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Interpreting endeavours clauses: best, reasonable and all reasonable

Businesses who regularly enter into commercial contracts may be used to seeing phrases such as ‘best endeavours’, ‘reasonable endeavours’ and ‘all reasonable endeavours’, but what do these phrases mean and why do businesses need to be aware them? At first glance, an endeavours clause would seem to provide somewhat of a guarantee for the parties involved. However, from a legal point of view, an endeavours clause can result in a business being obliged to act in a way which is far beyond their understanding of ‘trying’ or endeavouring. Here, we give some guidance on the contractual meaning of the phrase ‘endeavour’ and what you need to consider before a best endeavours clause makes its way into your contract.

What is an endeavours clause?

An endeavours clause in a commercial contract is likely to be worded as follows:

‘Party A will use [best/reasonable/all reasonable] endeavours to do [X, Y and Z]’.

An endeavours clause provides a middle ground between:

  • An absolute obligation (‘Party A must do [X, Y and Z]’) and
  • An optional act (‘Party A may do [X, Y and Z]’).

An absolute obligation is an unconditional undertaking by one party to the contract that a specified objective will be achieved. This is regardless of how difficult or expensive it will be for that party to achieve it, or whether they are able to do so because they can't control the actions of a third party.

The extent of the endeavours required in an endeavours clause will be determined by the wording of the clause itself. The most common endeavour phrases are:

  • Best endeavours - the most onerous form of endeavours clause
  • Reasonable endeavours - the least onerous form of endeavours clause
  • All reasonable endeavours
  • There can be variations in this type of clause wording such as ‘all reasonable but commercially prudent endeavours’ or ‘commercially reasonable endeavours’

Case law has interpreted these endeavours clauses in different ways. It’s important to understand what is required of your business and the other contracting party to fulfil the endeavour clause.

If you are the party performing the endeavour obligation, then solicitors will refer to you as the obligor. If you are the recipient of the obligation your business will be referred to as the obligee. Whether you are an obligor or obligee it is vital to realise not only how much effort the obligor will need to make to satisfy the endeavour obligation but also the contractual penalties for failing to do so.

How do you interpret a best endeavours clause?

Contractually requiring one party to use ‘best endeavours’ is the most onerous form of endeavours clause. Your commercial solicitor will argue for or against its inclusion in the contract, depending on whether your business gets the benefit of performance of the obligation or will be subject to the obligation.

What does ‘best’ mean in the context of trying or endeavouring? The case of Sheffield District Railway Co v Great Central Railway Co [1911] 27 TLR 451 sums it up by saying that best endeavours is not an absolute obligation, but it does mean ‘what the words say; they do not mean second-best endeavours’.

‘Best endeavours’ is considered from a subjective point of view. The obligor must consider what the obligee would have done in the circumstances to achieve the stated result.

‘Best endeavours’ may require the obligor to:

  • Sacrifice its own commercial interests.
  • Incur expenditure - For example, in the Jet2.Com case, the court held that Blackpool Airport had to open outside of its usual hours (despite the loss they would incur through extended opening) as it had agreed to use best endeavours to promote the airline’s low-price flights (Jet2.Com Ltd v Blackpool Airport Ltd [2011] EWHC 1529).
  • Litigate or appeal a decision - Unless there is no chance of litigation or an appeal being successful.
  • Take all reasonable courses of action to achieve the objective (Rhodia International Holdings Ltd v Huntsman International LLC [2007] EWHC 292).

But even where there is a best endeavours clause an obligor may still consider its own interests to a certain extent and its other duties. A ‘best endeavours’ clause would not, for example, require the obligor to bankrupt itself, ruin the company or have ‘utter disregard for the interests of [its] shareholders’ (Terrell v Mabie Todd and Co Ltd [1952] 69 RPC 234).

How do you interpret a reasonable endeavours clause?

If your business has agreed to carry out an action and the other party to the contract requires an endeavours clause then your solicitor will probably argue that one isn’t necessary or will suggest your business only agrees to a reasonable endeavours clause. The outcome will depend on your negotiating or bargaining power and the importance of the contract to your business. This is because the reasonable endeavours clause is the least onerous of the various types of endeavours clauses.

Case law suggests ‘reasonable endeavours’ should be considered from an objective point of view, namely:

‘What would a reasonable and prudent person acting properly in their own commercial interest and applying their minds to their contractual obligation have done to try’ to achieve the desired result (Minerva (Wandsworth) Ltd v Greenland Ram (London) Ltd [2017] EWHC 1457).

As a result of this approach to a reasonable endeavours clause, an obligor may:

  • Consider its own commercial interests and profitability (Rhodia International Holdings Ltd v Huntsman International LLC [2007] EWHC 292).
  • Take reasonable steps - The business will satisfy its obligations under the endeavours clause if no more reasonable steps can be taken, even if the desired result has not been achieved (Dany Lions v Bristol Cars [2014] EWHC 817).
  • Only be required to take one reasonable course of action to achieve the objective (Rhodia International Holdings Ltd v Huntsman International LLC [2007] EWHC 292).

It should be noted however, that an obligor may still be required to take legal action under a ‘reasonable endeavours’ clause. Although less stringent than use of the terminology ‘best endeavours’, agreeing to include a ‘reasonable endeavours’ clause in a contract is not necessarily an easy get-out. It still requires the obligor to undertake certain actions and is enforceable.

How do you interpret an all reasonable endeavours clause?

When considering the three main types of endeavours clauses, ‘all reasonable endeavours’ is the least certain in terms of meaning. It is considered a compromise between the use of ‘best endeavours’ and the use of ‘reasonable endeavours’ and so falling somewhere in-between the two in terms of the extent of actions required by the obligor. However, case law has also suggested that ‘all reasonable endeavours’ is similar to ‘best endeavours’. But it appears that the meaning of ‘all reasonable endeavours’ will depend on the context in which it is used.

What is meant by other types of endeavour clauses?

Other endeavours clause wordings are sometimes seen in draft contracts. This wording can include:

  • Reasonable but commercially prudent endeavours
  • Commercially reasonable endeavours
  • Reasonable commercial endeavours

It is arguable that those phrases have the same meaning as ‘reasonable endeavours’ given that the obligor is able to consider its own commercial interests when acting under such an endeavours clause. There is limited case law covering such wording. So, it is advisable to use one of the three well-known phrases rather than trying out the (relatively) unknown wording and risking commercial litigation to determine the extent of the obligor’s obligation under the specific wording in the endeavours clause.

When are endeavours clauses used in commercial contracts?

Endeavours obligations are used in a variety of commercial contracts including:

  • Sales contracts - an endeavours clause can be imposed on the seller to use best endeavours to sell a product.
  • Franchise agreement - where the franchisee agrees to endeavour to obtain third party agreement, for example, to secure planning permission or a licence to operate a licensable business.
  • Supply chain contracts - an endeavour clause can be included to use best or reasonable endeavours to have goods arriving at the delivery destination within a prescribed timeframe. An absolute obligation may not be appropriate where the supplier is reliant on third parties to ship items by air or sea freight or needs customs clearance.

What happens if a business can't fulfil its endeavour obligations?

Although the obligations required under some endeavours clauses may not cause any significant issue for your business as an obligor to fulfil, a contracting party who fails to meet its obligations under an endeavours clause will be in breach of contract. This could have serious financial consequences for the obligor.

However, unlike an absolute contractual obligation, provided that the obligor fulfils its obligations in the manner agreed in the endeavours clause, the obligor’s failure to achieve the objective underpinning the clause should not result in the obligor being in breach of contract.

It is essential that you understand the limitations of endeavours clauses. That way, you don’t assume that if you can't fulfil an obligation in the contract, then you are in breach of it.

For example, an obligor could have committed to use their best endeavours to obtain planning permission or the consent of a third party required under a contract entered into between the obligor and obligee. If fulfilling the clause is outside the obligor’s control and incapable of completion despite the use of best or reasonable endeavours on the part of the obligor there is no breach of contract. Accordingly, there are no contractual penalties.

How do you interpret an endeavours clause?

Interpreting an endeavours clause can be complicated because the specific details of the contract itself must be taken into account, including:

  • The commercial position of the parties to the contract.
  • The reason why the contract was entered into.
  • The facts of the case - These will determine the actions required to fulfil an endeavours clause. Frustratingly the same endeavour phrase in two different contracts may mean different things. In the case of Jet2.Com Ltd v Blackpool Airport Ltd [2011] EWHC 1529 it was said that ‘the expression will not always mean the same thing’.
  • The meaning of an endeavours clause may change over time - As circumstances change, the steps required to fulfil an endeavours clause may also change. For example, as a result of what is technically possible through digital or other technological advances.

Despite this element of uncertainty, an endeavours clause can be helpful in a contract. Case law has provided some guidance to help businesses determine the extent of the obligations required under the different types of endeavours clauses.

If specific steps or requirements are set out in the contract in relation to the endeavours clause, then these will take precedence over the endeavours wording. For example, in the case of Rhodia International Holdings Ltd v Huntsman International LLC [2007] EWHC 292) a party agreed to use ‘reasonable endeavours’ to obtain certain consents and to provide a parent company guarantee if requested to do so. Although a ‘reasonable endeavours’ clause would not normally require the provision of a parent company guarantee, the court held that by failing to provide the guarantee, the obligor was in breach of the reasonable endeavours clause as the contract specifically required the guarantee to be given.

Tips on using endeavour clauses in your contracts

Given the uncertainty of the various forms of endeavours clauses, what can businesses do to reduce the risk of a commercial dispute arising in relation to an endeavours clause?

It’s sensible to set out the various steps required of the obligor in the contract itself, rather than relying on a simple and general endeavours clause with no further explanation. At the drafting stage, the parties and their solicitors should consider questions such as:

  • What does the obligor actually have to do? Can this be defined, for example, by stating that the obligor must apply for planning permission within ten weeks of entering the contract?
  • How much expenditure is the obligor expected to incur in meeting the obligation? For example, if planning authorities want additional reports, will the obligor be expected to pay all the additional professional fees?
  • When does the obligation expire?
  • Is the obligor expected to litigate or appeal a decision? For example, if planning permission is refused by the local council.
  • Does the obligor have to inform the obligee of the steps it has taken? What are the levels of communication that are expected?
  • Can the obligee take over? For example, because the obligee is unhappy with the quality of the design and access statement that is to be submitted with the planning permission application.
  • What happens if endeavours are used but the objective is not achieved? For example, if planning permission isn’t granted then can the parties revoke the contract, waive the clause, or require different terms to come into play? What happens if planning is granted but subject to expensive conditions imposed by the planning authority?

Commercial law disputes involving endeavours clauses often concern whether any endeavours have been made, rather than differentiating between the various types of endeavours. It is therefore essential that the obligor maintains a record of the various steps that they take to achieve the objective and their correspondence with the obligee on the topic.

Endeavours clauses can result in complex debate and commercial litigation as the inclusion of an endeavours clause, regardless of the wording, will result in real obligations on an obligor. When considering the use of an endeavours clause in a contract, it is vital that both parties understand the obligations behind the endeavours clause and consider the post-contract implications. In addition, an obligee needs to understand the limitations of any endeavours clause in comparison to a clause imposing an absolute obligation.

Brexit and reviewing endeavours clauses

If your business entered into a commercial contract some time ago and agreed to an absolute obligation or to an endeavours clause then this obligation may require review or risk assessment considering Brexit and the end of the transition period. That’s because what was previously thought feasible or within the control of a business may no longer be possible. For example, supply chain contracts where one party may no longer be able to meet supply deadlines for reasons outside its control, such as new customs measures or tariffs. For more information on the importance of negotiating and reviewing commercial contracts to take Brexit into account read our article on Brexit and commercial contracts. Top of Form

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