This is an application for summary judgment on a claim for the return of a deposit of US$3.55m. paid by the Claimant to the Defendant pursuant to the terms of a Letter of Intent (“LOI”) dated 11 August 2010 in respect of a potential transaction concerning the purchase, operation and repurchase of an aircraft.

Although a great many points were canvassed in the parties’ witness statements and skeleton arguments the oral argument on this application was sensibly limited to just three points. Two were points of law relating to the meaning and effect of the LOI. The third was whether the Defendant had raised a triable issue on one limited issue of fact. There was also a counterclaim to be taken into account.

The material terms of the LOI were as follows:

Aircraft Purchase Agreement with Seller

Program Ownership Agreement with VistaJet Luftfahrtunternehmen GmbH

Guarantee Agreement with Guarantor

Repurchase Agreement with VistaJet Ownership Holding SA

this Letter of Intent shall automatically terminate following the Cut-Off Date without penalty or claim by either party and shall be void and of no legal effect; and

the Guarantor shall within five (5) business days following the Cut-Off Date refund the Deposit to the Buyer’s nominated account.

The Cut-Off Date was amended on five occasions. The first amendment was dated 26 August 2010 and, inter alia, acknowledged that the Claimant was seeking financing. It was submitted that on the true construction of the amendment the Claimant undertook to exercise good faith and reasonable endeavours to secure written confirmation from the financing party on or before the Cut-Off Date. This was disputed but I shall assume that that is the true construction of the amendment.

The last amendment was dated 10 December 2010 and provided, inter alia, as follows:

Thereafter there was no further extension to the Cut-Off Date. The Claimant maintains that he is entitled to the return of his deposit. He says that he proceeded in good faith and used reasonable endeavours to agree the Transaction Documents and to seek written confirmation from the financing party. The Defendant says that the Claimant did not proceed in good faith or use reasonable endeavours and submits that the Claimant cannot therefore satisfy the condition on which depends his right to the return of his deposit. In response the Claimant says that the obligation to proceed in good faith and use reasonable endeavours to agree the Transaction Documents and obtain written confirmation from the financing party is unenforceable in law and accordingly the Defendant’s contention is irrelevant. That is the first issue of law. If the Claimant is wrong on that first issue he says that in any event the Defendant is contractually estopped from denying that the Claimant has proceeded in good faith and used his reasonable endeavours by reason of the terms of the fifth amendment to the Cut-Off Date. That is the second issue. The estoppel does not apply to the period after 10 December 2010. In respect of that period the Claimant says that the Defendant has not raised a triable issue that between 10 December 2010 and 17 January 2011 the Claimant failed to proceed in good faith and use his reasonable endeavours. That is the third issue.

There can be no doubt that the Claimant’s agreement to proceed in good faith and to use reasonable endeavours to agree the Transaction Documents and obtain written confirmation from the financing party does not give rise to an enforceable obligation in law. First, the “Non-binding” clause expressly states that the LOI does not constitute a binding agreement to enter into the Transaction Documents. Second, an agreement to negotiate or agree further agreements is unenforceable in law; see Walford v Miles [1992] 2 AC 126. Thus agreements to use reasonable endeavours to agree or to negotiate in good faith are unenforceable; see Multiplex Constructions UK Limited v Cleveland Bridge UK Limited [2006] EWHC 1341 at paragraphs 633-639 and Barbudev v Eurocom Cable Management Bulgaria EOOD [2012] EWCA Civ 548 at paragraphs 43-46. The reason for such unenforceability is that there are no objective criteria by which the court can decide whether a party has acted unreasonably and that a duty to negotiate in good faith is unworkable because it is inherently inconsistent with the position of a negotiating party. Agreements to reach agreement with a third party (such as the financing party in the present case) are also unenforceable for the same reason; see Scottish Coal v Danish Forestry [2009] CSOH 171 at paragraph 62.

The LOI states that the provisions relating to the application, payment and refund of the deposit are intended to be binding on the parties. The provision relating to the refund of the deposit states that the Defendant shall within 5 days following the Cut-Off date refund the deposit “in the event that the Guarantor, Seller and Buyer, despite the exercise of their good faith and reasonable endeavours failed to reach agreement, execute and deliver the Transaction Documents on or before the Cut-Off date”. Mr. Shah QC, counsel for the Defendant, submitted that that clause made the exercise of good faith and reasonable endeavours by the Claimant a condition precedent to the Defendant’s obligation to return the Deposit. Mr. McLaren QC, counsel for the Claimant, submitted that just as the obligation to exercise good faith and reasonable endeavours to agree the Transaction Documents or obtain written confirmation from the financing party is unenforceable so the alleged condition precedent is unenforceable.

I am doubtful that the LOI makes the exercise of good faith and reasonable endeavours by the Claimant a condition precedent to the Defendant’s obligation to return the Deposit. It may simply assume that all parties will have exercised their good faith and reasonable endeavours. However, I shall assume that it does create such a condition precedent.

Upon that assumption the question for determination is whether such a condition precedent is enforceable in law.

In Phillips Petroleum v Enron Europe [1997] CLC 329 Potter LJ explained at paragraph 343 that:

In my judgment the suggested condition precedent is unenforceable in law for the same reasons that an obligation to exercise reasonable endeavours is unenforceable in law. If the court is unable to draw a line between what is to be regarded as reasonable or unreasonable in an area where the parties may legitimately have differing views or interests and so cannot police such an obligation, the court is equally unable to police the suggested condition precedent. Similarly, if an obligation to negotiate in good faith is inherently inconsistent with the position of a negotiating party so is the suggested condition precedent.

Mr. Shah disputed this approach essentially for two reasons. First, unlike a case such as Walford v Miles the present case involved a binding agreement to apply, pay and refund the deposit. Second, the Claimant had, by agreeing the terms upon which the deposit was to be refunded given up the right to act unreasonably or capriciously in the course of negotiating the Transaction Documents.

I was not persuaded by these arguments. It is true that the present case involves a binding agreement. But it seems to me that the court must still address the question whether the suggested condition precedent is a provision which is enforceable in law. For the reasons I have given I do not consider that it is. The suggestion that the Claimant has given up the right to act capriciously could also be made in the context of an obligation to exercise good faith and reasonable endeavours. Yet it is well recognised that such an obligation is unenforceable.

Mr. Shah submitted that the court would be able, having heard all the evidence, to decide whether the Claimant has exercised good faith and reasonable endeavours to agree the Transaction Documents and that even if that would be difficult that was not an excuse for the court to withhold assistance from the parties by declaring a blanket unenforceability. The first part of this submission ignores the circumstance that there are no objective criteria for determining whether a stance taken in the course of negotiations was reasonable or unreasonable. The second part of this submission ignores what Potter LJ said in Phillips Petroleum v Enron Europe, namely:

Mr. Shah emphasised that the Defendant had agreed to refrain from selling the aircraft until the Cut-Off Date. It is true that the LOI contains such an obligation but the existence of such obligation does not enable the court to police the suggested condition precedent in the absence of objective criteria for doing so. The obligation to negotiate in good faith remains inherently inconsistent with the position of a negotiating party.

Mr. Shah submitted that an obligation to negotiate in good faith can be enforceable and in that context relied on Petromec v Petroleo Brasileiro [2006] 1 Lloyd’s Rep. at paragraphs 115-121. However, what had to be negotiated in that case was the cost to Petromec of upgrading a vessel in accordance with an amended specification over and above the cost of upgrading the vessel in accordance with the original specification. There were therefore objective criteria by which the extra costs could be assessed in the absence of agreement. That is a different case from the present. I recognise that Longmore LJ said that it is “a strong thing to declare unenforceable a clause into which the parties have deliberately and expressly entered” but an agreement to negotiate the terms of four further agreements and secure written confirmation from a financier contains no objective criteria by which such agreements or written confirmation could be produced for the parties by the court in the absence of agreement. Where there are no objective criteria the court is unable to enforce the parties’ agreement to agree; see Dhanani v Crasnianski [2011] EWHC 926 (Comm).

I therefore accept Mr. McLaren’s submission that the suggested condition precedent to the return of the deposit is unenforceable in law. The Transaction Documents were not agreed by the Cut-Off Date. It follows that the Defendant is obliged by the LOI to refund the deposit.

If, contrary to my decision, the suggested condition precedent is enforceable in law the next question is whether or not the Defendant is estopped from alleging that the Claimant failed to exercise good faith and reasonable endeavours up until the date of the last amendment to the LOI.

Mr. McLaren submitted that the amendment set out the agreed factual basis upon which the parties had agreed to extend the Cut-Off Date and that both parties were contractually estopped from denying the truth of that agreed factual basis. In support of that proposition he relied upon Raiffeisen Zentralbank Ostereich AG v Royal Bank of Scotland PLC [2011] 1 Lloyd’s Rep. 123. Having reviewed the authorities Christopher Clarke J. held at paragraph 250 that “parties can agree that their dealings shall be conducted on a particular basis of fact (including as to what has or has not occurred) even if the true facts are different and that, if they do, a contractual estoppel will arise.”

Mr. Shah submitted that the amendment did not contain a sufficiently clear and unambiguous statement that the parties had exercised good faith and reasonable endeavours. He accepted that the parties had acknowledged that they would not agree the Transaction Documents or obtain the written confirmation from the financier by the Cut-Off Date but submitted that the reference to the parties having exercised good faith and reasonable endeavours was parenthetical to the acknowledgment and was not the clear purpose of the clause.

In my judgment the parties acknowledged two matters in the amendment to the LOI. First, they acknowledged that the Transaction Documents would not be agreed and that the written confirmation would not be obtained from the financier by the Cut-Off Date and, second, they acknowledged that the parties had exercised good faith and reasonable endeavours. Mr. Shah described the second statement as parenthetical or “throw-away”. I am unable to agree with that analysis. The second statement is part and parcel of that which the parties are acknowledging. It cannot be ignored. Yet the effect of Mr. Shah’s submission is that it must be ignored. The parties made a clear and unambiguous statement that they had exercised good faith and reasonable endeavours to agree the Transaction Documents. It is true that the statement does not say “to agree the Transaction Documents” but in the context of the LOI the statement that the parties had exercised good faith and reasonable endeavours refers back to the obligation in the earlier part of the LOI to agree the Transaction Documents (and to its later, assumed, extension to obtaining written confirmation from the financier).

The next question is whether such statement is the agreed factual basis upon which the parties agreed to extend the Cut-Off Date. I was initially doubtful that this was so in circumstances where the clause in question drew a distinction between that which was acknowledged and that which was agreed and where the statement in question was part of the acknowledgment and not part of the agreement. However, I was persuaded that this approach to the construction of the clause was erroneous, essentially for two reasons.

First, it is clear from the authorities reviewed by Christopher Clarke J. in Raiffeisen Zentralbank Ostereich AG v Royal Bank of Scotland PLC that an “acknowledgment” of a state of affairs can give rise to a contractual estoppel; see Peekay Intermark v Australia and New Zealand Banking Group [2006] 2 Lloyd’s Rep. 511 and JP Morgan Chase Bank v Springwell [2008] Lloyd’s Rep. 63, the material parts of which were quoted by Christopher Clarke J. at paragraphs 239 and 245 of Raiffeisen.

Second, the commercial sense of the amendment is clear. Both parties are agreeing to extend the Cut-Off Date. It is unrealistic to suppose that they would do so unless both parties had, up until the date of the amendment, exercised good faith and reasonable endeavours to agree the Transaction Documents. The statement that they had done so was therefore in a real sense the factual basis upon which they agreed to extend the Cut-Off Date.

I have therefore concluded that the Defendant is estopped from contending that the Claimant failed to exercise good faith and reasonable endeavours before 10 December 2010.

Mr. Shah submitted that there was a triable issue that the Claimant had failed to exercise good faith and reasonable endeavours between 10 December 2010 and 17 January 2011 for two reasons. First, by an email dated 13 December 2010 the Defendant requested the Claimant to let the Defendant know when he had “a few spare moments to go through” the drafts of certain of the Transaction Documents. It was said that there was no response to that request. Second, it was said that the Claimant, having received Indicative Terms from Unicredit Leasing for financing the transaction contemplated between the Claimant and the Defendant, did not engage with those terms.

Shortly after the request made on 13 December 2010 the Claimant met a representative of the Defendant in the Peninsula Hotel in Beverly Hills on 16 December 2010. It is apparent from the Defendant’s emails of that date that what was awaited was a response from Unicredit as to the Claimant’s request for finance. On 11 January 2011 Unicredit provided the Defendant with its Indicative Terms. They were forwarded to the Claimant. On 13 January 2011 the Defendant suggested that the Cut-Off Date be further extended to 15 February 2011 so that the Unicredit Indicative Terms could be considered. The Claimant did not agree to extend the Cut-Off Date.

It is apparent from that undisputed narrative that although a request had been made on 13 December 2010 for the Claimant to consider the Transaction Documents the parties were in fact awaiting the response of Unicredit rather than seeking to agree the terms of the Transaction Documents. I do not consider therefore that the Claimant’s failure to respond evinces any lack of good faith or failure to exercise reasonable endeavours. The suggestion that the Claimant did not engage with Unicredit’s Indicative Terms when he received them on 11 January 2011 seems to me unreal. He had them for a less than a week (four business days) before the Cut-Off Date. Since the Defendant had itself suggested an extension to the Cut-Off Date until 15 February 2011 to consider the Indicative Terms it is plain that more time was required to consider them. The Claimant has pleaded a number of respects in which he found the Indicative Terms unsatisfactory. The Defendant has taken issue with some of these points but even if the Defendant’s comments on those points are correct the taking of those points by the Claimant (assuming that he took them before 17 January 2011) cannot realistically amount to evidence of a lack of good faith or reasonable endeavours.

For those reasons it seems to me that there is no substance in this allegation and that there is an “absence of reality” about it; see Three Rivers District Council v Bank of England (No.3) [2001] 2 AER 153 at p.158 per Lord Hobhouse. I have therefore concluded that the Defendant has not raised a triable issue.

I have concluded that the Defendant has no real prospect of successfully defending the Claimant’s claim for the return of his deposit of US$3.55m.

It was suggested that there was some “other compelling reason” for the matter to go to trial, namely, that the Defendant’s counterclaim in the sum of Euros 202,164.35 for the costs of certain flights provided to the Claimant will be going to trial in any event. It seems more likely than not that counterclaim will be settled but even if it is not I do not regard the trial of the counterclaim as a compelling reason for disposing of the claim at trial. The counterclaim raises different issues from those raised by the claim.

There should therefore be judgment for the Claimant. In view of the counterclaim there should be a stay of execution limited to the amount of the counterclaim.