Specific Performance of Obligation to Use Reasonable Best Efforts to Close de-SPAC Transaction Denied by the Delaware Court of Chancery

Specific Performance of Obligation to Use Reasonable Best Efforts to Close de-SPAC Transaction Denied by the Delaware Court of Chancery

Delaware and Puerto Rico law differ when it comes to the availability of specific performance as a remedy to a breach of contract. Under the former, if an award of monetary damages provides adequate relief for a breach of contract, specific performance is not available.

Under the latter, specific performance is generally available unless the obligation is to perform personal services, or there are special circumstances that impede compelling performance of the obligation.

Obligations to use “reasonable efforts” are not well-suited for a judicial decree compelling specific performance. Delaware courts have noted that a decree of specific performance enforcing a reasonable efforts covenant would not be self-executing, and monitoring compliance with such a provision would be more difficult than a provision that requires a party to take specific action. In fact, the Court of Chancery has held that an order directing a party to comply with a best-efforts provision may result in a decree of such “vague generality as to give little or no specific direction to the person or entity subject to the order or would involve the court in the detailed administration of an ongoing, complex transaction.” Despite these difficulties, Delaware courts have compelled specific performance of reasonable and/or best efforts provisions, including requiring a buyer to secure financing and close a transaction.

Such decrees have been possible where the court could oversee and enforce compliance, such as by appointing a receiver or monitor.

In a recent case, a SPAC sought a decree of specific performance compelling the target—a Philippine corporation that owned a casino in Manila—to use its reasonable best efforts to close a de-SPAC transaction.

The transaction agreement called for specific performance. For purposes of the decision, the court assumed that the target breached its obligation to use its reasonable best efforts to close, that the SPAC was ready, willing, and able to close, and that money damages would not provide an adequate remedy.

Despite those assumptions, the court denied a decree of specific performance. The court did so because:

• the reasonable best efforts obligation would not be self-executing, posing increased difficulty due to the nature of the counterparty — a corporation based in the Philippines with poor corporate governance;
• coercive sanctions could not be deployed effectively in the

Philippines;

• closing the transaction could violate an order issued by the

Philippine Supreme Court;

• the SPAC engaged in inequitable conduct which the court refused to reward with a decree of specific performance.