Legalese: Endeavours

Introduction

There is a wide spectrum of "endeavours" clauses used in commercial agreements which we have discussed in a previous edition of Focus. These clauses place obligations on the various parties to those agreements to use their "best endeavours", "reasonable endeavours" or "all reasonable endeavours" in certain circumstances. Despite the fact such terms are widely used, there is some uncertainty as to what efforts are required to fulfil the particular obligation. The relevant case law on the subject does identify some key characteristics which are outlined below, with the latest authority (CPC Group Ltd v Qatari Diar Real Estate Investment Company [2010] EWHC 1535) shedding light on the difference between best endeavours and all reasonable endeavours.

Best Endeavours

The term best endeavours "means what the words say; they do not mean second-best endeavours" (Sheffield District Railway Co v Great Central Railway Co [1911] 27 TLR 451). The courts have indicated that although best endeavours is not an absolute obligation, the relevant party must take all reasonable courses of action it can which may sometimes (but not always) require that party to sacrifice its own commercial interests (Rhodia International Holdings Ltd v Huntsman International LLC [2007] EWHC 292).

Best endeavours may therefore require the expenditure of money by an obligor, however the courts have stated that the obligation stops short of completely disregarding the obligor’s own commercial interests and certainly would not require action resulting in "the certain ruin of the Company or … the utter disregard for the interests of shareholders" (Terrell v Mabie Todd and Co. Ltd [1952] 69 RPC 234).

Reasonable Endeavours

The concept of reasonable endeavours only requires the party to take one reasonable course of action, rather than all possible courses of action (Rhodia). The party would not be expected to sacrifice its commercial interests, except perhaps where a particular course of action is specified in the relevant commercial contract (P&O Property Holdings Limited v Norwich Union Life Insurance Society [1993] EGCS 69; Rhodia).

All Reasonable Endeavours

The Courts have stated in obiter that all reasonable endeavours is "probably a middle position somewhere between the two, implying something more than reasonable endeavours but less than best endeavours" (UBH (Mechanical Services) Ltd v Standard Life Assurance Company, The Times, 13 November 1986).

The latest authority to look at this issue is CPC Group Ltd. One of the issues considered was an obligation to use "all reasonable but commercially prudent endeavours" to obtain planning permission in respect of the redevelopment of the Chelsea Barracks site.

In considering this obligation, the High Court stated that the obligation to use all reasonable endeavours does not necessarily equate to a best endeavours obligation and does not always require the obligor to sacrifice its commercial interests. Given the parties had expressly limited the all reasonable endeavours obligation by adding the words "commercially prudent" the position was much clearer in this instance.

Practical Steps

There is a degree of uncertainty as to what an endeavours clause may actually require in any given case. A practical approach is to consider what steps the relevant party should have to take in the context of achieving that particular obligation and make express provision for it in the contract. Moreover, when it comes to actual fulfilment of the obligation, the prudent obligor would be well advised to record evidence of the steps it took to comply with its endeavours obligation under the relevant commercial contract.

Characteristics of Endeavours Clauses

 

BEST

REASONABLE

ALL REASONABLE

STEPS

May require significant expenditure by the Obligor (although not with disregard for shareholder interests).

Obligor to take one reasonable course of action.

Characteristics of both "best" and "reasonable" endeavours.

Make express provision for the steps required to fulfil the relevant obligation in the contract.

May require expenditure by the Obligor.

May require expenditure but will not automatically require the Obligor to sacrifice its commercial interests.

Obligor to record the steps taken.

May require the Obligor to sacrifice its commercial interests.

NB: These terms are fact-sensitive and the characteristics listed above are only an indication of how they may be interpreted in practice. This table is a guide only.