HM Insights

Best Endeavours and Reasonable Endeavours: how far do you have to go to meet a contractual obligation?

Take any lease, supply contract or construction contract and it is more than likely that you will find a clause requiring a party to use certain endeavours to satisfy their contractual obligations.

The language used varies and the most common examples are "best endeavours", "all reasonable endeavours" and "reasonable endeavours". Whilst the ambiguity of these phrases may prove useful to drafters seeking to overcome a sticking point and conclude a deal, they are a recurring theme and source of dispute when relations between the contracting parties break down.

So how are the courts likely to interpret these nebulous concepts in practice and, most importantly, do any of these obligations require a party to act in such a way that is contrary to their own commercial interests?

Here we look at how case law has developed, and what the current situation is with regard to all kinds of endeavours

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An unclear distinction

Prior to 2007 the courts appeared reluctant to establish whether there was a practical difference between using "best endeavours" and "reasonable endeavours".

Lord Justice Buckley in the case of IBM v Rockware Glass stated that an obligation for a party to use "best endeavours" to obtain panning permission "should be understood to mean that the purchaser is to do all he reasonably can to ensure that the planning permission is granted." Lord Justice Geoffrey Lane attempted to give some guidance as to what "best endeavours" actually meant summarising it as taking "all those reasonable steps which a prudent and determined man acting in his own interests and anxious to [achieve the result] would have taken." The use of the words "all those reasonable steps" would suggest that it is not necessary to take all possible steps, rather those which are reasonable, but that taking just one such reasonable step would not be sufficient. A question then remained as to a) what was to be considered reasonable; and b) whether every reasonable step must be attempted or whether a selection of reasonable steps would be sufficient.

This uncertainty persisted and was commented upon by Justice Mustill in the case of Overseas Buyers v Granadex where he had to consider whether a party had used its best endeavours to secure an export licence. In considering the matter Justice Mustill stated that "perhaps the words best endeavours in a … contract mean something different from doing all that can reasonably be expected – although I cannot think what the difference might be."

Essentially, whilst Justice Mustill was of the opinion that there was a difference between "best endeavours" and "all reasonable endeavours", he would not be drawn on what that difference was or even if it could be defined.

A much needed clarification

These two cases blurred the lines between "all reasonable endeavours" and "best endeavours" to some extent and it was not until the case of Rhodia International Holdings Ltd v Huntsman International LLC in 2007 that some much needed clarity was provided.

Mr Julian Flaux QC considered whether a party had used "reasonable endeavours" to obtain the consent of an energy supplier to the novation of a contract. Mr Flaux QC was directed to a variety of the previous cases which considered the question of reasonable versus best endeavours and opined that "I am not convinced that any of the judges in the cases upon which [the claimants] relied were directing their minds specifically to the issue whether "best endeavours" and "reasonable endeavours" mean the same thing." It was therefore instructive that Mr Flaux QC specifically considered this question and stated that,

"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 only 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 essence, Mr Flaux QC's view was that an obligation to use "best endeavours" places a party under a stricter obligation than one to use "reasonable endeavours". However, the questions of whether there was a difference between "all reasonable endeavours" and "best endeavours" and, perhaps critically, to what extent a party was expected to sacrifice their own commercial interests when making "best endeavours" to satisfy their contractual obligations remained open.

Does an obligation to use "reasonable endeavours" require a party to act against its own commercial interest?

The 2010 case of Mactaggart & Mickel Homes Ltd v Hunter considered the practical effect of an obligation on a party to use "reasonable endeavours" to obtain planning permission for a development. In this case, planning permission was refused and the Pursuers altered their application and re-submitted it in an attempt to obtain planning permission. This application was also rejected and the Pursuers abandoned their attempts to obtain planning permission. The Defenders argued that the Pursuers should have done more to obtain planning permission. Lord Hodge provided a useful ranking of the "endeavours" clauses stating:

"In my opinion the phrase “reasonable endeavours” in its context imposes obligations … which are not as onerous as the phrase “all reasonable endeavours”, … which required the court to consider whether there were reasonable steps which could have been taken but were not. The phrase is also less burdensome on the obligant than the phrase “best endeavours”, which appears to me … to require something more than “all reasonable endeavours”.

Lord Hodge did observe that there appeared to be confusion in the distinction between "all reasonable endeavours" and "best endeavours" albeit he considered that question to be immaterial to the present case.

Critically, Lord Hodge, relying upon prior English case law, considered the extent to which a party was obliged to act against their own interest in satisfying such clauses. Lord Hodge's view was that when employing "reasonable endeavours", a party was not obliged to act against its own commercial interests but the judgment left open the possibility that if a party was required to employ "all reasonable endeavours" or "best endeavours" then they may be required to do so. Lord Hodge emphasised that "where the balance between the obligation to try and countervailing commercial considerations is struck depends on the wording of the obligation."

Does an obligation to use "all reasonable endeavours" require a party to act against its own commercial interest?

In the case of EDI Central Ltd v National Car Parks Ltd, Lord MacKay considered whether a party was obliged to act against its own commercial interest under the higher bar of an obligation to use "all reasonable endeavours" or "best endeavours". In this case EDI were under an obligation to use all reasonable endeavours of a normal prudent commercial developer to pursue a proposed development. Lord MacKay agreed with the Lord Ordinary that the consideration was,

"whether there were reasonable steps which could have been taken but were not taken. The party on whom the obligation was placed will be expected to explore all avenues reasonably open to him and to explore them all to the extent reasonable.”

NCP's position was that after pursuing one avenue for development, EDI had effectively downed tools and taken no further action. EDI's position was that once the first proposal was unsuccessful, they identified that no other attempt would have been successful. NCP countered this argument by identifying a line of enquiry not taken by EDI. Lord MacKay's view was that when considering whether all reasonable endeavours had been exercised, it was necessary to demonstrate that every reasonable step that was not "foredoomed to failure" had been attempted. Importantly, Lord MacKay stated that both obligations to use "reasonable endeavours" and "all reasonable endeavours" did not require a party to disregard its own commercial interests.

Does an obligation to use "best endeavours" require a party to act against its own commercial interest?

A similar analytical approach was taken by Judge Mackie Q.C, in the Court of Appeal case of Jet2.com Ltd v Blackpool Airport Ltd. albeit reaching a different result.

In this case, the airport was under a contractual obligation to a) use their best endeavours to promote Jet2's airline and b) use all reasonable endeavours to provide a cost base that would facilitate Jet2's low cost pricing. The critical question was whether the airport was obliged to allow Jet2 to operate out-with the airport's normal operating hours which was not in the airport's commercial interests.

Whilst Judge Mackie, in part relying upon Lord MacKay's previous decision, held it was unlikely that an obligation to use "all reasonable endeavours" created an obligation to act contrary to a party's commercial interest, he considered an obligation to use best endeavours could have such a meaning in certain circumstances. Judge Mackie's comment in this regard was that, "whether, and if so to what extent, a person who has undertaken to use his best endeavours can have regard to his own financial interests will depend very much on the nature and terms of the contract in question…[i.e. whether the obligation]…was therefore fundamental to the agreement."

In essence, Judge Mackie's position was that it was not appropriate to make a hard and fast rule as to when a party is expected to act against its own interest in instances requiring "best endeavours" but rather to determine each case on its own merits and consider the importance of the relevant obligation to the contract as a whole. In this particular case, the underlying obligation was considered so vital a consideration that it justified that the airport act in a way that was not in its own commercial interest.

Conclusion

It now appears reasonably settled law that each of the obligations has distinct meaning with the least burdensome obligation being reasonable endeavours, followed by all reasonable endeavours and finally best endeavours.

It also appears relatively settled that neither an obligation to use reasonable endeavours nor all reasonable endeavours will necessarily require a party to act against its own commercial interest.

The remaining area of uncertainty is in what circumstances a party under an obligation to use best endeavours can be required to act contrary to its own commercial interests.

Whilst it appears that this will be determined on a case-by-case basis, the guiding principle appears to be that the more critical the obligation is to the overall contract, the more likely a party will be obliged to act against its commercial interests to fulfil that obligation.

 

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