UK: Endeavours Clauses: If At First You Don’t Succeed... Then What?

Last Updated: 24 July 2012
Article by Tim Foley

The answer to this question really depends on the type of endeavours clause that you have signed up to. Obligations to use "reasonable endeavours", "best endeavours", or "all reasonable endeavours" are littered throughout contracts and require one party to take measures to achieve something.

Although this legal shorthand is intended to dilute an absolute obligation, frequently it serves to introduce uncertainty since it is not always clear what needs to be done and, importantly, when effort can lawfully cease. If you are the one who is subject to the endeavours clause, it can require you to exercise a number of options to achieve an objective, it demands pro-activity, it can require significant expenditure and it can even require you to take legal action against a third party. Furthermore, since the obligation often bites hardest long after the contract has been filed away and the lawyers have gone home, endeavours clauses are fertile grounds for dispute.

A raft of recent case law on the matter has only sought to enforce this state of confusion which may leave you exposed to fulfilling obligations which you were not expecting.

The starting point is what the contract says. The Court construes the contract by reference to the intention of the parties, which is elucidated by the terms of the agreement. Those terms are considered in their commercial context. This impacts on the requirements of an endeavours clause in the same way as any other contract term. Since the facts of each case are different then so can be the lengths that each endeavours clause can require. This accounts for the raft of case law on such apparently well worn legal phrases.

Best/All/Reasonable endeavours

"Best endeavours" is often regarded as being at the most onerous of the endeavours clauses and should not be conceded without considerable thought. It means (helpfully) "not second best" and refers to what a "prudent, determined and reasonable person, acting in its own interests" would be prepared to do. Although it has been thought the case that "best endeavours" clauses are slightly more onerous than "all reasonable endeavours" clauses, recent case law has treated the terms as interchangeable.

How many attempts are required to be made to satisfy the best endeavours clause? The case of Rhodia International Holdings Ltd v Huntsman International LLC [2007] 1 CLC 59 provides the most concise guidance on this point for both best endeavours and all reasonable endeavours. In this case, Flaux J determined that one of the differences between best endeavours and reasonable endeavours is the number of endeavours expected of the obligor:

"This is because there may be a number of reasonable courses which could be taken in a given situation to achieve a particular aim. An obligation to use reasonable endeavours to achieve the aim probably requires a party to take one reasonable course, not all of them, whereas an obligation to use best endeavours probably requires a party to take all the reasonable courses he can..."

In AP Stephen v Scottish Boatowners Mutual Insurance Association (The Talisman) Lord Glennie reached a similar conclusion. He thought that "the party on whom the obligation is placed will be expected to explore all avenues reasonably open to him, and to explore them all to the extent reasonable".

It is clear, therefore, that where the quality of the endeavours required to achieve an objective is greater than reasonable endeavours, multiple efforts (at least) are required. Conversely, where the contract requires reasonable endeavours only then one sensible effort will most likely discharge the obligation.

What about my own commercial interests?

Recently the Court of Appeal has considered the extent to which an obligation to use best endeavours requires a sacrifice of commercial interests. In v Blackpool Airport Limited Jet2 (the low-cost airline) and BAL held a joint obligation to one another to "use their best endeavours to promote's low cost services" and a unilateral obligation upon BAL to "use all reasonable endeavours to provide a cost base that will facilitate's low cost pricing". It was common ground that best endeavours and all reasonable endeavours meant the same thing.

The question was whether, in using endeavours to promote Jet2, BAL was required, unprofitably, to accept flights outside of normal operating hours. BAL did not consider itself bound to do so since that involved committing itself to a loss making activity and it did not accept that its obligation to use all reasonable endeavours went that far. The Court held, by a majority, that in making that judgment it was necessary to consider the nature and terms of the contract. The contract concerned flights by a low-cost carrier. Frequently such airlines need to operate early in the morning and late at night to make money. Consequently the Court accepted that the contract did not allow BAL to refuse flights beyond either end of the day merely because BAL incurred a loss in keeping the airport open for longer. BAL had agreed to undertake all reasonable endeavours to facilitate a low cost base. This meant that, taking into account Jet2's business of low-cost air services, the airport had to stay open beyond usual hours. If that conflicted with the airport's commercial interests then so be it.

However, on different drafting the result is sometimes different. In CPC Group Limited v Qatari Diar Real Estate Investment Company [2010] EWHC 1535, the obligation to use "all reasonable endeavours" to obtain planning permission did not require the obligor to sacrifice his own commercial interests. In this instance, the "all reasonable endeavours clause" was caveated by the expression "but commercially prudent" to indicate the level of endeavour which was expected from the obligor at the time of the contract. The Court found that this was enough for the obligor to take into account its own commercial interests in fulfilling its obligations.

This sounds like a nightmare. Is there an alternative?

Endeavours clauses have their place where it is not clear in advance what needs to be done to achieve an objective or where there is more than one legitimate approach. Their weakness lies, however, in their generalisation. It is not always clear what needs to be done and it can be far from obvious where the boundaries of the contractual landscape lie.

The best way to promote contractual certainty is by specificity. Instead of a clause that requires generalised "endeavours", consider whether it is possible to set out in detail the steps that will need to be taken. If the contract contains such a "shopping list" then the parties will know where they stand. If that is not possible or desirable then an endeavours clause will, given its general terms, cover a multitude of eventualities. In those circumstances it is very important that you: (1) go into it with your eyes open; (2) in taking steps to achieve your objective always keep an eye on whether it could be achieved more easily another way; and (3) keep the lawyers on speed-dial. You may well be making a call if matters do not progress smoothly.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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