Clients and practitioners alike will be familiar with the spiral of negotiation around certain obligations in which one party asks for an absolute obligation, the other offers its “reasonable endeavours” and they agree on either “all reasonable” or “best” endeavours. The point is agreed and the parties move on.  There may not have been any focus, however, on the actual objective of the obligation.  Two recent cases - v Blackpool Airport and Ampurius NU Homes Holdings Ltd v Telford Homes suggest that parties should perhaps re-focus their attention.  

Cheap flights – be clear as to your objectives

In v Blackpool Airport [2012] EWCA] Civ 417  the parties agreed to co-operate and use their best endeavours to promote’s low cost services from Blackpool Airport.  Blackpool Airport was to use all reasonable endeavours to provide a cost base that will facilitate’s low cost pricing.  To facilitate this, scheduled flights “out of hours.” Blackpool Airport provided out of hours ground services.  Becoming concerned with the cost of providing such services, Blackpool Airport withdrew the “out of hours” ground services. sought to recover the considerable expense of diversions caused by the withdrawal of services.  It also sought a declaration that provision of the ground services out of hours was part of Blackpool Airport’s “all reasonable endeavours” obligation.  

The High Court held that Blackpool Airport was in breach of contract.  On appeal, the Court of Appeal, by a majority of two to one, upheld the decision that longer hours of service were required under the all reasonable endeavours obligations, despite Blackpool Airport’s financial losses.  The parties agreed that all reasonable endeavours and best endeavours obligations amounted to the same thing.  The Court of Appeal held that such an obligation could be so onerous such that a party could only have regard to its own financial interests if the nature and terms of the contract in question allowed it to do so.  On the facts, the Court held that Blackpool Airport had been wrong to withdraw the "out of hours" ground service.  The majority judgment considered that the obligations gave rise to a clear binding obligation but that the precise limits of the obligation were unclear.  The question was what was required to satisfy the obligation.  Lewison LJ dissented on the grounds that the obligation itself was too uncertain and therefore could not be enforced:

“I agree with the judge that the content of an obligation to use reasonable endeavours (or, for that matter, best endeavours) depends on the context in which that expression is used. But the most important part of the context is the objective towards which the endeavours are to be directed. If the endeavours are directed towards a result which can be identified with certainty, then whether the endeavours satisfy the obligation can also be decided, if necessary with the aid of expert evidence.”

Mixed use – be clear on how your objectives are to be achieved

In Ampurius NU Homes Holdings Ltd v Telford Homes [2012] EWHC 1820, a building contractor had agreed to use reasonable endeavours to procure construction of four mixed use buildings with a target completion date of the end of February 2011.  The parties were in dispute over various issues, which negotiations failed to resolve.  Ampurius commenced proceedings claiming that Telford had committed a repudiatory breach of contract because (a) it had not progressed the construction works with due diligence and (b) it had not used its reasonable endeavours to procure completion by the target date.  The court found that there had been a repudiatory breach on the basis of failure to progress.  No decision was needed as to whether Telford had used its reasonable endeavours.  

Nevertheless, the judge commented that:

"… I do not think that a "reasonable endeavours" clause as regards the time of completion in what is, in this respect, a construction contract can extend to endeavours to have sufficient money to perform the contract.  Although the language could literally bear that meaning, in my judgment, on an objective reading the qualification of "reasonable endeavours", as opposed to an absolute obligation to complete, is designed to cover matters that directly relate to the physical conduct of the works, thereby providing an excuse for delay in such circumstances as inclement weather or a shortage of materials for which the Defendant was not responsible.  The clause does not, in my view, extend to matters antecedent or extraneous to the carrying out of the work, such as having the financial resources to do the work at all." 

The question of finance may have been a last ditch defence; alternatively, it may have been a genuine issue.  No doubt there are those who would have some sympathy in testing economic circumstances.  In the context of this construction contract, however, it was clear that the obligation to complete construction by the target date should relate only to physical issues.   

Saying what you mean

The two cases act as a timely reminder that parties should say what they mean when negotiating contracts.  Everyone will be familiar with negotiations in which it becomes clear that the parties have been operating under different sets of assumptions as to the deal in hand. reminds us that the parties should be clear as to the objective of the contract (or the relevant provisions).  Ampurius indicates that the parties should consider whether there are any specific issues arising from their own commercial position that should be considered in the contract.  If an "all reasonable endeavours" obligation is to be limited by reference to the resources to be utilised by a party, such limitations should be stated.  The focus on endeavours obligations is often used as shorthand to progress negotiations.  It does not, however, address any such misunderstanding of the various assumptions at play and could lead to disputes, the outcome of which may be as uncertain as the drafting in the contract.  

To read the decision in Ltd v Blackpool Airport Ltd, click here.

To read the decision in Ampurius NU Homes Holdings Ltd v Telford Homes (Creekside) Ltdclick hereph.