1

O'Sullivan & Hilliard's The Law of Contract (Core Texts Series) (2018 8 ed). p. 83

4.29 A similar issue arose in a slightly different way in Shaker v Vistajet Group Holding SA (2012). There, the claimant paid a deposit in respect of the purchase of an aircraft from the defendant under the terms of a letter agreed by the two parties. The letter expressly provided that the claimant agreed to proceed in good faith and to use reasonable endeavours to agree the formal sale contract and associated documents. The formal contract could not be agreed, so the claimant sought repayment of the deposit, but the defendant refused, contending that the claimant had not complied with its [1.] good faith and [2.] reasonable endeavour obligations. Teare J accepted that the intention of the agreement was that the deposit could only be recovered if these obligations had been complied with, but held that the obligations were unenforceable because of the impossibility of ‘polic[ing]’ them, that is, of working out whether they had been breached or not. It distinguished

p. 84

the Petromec decision on the basis that there were objective criteria available in that case to assist the court in determining whether the obligation had been breached. It is respectfully suggested that Teare J may have been too ready to find that the obligations were unenforceable, as this [unenforceability of reasonable endeavour obligations] would have allowed the claimant to recover its deposit even if it had acted in bad faith** (which on the facts it did not). There are many types of conduct that everyone would agree constitute bad faith, so if the conduct fell into this category, there would be no practical impediment to the court policing the obligation.

As the contract had the two obligations that I numbered on p. 43, I don't understand the emboldened sentence.

If the claimant acted in bad faith, then wouldn't it breach [1.]? If it did, then why would the unenforceability of reasonable endeavour obligations "have allowed the claimant to recover its deposit"?

0

If the claimant acted in bad faith, then wouldn't it breach [1.]? If it did, then why would the unenforceability of reasonable endeavour obligations "have allowed the claimant to recover its deposit"?

Yes. Bad faith would constitute breach, but the court in Shaker v. Vistajet Group Holding SA (2012) (paragraph 7) explains that in some contexts

there are no objective criteria by which the court can decide whether a party has acted unreasonably.

In the Shaker case, unenforceability is twofold. One aspect is the ultimate non-sequitur of "keep negotiating and re-negotiating in good faith". First, because "an agreement to negotiate or agree further agreements is unenforceable in law". And second, because "the parties may legitimately have differing views or interests" (Shaker, paragraph 12), thereby making it very hard for a court to ascertain "good faith".

The other aspect of unenforceability pertains to the loan/funds (or written confirmation from a financier) that Shaker would have to obtain in order to complete the purchase. That duty is unenforceable insofar as Shaker cannot coerce the financier (paragraph 17).

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