Parties to commercial contracts often seek to qualify obligations to achieve a particular outcome specified in the contract, rather than accepting an absolute obligation to achieve that outcome. This is particularly the case in construction contracts where achieving the outcome in question is less likely to be entirely within a contractor or sub-contractor's control.
Wishing to essentially water down a contractual obligation to achieve a specific outcome is understandable, given that a failure to achieve that outcome would likely give rise to a claim for breach of contract or, in the worst-case scenario, a right for the other party to the contract to terminate the contract and, in either case, seek the recovery of damages.
A common approach to qualifying a contractual obligation is to limit the performing party's obligation to achieve the outcome to the use of either:
- reasonable endeavours;
- all reasonable endeavours; or
- best endeavours
This is not just a question of semantics and there is often a lack of understanding as to what is required of the party performing the obligation to ensure that it meets the required "endeavours" standard in order to avoid a breach of contract claim.
In recent years, lawyers have adopted the "all reasonable but commercially prudent endeavours" wording to create another step in the staircase of increasingly onerous obligations. This adds further, but arguably necessary, complexity into the mix.
In this article, we aim to demystify the terms and explain how hard a party actually has to try to discharge a contractual obligation!
Reasonable endeavours
When it is agreed that a party will use reasonable endeavours to achieve an outcome, the performing party will have a degree of discretion as to the steps which they take to achieve it. The level of endeavour required does not need to exceed what is reasonable. The test of what is reasonable is an objective one, based on the factual scenario and the context.
The question which needs to be asked is "whether the party required to perform such an obligation has taken the steps which a reasonable person would be expected to take in the circumstances in order to achieve the desired outcome and to fulfil the contractual obligation?" By way of example, in the case ofUBH (Mechanical Services) Ltd v Standard Life Assurance Company, TLR, 13 Nov 1986 (Q.B), reasonable endeavoursinvolved the party balancing "the weight of their contractual obligation" to the other party against "all relevant commercial considerations", including their relations with third parties, its own reputation, and the cost of that course of action.
The party will not be expected to exhaust all avenues, nor incur significant expenses, nor be inconvenienced when trying to achieve the objective, so long as it can be shown they have made some sort of genuine effort. Reasonable endeavours is therefore the least burdensome of the "endeavours" standards generally applied.
All reasonable endeavours
The all reasonable endeavours standard is often used as a compromise position between reasonable endeavours and best endeavours. When a party agrees to use all reasonable endeavours, they are required to take every reasonable step within their power to fulfil the contractual obligation but are not required to take steps which would be commercially unreasonable or financially burdensome. The party required to perform such an obligation will not be expected to go to extraordinary lengths or take actions that would be contrary to their legitimate interests.
Best endeavours
Thebest endeavoursstandard represents the highest level of obligation and commitment. When a party agrees to use best endeavours to fulfil a contractual obligation, they are required to do everything reasonably possible, even if it involves significant expense, inconvenience, or risk. In the case ofIBM United Kingdom v Rockware Glass Ltd [1980] FSR 335the performing party was required to "take all those steps in their power which are capable of producing the desired results".
Whilst accepting a best endeavours obligation falls short of imposing a strict obligation on the performing party to achieve the required outcome, lawyers are often understandably hesitant to agree to this wording due to the potential risk of serious adverse commercial consequences it could have for their clients. As an illustration, in the case ofJet2.com Ltd v Blackpool Airport Ltd [2012] EWCA Civ 417, Blackpool Airport had contracted to use best endeavours to promote Jet2.com's low-cost service. Blackpool Airport's refusal to open outside of its normal operating hours resulted in breach of contract due to the best endeavours wording.
Practical implications
Interpreting the difference between all reasonable endeavours and best endeavours obligations is not straightforward. InRhodia International Holdings Ltd v Huntsman International LLC[2007] EWHC 292 (Comm)it was essentially questioned whether best endeavours added anything further, with the judge observing that "an obligation to use best endeavours probably requires a party to take all the reasonable courses he can. In that context, it may well be that an obligation to use all reasonable endeavours equates with using best endeavours". Therefore, the courts may interpret the obligations under each standard differently based on the specific language used in the contract and the factual context.
The bottom line is that clear and precise drafting is essential to avoid ambiguity and disputes. Hence the use of drafting such as "all reasonable and commercially prudent endeavours" may prove useful and necessary to make clear that, as opposed to a best endeavours obligation, the performing party may consider its own commercial interests even where they may differ from those of the other party, as was the case inCPC Group Ltd v Qatari Diar Real Estate Investment Company [2010]EWHC 1535 (Ch) (25 June 2010).
Conclusion
The terms reasonable endeavours, all reasonable endeavours, and best endeavours carry distinct legal meaning and will be interpreted accordingly. Parties should carefully consider the level of commitment and risk associated with each increasingly onerous level of endeavours obligation when negotiating contracts, and the factual scenario they are seeking to apply it to. Legal advice should be taken to avoid entering into contractual commitments which "over promise" and could lead to unacceptable levels of financial loss.
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.
