The appeal concerned a contract whereby Blue Hills Village Management (Liverpool) Pty Ltd (BHVML) had agreed to sell Allocated Places in its aged care facility to CAGCare Pty Ltd (CAGCare). The contract was subject to a condition precedent that the parties would enter into further, related agreements on terms acceptable to both parties. The contract further provided that the parties were to use "reasonable commercial endeavours" to ensure that this condition would be satisfied as quickly as possible, otherwise either party was entitled to terminate the contract.
The condition was not satisfied by the specified time and CAGCare gave notice terminating the contract. BHMVL subsequently alleged that CAGCare was not entitled to terminate because it had not used "reasonable commercial endeavours" to ensure that the condition was satisfied, since CAGCare had indicated that it would withdraw from the transaction because it was of the view that it was not in its commercial interests to proceed.
In dismissing the appeal, the Court held that "reasonable commercial endeavours" meant only that CAGCare was obliged to take steps reasonably available to put itself in a position where it could enter into the contract. However, this did not extend to an obligation for CAGCare to proceed with the transaction, eg if it was financially unable to do so or if it lacked the support of its related companies.
In other words, the obligations of the parties to take "reasonable commercial endeavours" to enter into an acquisition agreement, did not impose an absolute obligation to enter into such an agreement.
Parties to a contract with a "reasonable commercial endeavours" clause should make it clear whether such endeavours apply only to the parties' entry into the transaction, or extend to the performance of the transaction. Alternatively, the parties should ensure all commercial agreements are entered at the same time, to provide certainty that the entire transaction will proceed.