In our previous article, Common legal terms, real business meanings: When is consent unreasonably withheld?, we explored the problems which can arise when parties draw up an agreement setting out their respective obligations towards each other without giving sufficient thought to the words used to express their intentions. As illustrated in this article, which focused on the Court’s interpretation of the phrase ‘consent not to be unreasonably withheld’, the meaning of a word or phrase in practice can differ from that which the parties envisaged when drawing up the agreement.
Endeavours clauses provide another example of a situation where parties have found that, when a dispute has arisen regarding the extent of one party’s obligations under a contract, the meaning or implications of words or phrases differ from what might have been expected. In brief, each word used in a contract counts.
Reasonable, all reasonable or best endeavours?
The meaning of ‘endeavours clauses’ has been the subject of litigation on a number of occasions. Parties can seek to define the extent of their contractual obligations with reference to such clauses, which stipulate the degree of effort required of a party to achieve a certain outcome where that obligation under the contract is not absolute. However, there can be uncertainty as to what steps a party must take in order to satisfy its contractual duties.
In order to satisfy a requirement to use ‘reasonable endeavours’, it is likely to be sufficient for a party to take one of several available options, provided it is a reasonable course of action to take. This will depend on the facts of each case. A reasonable endeavours clause may not require action to be taken if it would harm financial or commercial interests of the party; a balance should be struck between the requirements of the contract on one hand and relevant commercial factors on the other.
It is generally accepted that the requirement to use ‘best endeavours’ to achieve a certain end requires more than reasonable endeavours and represents a stringent obligation on a party to a contract. It may require a party to do all that it reasonably can (i.e., take all reasonable courses of action) in order to achieve the desired outcome. A party may also be required to disregard and act contrary to its own commercial interests and may be obliged to incur costs in seeking to discharge its obligations, the extent of which would very much depend on the circumstances.
Another phrase often used is ‘all reasonable endeavours’. This is thought to represent a middle ground between reasonable endeavours and best endeavours, although its scope is not clear and it has been argued that it has the same or close to the same meaning as best endeavours.
Importantly, it is an established principle that each case turns on its own facts. As emphasised by the English Courts, whether a party has complied with its obligations under a contract will depend on the circumstances; a finding or consideration in one case may not be applicable in another. The surrounding circumstances will be relevant when determining (i) the intended scope (at the time the contract was drafted) of the phrase used; and (ii) whether the efforts of the party in question have been sufficient to satisfy the requirements of the contract.
Common words, real business meanings
Difficulties can arise if the meaning of the words used and the implications of using certain wording have not been appreciated. The words used may have previously been the subject of litigation and judicial scrutiny, and have been interpreted to have an established meaning, for instance; they may not accurately reflect what the parties intended with regard to their respective obligations.
As highlighted in our previous article, it is important to carefully consider and set out the obligations of each party to a contract as clearly as possible so as to ensure certainty and to reduce the scope for argument later on.
In any case, for a contract to be enforceable, its terms must be certain, otherwise the provision will not be enforced. It is generally sufficient to provide that parties must use ‘endeavours’ to achieve a certain outcome, but it must be possible to identify that outcome with sufficient certainty.
A further point to bear in mind in respect of the interpretation of a contract is that, in the event that the wording of a contract is ambiguous and there are two rival interpretations, the Court is entitled to prefer the construction which is consistent or most consistent with the overall aim behind the arrangement or business common sense.