You may consider using an endeavours clause to qualify a contractual obligation you are giving. This may be because fulfilment of the obligation depends on the co-operation of a third party or other matters beyond your control.
But what is the difference between best and reasonable endeavours? And what are you committed to do if you agree to use best, reasonable or all reasonable endeavours?
In this, the fourth part of our 'before you take the plunge - back to basics on contracts' mini series, we look at the different types of endeavours clauses. We also consider some practical tips for the use of such clauses in contracts and fulfilling obligations arising under them.
What do the most common endeavours clauses require?
Best endeavours - Broadly speaking, a party is required to take all reasonable steps capable of producing the desired results in the circumstances. This is an onerous obligation. Best endeavours clauses do allow a party to have some regard for its commercial interests. They do not require action that would ruin a business, but they will still require significant expenditure on the obligor's behalf. This includes a requirement to divert material resources from elsewhere within the business where necessary.
Reasonable endeavours - This is less stringent. While using reasonable endeavours may still involve some limited expenditure, a party is entitled to take into account its own commercial interests (e.g. its relations with third parties, its reputation and the cost of the action itself). There is some academic consensus that reasonable endeavours may only require a party to take one reasonable course of action rather than many but there is, as yet, no direct authority on the point.
All reasonable endeavours - This has been viewed as a middle ground between best and reasonable endeavours. It has been suggested that all reasonable endeavours may equate, in some respects, to best endeavours. There has been debate over whether an all reasonable endeavours obligation requires a party to sacrifice its commercial interests, but it is now largely accepted that it does not. Where there are several reasonable courses of action open to the obligor, the obligor is likely to have to pursue "all" (or at least some number) of these to fulfil its obligation.
In Jet2.Com Ltd v Blackpool Airport Ltd, the court concluded that Blackpool Airport was not entitled to abandon an all reasonable endeavours obligation to keep the airport open outside of normal operating hours when, because it was unprofitable, it became commercially undesirable to do so. However, in this case the parties had agreed that, in their contract, all reasonable endeavours meant the same as best endeavours; and the obligation in question was under the sole control of Blackpool Airport who simply wanted to cut its own expenditure.
Importantly, in all endeavours clauses, the meaning of the clause must be construed at the time the contract is formed. However, whether or not the obligation has been satisfied is considered against the position at the time of performance and is therefore fact sensitive. The judge in Jet2.Com Ltd declined to make a declaration as to the precise hours Blackpool Airport should remain open to fulfil the obligation to use all reasonable endeavours because what would be appropriate in the future would depend on the facts at the time.
Points to consider
The key lesson is that there is an unavoidable element of uncertainty as to what you are agreeing to when using endeavours clauses.
These practical tips should help to reduce the scope for ambiguity and future disputes:
- Recipients of an endeavours obligation should make sure that the clause is sufficiently certain to be enforceable. An obligation to endeavour to reach an agreement is no different from an agreement to agree and, as such, is unenforceable.
- Take legal advice, particularly if you are concerned as to whether you can fulfil an endeavours obligation or if the other party's fulfilment of an obligation qualified by an endeavours clause is important to you. Had either party in the Jet2.Com Ltd case been legally represented during the contract negotiations, the issues that arose could have been avoided. Certainly the court was of the view that the parties could simply have come to an express agreement on the point.
- Avoid agreeing to use best endeavours where possible, unless you are comfortable that you can fulfil the obligation (without having to expend sums beyond what you have budgeted for). Consider setting a financial cap on the pursuit of the obligation.
- Set out what steps a party is required to take to fulfil a qualified obligation rather than simply relying on an endeavours clause. Defining what is meant by best, reasonable and/or all reasonable endeavours for the purposes of the contract may avoid the need to refer to case law for guidance. It is better to spell out precisely what satisfaction of the objective entails. This should include what, if any, costs may be expected to be incurred, how long the endeavours should be pursued, the extent to which a party is entitled to protect its own interests and what happens if the object of the endeavours is not or cannot be achieved.
- Be wary of further variations of endeavours clauses. Common variations are "commercially reasonable endeavours", "reasonable commercial endeavours," (both aimed at "softening" a reasonable endeavours obligation) and "utmost endeavours" (occasionally used to strengthen a best endeavours clause). There is little precedent as to what these terms mean and whether they achieve their aims. Consequently, there is yet further uncertainty if you agree to give or receive such an obligation.
- If you have agreed to an endeavours obligation, keep records of your/their efforts to fulfil it so that you can evidence what you/they have done should a dispute arise.