27 March 2018

Endeavouring to understand - a brief guide to endeavours clauses

"Best endeavours", "reasonable endeavours" and "all reasonable endeavours" are terms often used in contracts but perhaps not fully understood.  Whilst most contractual obligations are expressed to be absolute, an endeavour is an agreement to try to fulfil an obligation.  They will be used where a party is unwilling to agree to something absolutely.   

There are three often used types of endeavour, each with a varied level of commitment:

  • best endeavours;
  • reasonable endeavours; and
  • all reasonable endeavours.

Endeavours clauses are interpreted by reference to the parties' intention at the time the contract was formed, and case law determines how they are defined.  When drafting a contract it is therefore important to consider what level of commitment is appropriate to agree to.

To ensure parties are clear about their contractual obligations in practice, it will be best to deal with uncertainties surrounding endeavours expressly in the contract by, for example, listing the steps that must be taken to fulfil the relevant obligation. 

Best Endeavours

An agreement to use best endeavours is the most onerous.

These require a party to "Take all those steps in their power which are capable of producing the desired results … being steps which a… [obligee], acting in his own interests and desiring to achieve that result, would take" (IBM United Kingdom Ltd v Rockware Glass Ltd [1980] FSR 335).

For example, Blackpool Airport was forced to sacrifice its own commercial interest by staying open outside its normal hours despite incurring losses, after agreeing to use its best endeavours to promote Jet2's low cost airline services (Jet2.com v Blackpool Airport Ltd [2012] EWCA Civ 417). A best endeavours obligation can also impose an obligation to commence litigation or appeal a decision.

However, there must still be a degree of reasonableness.  A best endeavours clause does not require "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).

Although best endeavours clauses are not absolute and do not guarantee an outcome, they can imply significant risk bearing obligations and may be commercially unwise.  Whilst not ruinous, the financial implications could be significant for the obligor and caution must be exercised during contractual negotiations.    

Best endeavours is a particularly onerous commitment involving taking steps that a prudent and determined obligee would take, and may require the sacrifice of commercial interests in order to fulfil an obligation. 

Reasonable Endeavours

Reasonable endeavours are the least onerous.  Crucially, there is no obligation to sacrifice one's own commercial interests, and the likelihood of the obligor achieving the desired result is relevant.  If there are numerous available courses of action, it may suffice that a party takes only one of those steps to satisfy his obligation.

Nonetheless, if a contract sets out the steps a party must take to fulfil an obligation, those steps must be taken and the obligation will not be fulfilled unless and until this is done.

Reasonable endeavours clauses are most common in practice. However, careful consideration should still be exercised as they can give rise to ambiguity, leaving an obligor uncertain as to what extent he must go to fulfil the obligation. 

In most cases, reasonable endeavours is a commitment to pursue one reasonable course of action to fulfil the relevant obligation, bearing in mind the obligor's own commercial interests, and need not include every available course of action.

All Reasonable Endeavours

This is a middle position, implying "something more than reasonable endeavours but less than best endeavours" (UBH v Standard Life (The Times, 13 November 1986 (obiter)).  However, its interpretation is unclear. 

It has been argued that all reasonable endeavours are interchangeable with best endeavours due to the element of reasonableness applied to the latter.  Therefore, the obligor may be required to take all reasonable courses of action as opposed to just one (which would satisfy the level of commitment required by reasonable endeavours). 

However, in comparison with best endeavours, the obligor is not expected to sacrifice its commercial interests.  It is therefore sensible to conclude that it includes elements of both best and reasonable endeavours. 

All reasonable endeavours are likely to involve pursuance of all available, yet reasonable, courses of action to fulfil the obligation. The obligor is not obliged to disregard its commercial interests and continue trying to fulfil the obligation if this will be futile.

This blog post is a summary and does not necessarily cover every aspect of the topics with which it deals. It is not designed to provide legal or other advice. This blog post states the position as at the date of publication.

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