Best Endeavours, Reasonable Endeavours and all Reasonable Endeavours

Introduction

Commercial agreements often contain “endeavours” clauses, through which a party’s obligations are qualified, therefore making its commitment less than absolute.  These clauses generally require a party to use its “best endeavours”, “reasonable endeavours” or “all reasonable endeavours” to comply with its obligations.  Yet despite the common usage of these expressions, their exact meaning is not clear, and it has frequently been left to the courts to interpret them.  This has led to the development of a large body of case law, some of which we have explored in previous editions of Focus.

The latest authority (Astor Management AG v Atalaya Mining Plc [2017] EWHC 425) provided some useful guidance, particularly in respect of the meaning of “all reasonable endeavours”, whilst another recent case (Jet2.com v Blackpool Airport Ltd [2012] EWCA Civ 417) revisited the meaning of “best endeavours” and considered the underlying principles of contractual interpretation which should be applied to all provisions in commercial contracts, including “endeavours” clauses.

Construction

The court provided a helpful reminder in Jet2.com that all “endeavours” expressions are subject to the ordinary rules of contractual construction, meaning that “the meaning of the expression[s] remains a question of construction not of extrapolation from other cases…the expression[s] will not always mean the same thing”.  Nevertheless, the courts are mindful that, when including the expressions “best endeavours”, “reasonable endeavours” and “all reasonable endeavours” in commercial agreements, the parties and their advisors are relying upon certain widely held views as to their prima facie meaning, and this should not be ignored.  Agreeing exactly what that prima facie meaning is can, however, be more challenging.

Best endeavours

Historically, the courts have recognised “best endeavours” as the most onerous of the “endeavours” expressions, requiring the obligor to take all the steps that are in its power which are capable of producing the desired results, being the steps that a prudent, determined and reasonable obligor would take when acting in its own interests and desiring to achieve that result (IBM United Kingdom Limited v Rockware Glass [1980] FSR 335).  The obligor may even be required to sacrifice its own commercial interests, and sustain substantial losses, although the extent to which it is required to do so will depend upon the circumstances.

In Jet2.com, the Court of Appeal supported this view.  Having considered whether, when under an obligation to use “best endeavours”, to promote Jet2.com’s low-cost airline, Blackpool Airport had to continue to accept flights outside its normal opening hours, the court concluded that it must, even if it suffered a loss each time it did so.  In the court’s view, these out-of-hours flights were essential to Jet2.com’s business, and were therefore fundamental to the agreement.

The sacrifices and losses required are, however, not without limit, and the decision of the court in Terrell v Mabie Todd & Co Ltd, that a “best endeavours” obligation stops short of completely disregarding the obligor’s own commercial interests, continues to be widely accepted.

Reasonable endeavours

An obligation to use “reasonable endeavours” is generally agreed to be less onerous, and only requires an obligor to take one reasonable course of action, rather than all possible courses of action (Rhodia International Holdings Ltd v Huntsman International LLC [2007] EWHC 292).  An obligor is also permitted to balance its contractual obligations against all relevant commercial considerations, meaning that expenditure is not usually required unless the underlying contract includes specific steps that must be completed by the obligor to demonstrate its use of “reasonable endeavours”.

Recently, the courts have gone further and stated that, once an obligor can do nothing more in terms of reasonable steps to achieve the required objective, it is no longer obliged to try (Dany Lions v Bristol Cars [2014] EWHC 817).  Nonetheless, a “reasonable endeavours” obligation is not toothless and, provided that it is coupled with a clear objective to avoid any question of uncertainty, it will constitute an enforceable obligation that may not be easy for the obligor to satisfy.

All reasonable endeavours

The phrase “all reasonable endeavours” is perhaps the least common of the “endeavours” expressions, yet the courts have been called upon to interpret its meaning on a number of occasions.  It is generally accepted that “all reasonable endeavours” is a middle position between “best endeavours” and “reasonable endeavours” (UBH (Mechanical Services) Ltd v Standard Life Assurance Company, The Times, 13 November 1986), but which side of that middle line it falls is less clear.  In CPC Group Ltd v Qatari Diar Real Estate Investment Company [2010] EWHC 1535 the court stated that an obligation to use all reasonable endeavours does not always require the obligor to sacrifice its commercial interests however, in that case, the obligation in the underlying contract was to use “all reasonable but commercially prudent endeavours” and the value of this interpretation may therefore be limited.

The recent case of Astor Management does provide some useful guidance on this point.  In that case, the defendants purchased the claimants’ interest in a dormant copper mine. Payment of most of the consideration was deferred until the defendants secured senior debt finance for a sum sufficient for the restart of mining operations, which they were obliged to use “all reasonable endeavours” to obtain.  No senior debt finance was secured, and the question before the court was whether the “all reasonable endeavours” obligation had been breached.  The court held that there had been no breach of the “all reasonable endeavours” clause, since the clause did not require the defendant to obtain a senior debt facility at any cost, or at a cost that would make the project unviable.

Practical steps and drafting

It is clear that a degree of uncertainty remains in respect of the interpretation of the expressions “best endeavours”, “reasonable endeavours” and “all reasonable endeavours”.  Although the prima facie meaning of each can probably be summarised as shown in Figure 1 below, parties would be advised to focus on express requirements when drafting an “endeavours” provision, including the steps an obligor should take (and the costs an obligor should incur, if any) to achieve a desired result, how long an obligation should continue and the consequences of failing to achieve the desired result.

Figure 1:

  Best endeavours Reasonable endeavours All reasonable endeavours
Level of obligation Most onerous. Least onerous. Middle ground, although exact level uncertain.
Steps required to be taken All steps in the obligor’s power which a prudent, determined and reasonable person would take. One reasonable course of action to achieve the objective, not all available reasonable courses. Unclear – somewhere between the steps required for best endeavours and reasonable endeavours.
Expenditure required? Possibly – obligor may be required to sustain substantial losses, but is probably not required to ruin its business. Limited expenditure may be required, but obligor unlikely to be expected to suffer substantial loss.  Commercial interests should be taken into account. Unclear – obligor can have regard to its own financial interests, but obligation probably more onerous than for reasonable endeavours.

 

The above is a guide only and is fact and context sensitive.  The characteristics listed above are only an indication of how they may be interpreted in practice.