case proceeds on the basis that the Lord Ordinary was correct in considering that condition 4.1.10 of the missives imposed upon the respondent an enforceable obligation. On that basis, the contention advanced in the reclaiming motion is that the respondent is in breach of that obligation. I agree with your Lordship that that contention must be rejected, for the reasons given by your Lordship. There is however a logically anterior question which is raised by the cross-appeal: namely, whether the Lord Ordinary's view that condition 4.1.10 imposed upon the respondent an enforceable obligation is correct. In relation to that question, I have again come to the same conclusion as your Lordship, and agree that the cross-appeal should be refused. In view of the interest and importance of the question raised in the cross-appeal, I add some observations of my own.

The background

[45] The respondent is a property company. As part of its business it negotiates option agreements with the owners of land which may be suitable for development, and back-to-back agreements with developers. It derives its profits from the difference between the price which it pays to the landowner and the price which it receives from the developer. The reclaimer is a developer.

[46] In 1979 the respondent entered into an option agreement with Mrs Barbara Kerr, who was the owner of the subjects in question. Put shortly, the agreement provided that the respondent could purchase the subjects for a price calculated as 75 per cent of their open market value. If the price could not be agreed, provision was made for it to be fixed by expert determination. In 2002 or early 2003 the respondent made the reclaimer aware of the subjects and their development potential. On 29 January 2003 the reclaimer's solicitors sent to the respondent a formal offer to purchase the subjects. The offer contained a number of suspensive conditions, as they were described, upon the fulfilment of which the missives were said to be "essentially conditional" (condition 4.1). These included the reclaimer's obtaining detailed planning permission for a specified development (condition 4.1.1), roads construction consent (condition 4.1.3), all other necessary consents, including building warrants and any consents required under the title deeds (condition 4.1.4), a site survey, a ground conditions report and an environmental assessment (condition 4.1.5), all in terms wholly acceptable to itself. On 25 February 2003 the respondent's solicitors sent a draft qualified acceptance, with an accompanying letter which informed the reclaimer that the respondent had an option to purchase the subjects, and that the missives therefore had to be conditional on its acquiring them.

[47] On 24 September 2003 the respondent's solicitors sent the reclaimer's solicitors a qualified acceptance of the offer. The qualified acceptance contained a number of conditions relating to the respondent's purchase of the site from the current owner, including additional suspensive conditions, numbered 4.1.10 and 4.1.11, to which I shall return. On 1 October 2003 the reclaimer's solicitors sent the respondent's solicitors a formal acceptance, and the missives were concluded.

The missives

[48] The terms of the concluded missives, so far as material to the present issue, were as follows. In terms of condition 2.1 of the letter dated 29 January 2003, the purchase price was agreed at £571,314. Condition 4, as amended by the letter dated 24 September 2003, provided:

"4. Suspensive Conditions

4.1 The Missives shall be essentially conditional upon:-

4.1.1 the Purchaser obtaining detailed planning permission for the Purchaser's Development, such planning permission to be in terms wholly acceptable to the Purchaser;

...

4.1.3 the Purchaser obtaining roads construction consent for the Purchaser's Development, such consent to be in terms wholly acceptable to the Purchaser;

4.1.4 the Purchaser obtaining all other necessary statutory consents, including without prejudice to the foregoing generality building warrants, and any consents required under the titles for the Purchaser's Development, such consents to be in terms wholly acceptable to the Purchaser;

4.1.5 the Purchaser obtaining a site survey, ground conditions report and environmental assessment of the Subjects, such survey, report and assessment to be in terms wholly acceptable to the Purchaser;

4.1.6 the Purchaser being satisfied as to the availability and capacity of public utility services for the Purchaser's Development;

4.1.7 the Purchaser being satisfied that there is no requirement for the relocation of conducting media;

...

4.1.9 the Purchaser obtaining a report from the Purchaser's solicitors on the title deeds of the Subjects, such report to be in terms wholly acceptable to the Purchaser;

4.1.10 the Seller agreeing a purchase price for the Subjects with the current proprietor in terms wholly acceptable to the Seller (the Seller being required to use all reasonable endeavours in this regard);

4.1.11 the Seller completing the transaction to purchase the Subjects from the current proprietor."

The expressions "the Purchaser" and "the Seller" referred to the reclaimer and the respondent respectively. Other conditions laid down time limits for the fulfilment of the suspensive conditions, and permitted one party or the other to resile in the event that a relevant time limit expired without the condition in question being fulfilled. In particular, qualification 7.2 in the qualified acceptance of 24 September 2003 allowed the purchaser 14 days from the date when missives were concluded to satisfy itself in relation to condition 4.1.5. Qualification 9(i) allowed the seller a period of 4 months, from the date when condition 4.1.5 was purified or waived, to agree a purchase price with the current proprietor in terms of condition 4.1.10. Failing such agreement within that period (or any agreed extension), the purchaser was entitled to resile from the missives. Qualification 10 allowed the seller a period of 7 months, from the date when condition 4.1.5 was purified or waived, to complete the purchase, failing which it was entitled to resile from the missives. The implication of these provisions is that both parties intended to be bound by the missives, including condition 4.1.10, unless a relevant time limit were to expire without the condition in question being fulfilled.

[49] Finally, in relation to the missives, it is relevant to note that Qualification 12 concerned certain provisions of the option agreement, which was specified as "the Agreement between Mrs Barbara Kerr and the Seller dated 12^th and 30^th November 1999". Condition 4.1.10 must also have been drafted with the option agreement in contemplation: the reasonable endeavours referred to could only be such endeavours as were reasonable in the context, inter alia, of the terms of the option agreement. In those circumstances, although it was not established in evidence that the reclaimer was aware of the terms of the option agreement prior to the conclusion of the missives, it appears to me that the agreement forms part of the background circumstances relevant to the interpretation of the missives (cf. the requirement, in the second of the principles stated by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at pp 912-913, that information should have been "reasonably available to the parties").

The issue

[50] The issue raised by the cross-appeal is whether, in the foregoing circumstances, the provision in condition 4.1.10 that the seller was "required to use all reasonable endeavours in this regard", that is to say in regard to "agreeing a purchase price for the Subjects with the current proprietor in terms wholly acceptable to the Seller", imposed a legally enforceable obligation.

[60] Before the Lord Ordinary, and before this court, the respondent's submission that no enforceable obligation was imposed was based upon two related concepts: that an agreement may be unenforceable because it is incomplete, and that it may be unenforceable because it is expressed in such vague or uncertain language that it cannot be given any definite meaning. In relation to the first of these concepts, the respondent's contention was that condition 4.1.10, in so far as it required the seller to use all reasonable endeavours to agree a purchase price for the subjects with the current proprietor, was merely an agreement to agree or to negotiate, and as such was unenforceable. In relation to the second concept, the respondent's contention was that condition 4.1.10, in so far as it required the seller to use "all reasonable endeavours" to agree a price, and also in so far as it required the price to be "wholly acceptable" to the seller, was too uncertain to be enforceable.

Discussion

[61] In my opinion, there is no question in the present case of the agreement being incomplete: the parties have reached a concluded bargain. Although their agreement is subject to a condition which requires a separate agreement to be concluded between one of the parties and a third party, that does not place in question the fact that they have reached a concluded agreement inter se. In those circumstances, authorities concerned with situations where parties have not reached a concluded bargain, but have merely agreed to agree or to negotiate with each other, are in my opinion not directly in point. I prefer to reserve my opinion as to the treatment of such situations until a case arises in which the point requires to be decided.

[62] The parties' agreement is however conditional: indeed, it is subject to several suspensive conditions, which reflect the circumstances in which the agreement was reached: circumstances in which there was uncertainty in relation to a number of contingencies of commercial importance. In particular, it made no commercial sense for the reclaimer to purchase the subjects at the contractual price unless it was in a position to proceed with the development which it had in mind, but there was uncertainty as to whether the necessary permissions and consents would be obtained: hence conditions 4.1.1, 4.1.3 to 4.1.7 and 4.1.9. The respondent could not sell the subjects unless it had first purchased them from the current proprietor, but it made no sense for it to purchase them unless it could do so at a commercially attractive price, and there was uncertainty as to whether that would be possible: hence conditions 4.1.10 and 4.1.11. Conditions of this nature are a familiar aspect of commercial property transactions, and reflect the back-to-back structure which is a typical feature of such transactions, the frequent need for authorisations of various kinds to be obtained from third parties, and the uncertainties inherent in the circumstances in which such transactions are often concluded. In consequence, a contract between A and B will commonly be conditional upon the conclusion of a further contract between B and C, and it may in addition be conditional upon the obtaining of planning permission from D, a licence from E, landlord's consent from F, and so on and so forth.

[63] Several of the suspensive conditions in the missives made the operation of the contract depend upon the subject-matter of the condition being in terms wholly acceptable to the relevant party: conditions 4.1.1, 4.1.3 to 4.1.5, 4.1.9 and 4.1.10 are all in that form. Conditions which depend upon the satisfaction or approval of one of the parties have long been an aspect of commercial life, and there is no doubt that they are legally effective, notwithstanding that they may confer upon one of the parties a wide discretion. A familiar example is a sale of goods on approval (cf. Sale of Goods Act 1979, section 18, rule 4). Other examples include the purchase of a house, or other subjects, subject to a survey or inspection which is to the satisfaction of the purchaser, or a contract of employment which is conditional upon satisfactory references. In the context of commercial property transactions, a requirement that a suspensive condition must be fulfilled to the satisfaction of the party in whose interest the condition has been inserted is equally familiar, and serves an obvious commercial purpose. Such conditions do not present any particular difficulty to the law of contract. In particular, a condition such as condition 4.1.1, which requires that planning permission be obtained "in terms wholly acceptable to the Purchaser", has a definite meaning, and is legally effective. A condition such as condition 4.1.10, which requires that a price be agreed with the current proprietor "in terms wholly acceptable to the Seller", has an equally definite meaning, and cannot be regarded as too vague or uncertain to be given effect (cf. Miller Homes Ltd v Frame 2001 SLT 459). There may of course be a question as to whether the effect of such conditions is to confer upon the party in question an unfettered discretion, or whether he must act reasonably, or at least in good faith. That question depends on the construction of the particular condition in its context. The fact that a question of construction may arise does not mean that the condition in question is too vague to be given any legal effect. Even if the condition in question is construed as conferring a wide discretion, it does not follow that a court cannot determine whether the condition has been fulfilled or not. The court may, for example, be able to infer the party's satisfaction or non-satisfaction from its statements (cf. Graham v Pitkin [1992] 1 WLR 403 at p 406) or from its conduct (cf. Sale of Goods Act 1979, section 18, rule 4(b)).

[64] Where an agreement is conditional upon the occurrence of an event or the obtaining of some permission or consent, it is common for a party to be placed under an obligation to make reasonable efforts to bring about the event or to obtain the permission or consent, as the case may be. Such obligations may be expressed, in a variety of forms, or they may be implied. Obligations of this kind are of a different order from the parties' principal obligations under the contract, since the latter do not come into effect unless and until any suspensive conditions to which the contract is subject have been fulfilled. If a party breaches a subsidiary obligation of this kind, he will be liable in damages, and may in some circumstances be precluded from claiming that the condition has not been fulfilled (Mackay v Dick & Stevenson (1881) 8 R (HL) 37; Little v Courage Ltd (1994) 70 P & CR 469).

[65] In the present case, the final clause in condition 4.1.10, which requires the seller to use all reasonable endeavours in regard to agreeing a purchase price for the subjects with the current proprietor, has a clear commercial rationale: it was presumably designed to provide the purchaser with some protection against the risk that its expenditure on obtaining planning permission, and the necessary surveys and reports, might be wasted unless the seller agreed a price with the current proprietor. At the same time, the clause did not impinge upon the seller's right to decline to reach an agreement with the current proprietor if it could not do so at a price which was wholly acceptable to it. Condition 4.1.10 thus sought to reconcile the commercial requirements of both parties. The clause is couched in the language of legal obligation: it does not bear to be merely a statement of intention, but states that the seller is "required" to use all reasonable endeavours. In the circumstances, it appears to me that the parties must have intended this clause, as much as the remainder of condition 4.1.10, to be legally effective.

[66] An obligation to use reasonable endeavours (or all reasonable endeavours) is generally enforceable, provided that the object of the endeavours is sufficiently definite (IBM United Kingdom Ltd v Rockware Glass Ltd [1980] FSR 335; cf. Queensland Electricity Generating Board v New Hope Collieries Pty Ltd [1989] 1 Lloyd's Rep 205; P & O Property Holdings Ltd v Norwich Union Life Assurance Society (1994) 68 P & CR 261.) That is because, granted a definite objective, it is possible for a court to determine whether the endeavours, if any, made by a party to achieve that objective were reasonable in the circumstances (or, in an "all reasonable endeavours" case, whether the party made all the endeavours to achieve the objective which were reasonable in the circumstances). In the present case, the object of the endeavours is that the seller should agree a purchase price for the subjects with the current proprietor in terms wholly acceptable to the seller. For the reasons I have explained, that object is not lacking in certainty but has a definite meaning. It follows that an obligation to use all reasonable endeavours in that regard also has a sufficiently definite meaning to be enforceable. To the extent that the acceptability of the price to be agreed is a matter for the subjective assessment of the seller, such an obligation will impose a correspondingly limited constraint upon the seller's conduct, and it may be difficult in practice for the purchaser to establish any breach of the obligation, unless the breach is of a relatively flagrant character (such as a total failure to attempt to reach agreement). The fact that an obligation is of a limited character, and that it may be difficult in practice to establish that it has been breached, does not however mean that no obligation was ever imposed. Furthermore, in the present case the circumstances in which reasonable endeavours had to be made included the terms of the option agreement, under which the price was to be 75 per cent of the open market value, fixed if need be by expert determination. The relevant circumstances also included the purchase price of £571,214 agreed with the reclaimer, and the respondent's commercial requirement to derive a profit from the difference between that price and any price agreed with Mrs Kerr. In that situation, the obligation imposed upon the respondent by condition 4.1.10 was not only sufficiently certain to be legally enforceable as a matter of principle, but had a context in which it was of practical significance.

[67] In short, in terms of condition 4.1.10 the parties entered into an arrangement which was designed to meet the commercial requirements of their particular circumstances. They clearly intended their agreement to be legally effective. For the reasons I have explained, there is in my opinion no compelling reason why the court should frustrate that intention. As Lord Guthrie observed in R & J Dempster Ltd v Motherwell Bridge and Engineering Co Ltd 1964 SC 308 at p 332:

"The object of our law of contract is to facilitate the transactions of commercial men, and not to create obstacles in the way of solving practical problems arising out of the circumstances confronting them, or to expose them to unnecessary pitfalls. I know of no rule of law which prevents men from entering into special agreements to meet the requirements of special circumstances."

FIRST DIVISION, INNER HOUSE, COURT OF SESSION
Lord President Lord Reed Lord Drummond Young	[2010] CSIH 96 CA63/08 OPINION OF LORD DRUMMOND YOUNG in Reclaiming Motion by R & D CONSTRUCTION GROUP LIMITED Pursuer and Reclaimer; against HALLAM LAND MANAGEMENT LTD Defender and Respondent: _______

Act: Clark, Q.C.; Maclay Murray & Spens LLP

Alt: Borland; Harper MacLeod LLP

10 December 2010

[68] As your Lordship in the chair has indicated, three issues were argued in this reclaiming motion: the scope of clause 4.1.10 in the particular circumstances that have arisen between the parties; the general question of the enforceability of that clause, and the factual question as to whether the reclaimer has proved that in early March 2004 a purchase price from Mrs Kerr based on an Open Market Value of £606,000 was "wholly acceptable" to the respondent. On the first of these issues, I am in agreement with your Lordship. Clause 4.1.10 requires the respondent to use all reasonable endeavours in agreeing a purchase price with the current proprietor, Mrs Kerr. In my opinion two features of this provision are of critical importance. First, the clause is directed towards agreement of a price payable by the respondent to Mrs Kerr under a contract of sale between those two parties. It is not directed towards the renegotiation of the price payable by the reclaimer to the respondent under the back-to-back contract between those parties. The reclaimer's complaint, however, is that the respondent failed to renegotiate the price payable by the reclaimer and thus failed to use "all reasonable endeavours" to achieve a price that was wholly acceptable. That simply does not fall within the scope of the clause. Secondly, clause 4.1.10 forms part of the missives between the respondent and the reclaimer. Those missives are accordingly the basic contractual framework in which the clause occurs. In my opinion it is clear that the clause contemplates that those missives will be effective according to their terms. It does not contemplate their renegotiation; had that been intended a much more specific provision would in my opinion be essential. In this connection, it must be borne in mind that the price payable under the missives between the reclaimer and the respondent is an essential feature of a contract, and if it is to change the contract must be altered in a fundamental respect.

[69] On the third issue, which is factual in nature, the Lord Ordinary decided that a purchase price payable by Mrs Kerr based on a market value of £606,000 was "wholly acceptable" to the respondent without their having received from the reclaimer a formal offer to increase the price which they had offered. I agree that for the reasons stated by your Lordship the reclaimer has failed to establish that the Lord Ordinary's conclusion was wrong. That leaves the second issue, the general question of the enforceability of clause 4.1.10. In view of our decision on the first issue it is not strictly necessary to decide this question. Nevertheless, the second issue raises a point of law of some general significance; it is a matter of great practical importance, and we were referred to a large number of cases that have been decided in this area. I accordingly think it appropriate to express my views on the matter.

[70] Clause 4.1.10, in which the respondent is described as the Seller and Mrs Kerr is described as the current proprietor, is in the following terms:

"The Missives shall be essentially conditional upon:-

...

4.1.10 the Seller agreeing a purchase price for the Subjects with the current proprietor in terms wholly acceptable to the Seller (the Seller being required to use all reasonable endeavours in this regard)".

Three features of the clause are significant. First, it contemplates that the respondent will attempt to agree a price for the subjects with Mrs Kerr. Secondly, the respondent is obliged to use "all reasonable endeavours" to that end. Thirdly, the price agreed with Mrs Kerr is to be in terms that are "wholly acceptable" to the respondent.

[71] The clause is designed to deal with the need for back-to-back contracts, where performance of one contract is dependent upon the conclusion of another contract. The fundamental issue that it raises is that of contractual uncertainty, where parties to a contract require to deal with a situation whose outcome cannot be predicted precisely or with future circumstances that cannot yet be known. This issue may arise in a number of contexts. Back-to-back contracts are one example; in such a case the precise terms on which the second of the contracts may be concluded are not certain. Other examples include long-term distribution contracts and supply contracts, which are intended to continue in force over many years; clearly the commercial circumstances in which they may operate in the future cannot be foreseen with any precision, and thus detailed provisions of the contract may require adjustment over time. Yet another example arises with contracts involving newly-developed technology, where the outcome of the technology is uncertain and thus the precise terms required to regulate the parties' relationship may have to be worked out in future, to a greater or lesser degree. The common feature of all these categories of contract is that the parties are unable to predict the precise terms that will be required to regulate their relationship in future, but they nevertheless want to enter into a contractual relationship that is legally binding to regulate their dealings in the immediate future. Commercial life is frequently uncertain and unpredictable, and in my opinion it is important that the law should enable parties to deal adequately with uncertainty of this nature. No doubt in simpler cases it is possible to do so by the use of conditional obligations, but frequently this will not be possible owing to the complexity of possible developments. In any event it is very common for commercial parties to enter into important relationships without any great systematic analysis, leaving the details of how to deal with future developments for agreement as those developments occur. That means that the law should, when it can, give effect to agreements which leave matters to be agreed in future. This has been recognized repeatedly in earlier cases. Thus in R & J Dempster Ltd v Motherwell Bridge and Engineering Company Ltd, 1964 SC 308, Lord Guthrie, in a well-known passage at page 332, stated:

"The object of our law of contract is to facilitate the transactions of commercial men, and not to create obstacles in the way of solving practical problems arising out of the circumstances confronting them, or to expose them to unnecessary pitfalls. I know of no rule of law which prevents men from entering into special agreements to meet the requirements of special circumstances".

Similarly, in Hillas and Co Ltd v Arcos Ltd, (1932) 147 LT 503, Lord Wright stated (at 514):

"The document [containing the alleged contract] cannot be regarded as other than inartistic, and may appear repellent to the trained sense of an equity draftsman. But it is clear that the parties both intended to make a contract and thought they had done so. Business men often record the most important agreements in crude and summary fashion; modes of expression sufficient and clear to them in the course of their business may appear to those unfamiliar with the business far from complete or precise. It is accordingly the duty of the court to construe such documents clearly and broadly, without being too astute or subtle in finding defects; but, on the contrary, the court should seek to apply the old maxim..., verba ita sunt intelligenda ut res magis valeat quam pereat".

[72] Nevertheless, there must in my opinion be minimum requirements before it is possible for a court to hold that a binding contract has been concluded. The critical minimum is in my view that there should exist a contractual obligation that can be measured against objective criteria. It is only in that way that an obligation can attain the certainty that is necessary for it to exist as an obligation. The fundamental point of an obligation is that the obligant can be forced to do something. If he can choose whether he does anything, the element of compulsion is lacking and it is meaningless to talk of any obligation. "I am obliged to do precisely what I choose to do" cannot amount to an obligation recognized by law. The requirement for an objective content in an obligation in my opinion explains most of the decisions that have been reached as to whether a contract exists, and provides a practical basis for determining whether parties' agreement is sufficiently specific to be enforceable. Thus it is well established that a mere agreement to agree is not enforceable: May & Butcher Ltd v The King, (1929) noted at [1934] 2 KB 17. Entering into an agreement involves choice, both as to whether to agree and as to the terms of any agreement, and that level of choice is incompatible with the existence of any obligation; there is no objective content to what the obligant must do. In this respect there is a distinction between an agreement to agree and an agreement that gives a party choice as to how he fulfils an obligation; in the latter case there is an objective content in what must be done, and only the method of achieving it is left to the party's choice.

[73] The question of whether an obligation can be given objective content goes to whether an obligation can truly be said to exist at all. It is, however, closely related to the enforcement of the obligation. If an obligation has objective content the court can readily enforce it; by contrast, if a party is entitled to do as he chooses, it is difficult to see how effective enforcement is possible. In a number of cases courts have referred to the problems of enforcing or policing an obligation, and I think that this may reasonably be construed as recognition of the fact that objective content is required for an obligation to exist. Thus in Walford v Miles, [1992] 2 AC 128, Lord Ackner referred (at 138) to the difficulty of policing an agreement to negotiate in good faith. Similarly, in Phillips Petroleum Co UK Ltd v Enron Europe Ltd, [1997] CLC 329, Potter LJ stated (at 343):

"[T]he unwillingness of the courts to give binding force to an obligation to use 'reasonable endeavours' to agree seems to me to be sensibly based on the difficulty of policing such an obligation, in the sense of drawing the line between what is to be regarded as reasonable or unreasonable in an area where the parties may legitimately have differing views or interests, but have not provided for any criteria on the basis of which a third party can assess or adjudicate the matter in the event of dispute".

That formulation points to the importance of criteria on the basis of which a third party can adjudicate, and that is what is meant by objective criteria or objective content.

[74] Where only limited elements in a contract have not been agreed, various means exist whereby the parties' obligations can be given objective content. Thus where a price is not agreed, it will normally be possible to infer that a reasonable price, or the market price, should be paid. Likewise, if nothing is said about the quality of goods to be supplied, it will normally be possible to infer that the goods should be of reasonable quality. In this way the parties' obligations can be given objective content in relation to the essential terms of price and quality. In Foley v Classique Coaches Ltd, [1934] 2 KB 1, parties agreed in the course of a more extensive contract that one of them should purchase from another all the petrol required in its business. Nothing was said about price or quality. It was nevertheless held that there should be implied in the contract a term that the petrol should be supplied at a reasonable price and should be of reasonable quality. A similar approach, based on an implication of reasonableness, can be followed in relation to such elements as the kind and size of goods and the times and methods of delivery: Hillas and Co Ltd v Arcos Ltd, supra. In other cases it may be possible to infer that parties intended that the terms of their agreement should be based on standard terms that are in use in their area of business; or it may be inferred that they contemplated that, for example, distribution arrangements should be based on a specified agreement already concluded between other parties. Another possibility is that it may be inferred that the parties intended to contract on the basis of their past dealings. Finally, if the contract contains provisions for arbitration or valuation or other determination by a third party, that can readily be used to give objective content to the parties' obligations. An example of this is found in The Queensland Electricity Generating Board v New Hope Collieries Pty Ltd, [1989] 1 Lloyd's Rep 205, where it was held that an arbitration clause was sufficiently broadly drafted to enable the total rewriting of the price formula in a long-term contract for the supply of coal; the agreement laid down the guidelines as to how a fair and reasonable price structure was to be achieved, and the arbitrator could be guided by the manner in which the system had worked in earlier years. The common feature of all of these cases is that the parties have reached, objectively speaking, a decision to contract and agreement as to the broad objectives of that contract. What must be supplied is further detail (although that may include essentials such as the price), and enough is known about the parties' position for that detail to be determined objectively.

[75] In some cases, of course, it may simply not be possible to give objective content to a supposed obligation, and in that event the obligation will be unenforceable. An example of this is found in Scammell and Nephew Ltd v Ouston, [1941] AC 251, where a reference to "hire-purchase terms" was held to be too vague to have any content; the law was not capable of defining the normal and reasonable terms of a hire-purchase agreement (Lord Wright at 268 and 273). A further recent example is Scottish Coal Co Ltd v Danish Forestry Co Ltd, [2010] CSIH 56. In that case a contract granted an option for the purchase of land and provided for the extraction of coal from the land. It contained a clause to the effect that the grantee of the option, Scottish Coal, should provide in favour of the granter, Danish Forestry, a standard security for obligations that might become due under the agreement. It was further provided that Danish Forestry should enter into an agreement with Scottish Coal or the latter's bankers

"reasonably to regulate the relationship between the sums which will be recoverable under the Standard Security and the terms under which these sums will rank ahead of any other sums due by [Scottish Coal] to their bankers".

It was held that the clause relating to the ranking agreement was invalid and unenforceable. The Lord President, after noting that the clause clearly envisaged that a fresh consensus would be necessary, stated (at paragraph [17]):

"The word 'reasonable' (and perhaps also the word 'reasonably'), albeit itself imprecise, may in some circumstances require to be given a concrete meaning by a court of law... but these will, at least ordinarily, arise in the context of there being a market or other context against which a reasonable price or a fair or reasonable rental can be determined. The present case is different. There is, so far as appears, no market or settled practice for ranking agreements. While some of the terms of such agreements may be conventional, others will depend crucially on what the relevant parties, having regard to their respective - possibly conflicting - interests, are able mutually to agree.... How is the court, without more definite contractual guidance, to determine what is in these respects reasonable?"

Thus it was recognized that an obligation to enter into an agreement on "reasonable" terms was sufficiently certain to be enforced provided that there existed objective criteria against which reasonableness could be measured. The problem in that case was that there is no standard practice for the provisions of ranking agreements, which can obviously be very diverse in nature. The result would no doubt have been different if there had been such a standard practice. Likewise, if there had been a previous ranking agreement as between the parties, it might have been possible to infer that the new agreement should be on similar terms, making due allowance for changes in matters such as the amount secured. Nevertheless, the decision seems a clear recognition of the requirement that a contractual obligation should have some objective content.

[76] Two categories of case call for particular comment. First, contracts frequently provide that a party will use "reasonable endeavours" or "best endeavours" to achieve a result; in the present case, clause 4.1.10 requires the respondent to use "all reasonable endeavours" to agree a purchase price with Mrs Kerr. In my opinion such provisions should generally be given a generous construction, provided that there is an objective content to the result that is to be sought. As mentioned above, in cases involving dealings over a long tract of future time, or the conclusion of a back-to-back-contract, or the application of new technology, it cannot be known for certain whether a particular result can be achieved. In such cases, it frequently happens that the best that parties can agree is that one of them will use reasonable endeavours to achieve a result. Provided that the result has objective content, an obligation to use reasonable endeavours to achieve it also has objective content. It can be established, using evidence if necessary, whether all that can reasonably be done has been done, or whether there are other steps that a reasonable party would have taken to try to achieve the desired result. In Walford v Miles, [1992] 2 AC 128, Lord Ackner distinguished an agreement to negotiate from an agreement to use best endeavours; he stated (at 138):

"The reason why an agreement to negotiate, like an agreement to agree, is unenforceable, is simply because it lacks the necessary certainty. The same does not apply to an agreement to use best endeavours. This uncertainty is demonstrated in the instant case by the provision which it is said has to be implied in the agreement for the determination of the negotiations. How can a court be expected to decide whether, subjectively, a proper reason existed for the termination of negotiations?"

In Lambert v HTV Cymru (Wales) Ltd, [1998] EMLR 629, a contract providing for the assignment of copyright provided that the purchaser of the copyright should use "all reasonable endeavours" to obtain certain rights from any person to whom it assigned the copyright. It was held that the provision was valid and enforceable. Morritt LJ stated (at 638):

"In this case, where the obligation is to use all reasonable endeavours, it is clear and sufficiently certain what it is that the contracting party is to do. The aim at which the contracting party is to direct those efforts is likewise sufficiently certain, and nonetheless so because there is a range of possible goals at which those efforts are to be directed. As in the example of the sale of the van on hire-purchase terms [in Scammell v Ouston], there may have been a hundred alternative forms of contract upon which A and C might subsequently agree, but that is no reason to excuse B from using all reasonable endeavours to procure a contract between A and C on any of them".

In both of the foregoing cases it was accepted that an obligation to use reasonable endeavours to achieve a result is enforceable provided that that result is reasonably certain; that, it seems to me, involves the proposition that the result should have some objective content.

[77] A further case dealing with a reasonable endeavours provision is Little v Courage Ltd, (1994) 70 P & CR 469. In that case Millett LJ stated (at 476):

"An undertaking to use one's best endeavours to obtain planning permission for an export licence is sufficiently certain and is capable of being in force: an undertaking to use one's best endeavours to agree, however, is no different from an undertaking to agree, to try to agree, or to negotiate with a view to reaching agreement; all are equally uncertain and incapable of giving rise to an enforceable legal obligation".

In my view that is expressed too strongly. It is clearly the case that an agreement to use best endeavours to obtain planning permission or a licence is sufficiently certain, because the underlying result to be achieved has objective content. In the case of an obligation to use reasonable endeavours to conclude an agreement with a third party, however, the underlying result may also have objective content, provided that what it is hoped will be achieved is sufficiently certain. It may not be possible to achieve that result, but the result is known and it is possible to judge whether reasonable endeavours have been used to obtain it. Another helpful discussion of the scope of a reasonable endeavours clause is found in Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd, [2002] 2 NZLR 433. In that case, parties entered into heads of agreement relating to the acquisition of shares in a gas field and the long-term supply of gas. The heads of agreement provided that the parties should use all reasonable endeavours to complete a full agreement, but no such agreement was reached and it was alleged that there was a breach of the reasonable endeavours provision. The Court of Appeal of New Zealand held that there was no binding agreement. Richardson P stated (at paragraph [115]):

"Where the objective and the steps needing to be taken to attain it are able to be prescribed by the Court, a best endeavours or reasonable endeavours obligation will be enforceable. That may be possible in relation to some contractual negotiations of relative simplicity and predictability... But a negotiation of complex contractual terms is such a variable matter, both in process and in result, and so dependent on the individual positions which each party may reasonably take from time to time during the bargaining, that it is impossible for a Court to define for them what they ought to have done in order to reach agreement. The Court neither knows the result nor is able to say how each offer should have been made, nor whether it should have been accepted".

The fundamental point made here is that, where many things in a contract require to be decided, it is unlikely that a reasonable endeavours provision will be valid and enforceable; in such a case the level of discretion open to the parties is so wide that no certainty, or objective content, can be accorded to the obligation.

[78] Secondly, I should note the tract of authority dealing with agreements to negotiate, in some cases with the addition of a requirement of good faith. In general, agreements to negotiate are equiparated with agreements to agree, and are treated in the same way. With an agreement to negotiate, however, the emphasis is usually on the parties' need to reach agreement in future on one or more aspects of the relationship that cannot yet be known with certainty. The case that is generally treated as the leading authority in this area is Walford v Miles, supra, where parties who wished to sell a business agreed to deal exclusively with a prospective purchaser and to terminate any negotiations then current with any competing purchaser. It was argued that there was an implied term that the prospective sellers would continue to negotiate in good faith with the prospective purchaser so long as they wished to sell the business. This was construed by both the Court of Appeal and the House of Lords as an agreement to negotiate of indefinite duration, and was accordingly invalid because it lacked the necessary certainty. Lord Ackner stated (at [1992] 2 AC 138):

"How is the court to police such an 'agreement?' A duty to negotiate in good faith is as unworkable in practice as it is inherently inconsistent with the position of a negotiating party. It is here that the uncertainty lies. In my judgment, while negotiations are in existence either party is entitled to withdraw from those negotiations, at any time and for any reason. There can be thus no obligation to continue to negotiate until there is a 'proper reason' to withdraw. Accordingly a bare agreement to negotiate has no legal content".

It should be noted that the case dealt with a very stark agreement to negotiate the sale of a business, with no parameters to indicate the manner in which such negotiations might proceed and no provision for termination. Thus the agreement to negotiate was wholly lacking in any objective criteria. That may be different in a case where negotiation provisions are found dealing with only part of a complex contract, or a case where the the parties have to cater for matters whose outcome cannot yet be known. Walford has been expressly followed in a number of subsequent decisions; these include Little v Courage Ltd, supra, and East Anglian Electronics Ltd v OIS PLC, 1996 SLT 808. In the latter case a back letter granted pursuant to the sale of a business provided that the sellers undertook to take various measures with a view to the negotiation of assignations of premises to the purchasers. The purchasers argued that that amounted to an obligation to procure an assignation of the premises. That argument was rejected. The Lord President pointed out (at pages 811-812) that the clause referred to the negotiation of assignations or subleases; the question of whether there was to be an assignation or sublease, and on what terms, was left open for negotiation. That was sufficient to hold that the provision in question could not amount to an obligation enforceable by specific implement. In Walford it had been held that an agreement to negotiate was unenforceable because it lacked the necessary certainty, and in the same manner an agreement to do something, the precise extent of which depended upon negotiations which had yet to take place, lacked the certainty which is needed to make it enforceable. Once again, that appears to recognize the need for objective criteria for a binding obligation to exist. Nevertheless, it might be said that in East Anglian Electronics the objective that was to be reached, the presumably successful negotiation of an assignation or a sublease, was reasonably clear. No doubt a choice existed between two methods, an assignation or a sublease, but if either of these was acceptable to the landlord the natural inference might be that the sellers could choose which method to use. As for the terms, it might once again have been implied that the terms on which the assignee or subtenant was to hold the property should be as similar as possible to those on which the sellers themselves already held it.

[79] In other cases, Walford v Miles has been distinguished. Petromec Inc v Petroleo Brasileiro SA, [2006] 1 Lloyd's Rep 121, concerned a contract for the sale, upgrading and chartering of an oil production platform. It became necessary to use the platform in a different oilfield, which required a higher standard of upgrading. The parties concluded an agreement about the necessary changes, which contained a clause that parties would "negotiate in good faith" the extra costs and extra time required for the higher standard of upgrading. The Court of Appeal held that the negotiations that in fact took place between the parties concerned the global settlement of their disputes, and accordingly did not fall within the terms of the clause in question. Nevertheless, Longmore LJ expressed views on the clause (at paragraphs 120-121). It had been argued that the clause was wholly unenforceable on the authority of Walford. Longmore LJ, however, indicated that that case was distinguishable. It was a case where there was no concluded agreement at all since everything was "subject to contract", and there was no express agreement to negotiate in good faith. In Petromec, on the other hand, the clause under consideration was not a bare agreement to negotiate. It was an express obligation forming part of a complex agreement drafted by solicitors, and the parties had entered into it deliberately and expressly. It could not be said that such an agreement to negotiate was without legal substance. In Tramtrack Croydon Ltd v London Bus Services Ltd, [2007] EWHC 107 (Comm), Christopher Clarke J discussed Walford at paragraphs 86-90. He required to construe a clause that required the parties to agree in good faith and acting reasonably certain financial arrangements to compensate one of them for the introduction of a system of transport passes. In the event of failure to agree, the matter was to be referred to expert determination. Christopher Clarke J. held that such a clause was enforceable. In the event of a dispute, the court was able to determine what the parties or the expert, acting reasonably, were bound to take into account or ignore. He continued (at paragraph 90):

"Reasonableness is a criterion on which the Court (and the expert) can make a judgment; and, if the parties cannot agree whether it would be unreasonable to take into account, or to exclude, a particular consideration, the Court may determine the question".

[80] The views expressed by Lord Ackner in Walford, at least if they are given a broad interpretation, have not been followed in other jurisdictions. In Walford the decision of the United States Third Circuit Court of Appeals in Channel Home Centers, Division of Grace Retail Corporation v Grossman, 795 F 2d 291 (1986) was not followed. In some American jurisdictions agreements to negotiate in good faith are enforced, and the Australian courts have expressed willingness to proceed in the same way: see Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd, (1991) 24 NSWLR 1, per Kirby P at 21-27. In my opinion one particular feature of Lord Ackner's speech calls for comment. In the critical passage (at [1992] 2 AC 138) it is stated that the concept of a duty to carry on negotiations in good faith is inherently repugnant to the adversarial position of parties involved in negotiations. That is no doubt true in the sense that each party hopes to obtain the best arrangement that he can out of the negotiations. Nevertheless, the notion of an adversarial position should not in my opinion to be taken too far. Parties enter into contracts for their mutual benefit, not with a view to taking advantage of one another. Consequently, in any contractual negotiation there will almost inevitably be a large area of common interest where parties are agreed on the objectives that they wish to attain. To the extent that there is disagreement, that will very often centre on the price, but as mentioned above price is a contractual term that can often be settled by reference to reasonable or market prices or through valuation or arbitration provisions. For this reason I do not think that, confronted with an agreement to negotiate, a court should automatically assume that it is likely to be lacking in objective content and hence invalid. Instead, the court should examine the parties' relationship in detail and look for the common ground, isolating the precise area or areas where further agreement is still needed and the extent of the parties' differences on those areas. If such an approach is taken, in many cases it will be possible to give objective content to the agreement to negotiate, using the familiar techniques discussed above.

[81] In the present case, I have reached the view that there is sufficient objective content in clause 4.1.10 for it to create a valid and enforceable obligation. The basic obligation is to use reasonable endeavours to agree a purchase price with Mrs Kerr. Had the clause stopped there, it would in my opinion have been plainly enforceable. The respondent had already concluded an option agreement with Mrs Kerr, and the price payable under that agreement was, for practical purposes, 75% of the Open Market Value of the land; the latter expression was defined at some length in a manner that was unexceptional in relation to the sale of development land. If the parties could not agree the amount of the price payable under the option agreement, provision was made for expert determination. In these circumstances the open market value of the land and hence the purchase price could readily be ascertained, if necessary by an expert. Thus reasonable endeavours to agree a purchase price for the land would require that the respondent should attempt to agree the market value and hence purchase price with Mrs Kerr, and if that failed should refer the matter to expert determination. In that way clause 4.1.10 could be given objective content, and accordingly in my opinion it would be enforceable by a court.

[82] The difficulty arises with the provisions that the price agreed should be "in terms wholly acceptable to [the respondent]". For the reclaimer it was submitted that the criterion of a "wholly acceptable" price is entirely subjective. On that basis, it was said, it was impossible to imply any objective standard, such as a reasonable or fair price, and the clause must be unenforceable. I can see some attraction in this argument. Nevertheless, I consider that the precise circumstances of the present case provide criteria against which the respondent's actings pursuant to clause 4.1.10 can be assessed on an objective basis. In the first place, the economic structure of the overall transaction provides one clear criterion against which the respondent's conduct can be judged. The respondent's intention was to purchase land from Mrs Kerr and sell it to the reclaimer, obviously at a profit. The option agreement that had already been concluded between the respondent and Mrs Kerr fixed the purchase price payable by the respondent at 75% of the open market value, and provided for expert determination if no agreement could be reached. The price agreed in the missives between the respondent and the reclaimer was £571,314. Thus, if the open market value agreed between the respondent and Mrs Kerr or determined by an expert was £571,314 or less, the respondent would obtain a gross profit of at least 25% of that sum, or £142,828.50. It is notorious that the market value of land can, in some circumstances, fluctuate significantly, and there was some indication of that in the evidence led in the present case. Nevertheless, it is reasonable to suppose that the sum of £571,314 agreed between the reclaimer and the respondent was based on an assessment of the market value of the land. On that basis, it can be inferred that the respondent hoped that the price agreed or determined for the purposes of the option agreement with Mrs Kerr should be £571,314 or less, and that if it was less the resulting profit was to be regarded as acceptable, and indeed "wholly acceptable".

[83] In the second place, the enforceability of clause 4.1.10 would arise where the respondent failed to conclude an agreement with Mrs Kerr and alleged that it had used its best endeavours but had been unable to obtain a price that it found wholly acceptable. In that situation, where there is a failure to agree a price, I am of opinion that the respondent would require to indicate why the price was not wholly acceptable. Its reasons could be scrutinized, and if they were held to be irrational or whimsical or lacking a basis in fact they could be rejected as valid reasons under the clause. The result would be a breach of the clause. I realize that this involves treating the expression "wholly acceptable" in a robust fashion. Nevertheless, that is in my view necessary if the clause is to be treated as creating a valid obligation. The clause was inserted in the parties' missives deliberately, clearly on legal advice, and its purpose was clear: to ensure that the respondent used reasonable endeavours to obtain the land from Mrs Kerr with a view to selling it on to the reclaimer. It is in accordance with the modern approach to the construction of contracts to disregard niceties of wording if that appears to frustrate the parties' clear commercial purposes, and this is merely an example of that approach. I should add that while it might in practice be difficult to prove a breach of the clause, I do not think that that is relevant; what matters is that the clause should have sufficient objective content to create an obligation. In my opinion it has such content.

[84] I should add one further observation. The foregoing analysis of clause 4.1.10 proceeds on the basis that the details of the respondent's option agreement with Mrs Kerr were part of the contractual matrix of the agreement between the respondent and the reclaimer. There was no evidence, however, that those details were known to the reclaimer. In my opinion this is irrelevant. The reclaimer clearly knew that an agreement existed between the respondent and Mrs Kerr; that was the fundamental background to clause 4.1.10. That is enough in my view to treat the whole of that agreement, including its detailed provisions, as part of the contractual matrix. If those details became relevant to the parties' relationship, I consider that the reclaimer would clearly be entitled to ask the respondent about them. In any event, if the option agreement between the respondent and Mrs Kerr is treated in any way as part of the contractual background, it would be wholly artificial to exclude its detailed provisions merely because the reclaimer had not troubled to ask about them when it concluded missives with the respondent.

[85] For the foregoing reasons I agree that clause 4.1.10, and in particular the provision requiring the respondent to use reasonable endeavours to agree a purchase price with Mrs Kerr, is enforceable. Nevertheless, for the reasons stated by your Lordship in the chair, I agree that the reclaiming motion must be refused.