The terms ‘best endeavours’, ‘reasonable endeavours’ and ‘all reasonable endeavours’ are often used in commercial contracts where a party will not accept an absolute obligation, however, their legal meanings are not always appreciated.
In April this year, the English Court of Appeal revisited the meaning of ‘best endeavours’, leaving an interesting result.
In the Australian context, the difference between ‘best endeavours’ and ‘reasonable endeavours’ is not very significant in itself, so they are probably not worth the debate. However, you should keep in mind the fact that obligations arising from either statement will likely be qualified and limited and that one phrase should be used consistently in an agreement if the standard across all endeavours obligations is intended to be the same.
The UK case of Jet2.com Ltd v Blackpool Airport Ltd  EWCA Civ 417 (2 April 2012)
Blackpool Airport Ltd (BAL) entered into an agreement with Jet2.com Ltd (Jet2), a low-cost airline which set out the terms on which Jet2 would operate from the airport for the following 15 years. Clause 1 of the agreement provided that both parties were to cooperate together and use their ‘best endeavours’ to promote Jet2’s low cost services. It also provided that BAL would use ‘all reasonable endeavours’ to provide a cost base that would facilitate Jet2’s low cost pricing.
For over four years, Jet2 operated flights in and out of the airport outside the airport’s normal operating hours. However, in 2010, BAL gave Jet2 notice that it would not accept flights scheduled outside normal hours. Consequently, Jet2 sought damages for breach of contract and a declaration that under the agreement, BAL was obliged to accept flights outside normal hours. The trial judge held that BAL was in breach of contract in refusing to handle flights outside normal hours. BAL appealed.
Decision & Reasoning
The Court of Appeal dismissed the appeal and rejected BAL’s submissions that firstly, Clause 1 was not sufficiently certain to create binding obligations upon it and that secondly, in any event, a best (or all reasonable) endeavours obligation did not require it to sacrifice its own commercial interests.
- The obligation’s certainty: Regarding the first submission, the Court held that generally, an obligation to use best endeavours, or all reasonable endeavours, is not in itself regarded as too uncertain to be enforceable, provided that the object of the endeavours can be ascertained with sufficient certainty.1 The majority held that the obligation to use best endeavours to promote Jet2’s business obliged BAL to do all it reasonably could to enable that business to succeed and grow, including keeping the airport open to accommodate flights outside normal hours. Lord Justice Moore-Bick held that the word “promote” in this instance had a broad meaning of ‘advance’ and not the specific meaning of “advertise and market” argued by BAL. He also stated that there was an important difference between a clause which is so uncertain that it cannot create a binding obligation and a clause which gives rise to a binding obligation, the precise limits of which are difficult to define in advance, but which can nonetheless be given practical content. An obligation to use best endeavours to promote another’s business fell under the latter type.
However, the obligation to use ‘all reasonable endeavours’ to provide a cost base that will facilitate low-cost pricing posed greater problems to the Court as it “is much more difficult to identify its content”. Lord Justice Moore-Bick stated that the words imported “an obligation to use all reasonable endeavours to enable Jet2 to keep its unit costs (and therefore ticket prices) down by enabling it to use its aircraft in the most efficient manner”, however, the words were “too opaque” to enable the Court to give them a meaning with any confidence. Yet, it was unnecessary to reach a final decision on that question in light of the Court’s finding on the first part of the clause.
- Consideration of own commercial interests: It was a key part of BAL’s argument that the obligation to use best endeavours did not require it to act contrary to its own commercial interests, in this case, that it was not obliged to accept aircraft movements outside normal hours if that would cause it financial loss. However, the majority held that whether, and to what extent, a person who has undertaken to use his best endeavours can have regard to his own financial interests will depend very much on the nature and terms of the contract in question.
BAL’s argument was “approach[ed] with some caution” as the ability to schedule aircraft movements outside normal hours was essential to Jet2's business and was therefore fundamental to the agreement. In those circumstances, one would not expect the parties to have contemplated that BAL could restrict operations to normal hours simply because it would otherwise incur a loss. In saying this, however, the Court saw force in the argument that if it became clear that Jet2 could never expect to operate low cost services from the airport profitably, BAL would not be obliged to incur further losses in seeking to promote a failing business.
This case shows that a best endeavours obligation will usually be enforceable as long as its purpose or object is clear, particularly if the criteria to be used are explicit, for example, the specific steps that should or should not be taken. It also shows that it may be necessary for a party to a contract to act against its own commercial interests in order to satisfy a best (or all reasonable) endeavours obligation.
The full decision can be found here.
The Australian position
Australian courts have not substantially differentiated between the terms ‘best endeavours’, ‘reasonable endeavours’ and ‘all reasonable endeavours’.
The dominant interpretation of the ‘best endeavours’ obligation is that it “does not require the person who undertakes the obligation to go beyond the bounds of reason” as “he is required to do all he reasonably can in the circumstances to achieve the contractual object but no more.”2 The High Court in the case of Transfield3 also stated that the obligation “prescribed a standard of endeavour which is measured by what is reasonable in the circumstances, having regard to the nature, capacity, qualifications and responsibilities of the licensee viewed in the light of the particular contract”.4 In that case, the Court held that the provision for a patent licensee to use its ‘best endeavours’ towards selling the patented product did not prohibit the licensee from selling its own product based on the designs of the patented product, even where it would effectively destroy the market in Australia for the product. It was found that there was no basis for importing a negative implication into the positive obligation.
There has not been much High Court consideration of the term ‘reasonable endeavours’, yet the above statements by the High Court have been followed in a number of State Supreme Court decisions on the topic. In 2009, the Supreme Court of NSW, in considering the phrase “all reasonable endeavours” confirmed that there does not appear to be any substantive difference between the meaning of “reasonable endeavours” and “best endeavours”.5 In that case, the ‘all reasonable endeavours’ clause was equated to a ‘best endeavours’ clause which depends on the wording of the obligation and the circumstances of each case. The Court held that such a clause suggests an objective standard requiring the obliging party:
- to do what can reasonably be done in the circumstances to achieve the contractual object;
- not to hinder or prevent achievement of the contractual object;
- to continue to endeavour until the obligor reasonably judges in the circumstances that further efforts would have such remote prospects of success that they are simply likely to be wasted; and
- to allow for events, including extraordinary events, as they unfold.
In a recent NSW Court of Appeal case,6 the Court considered the term ‘reasonable commercial endeavours’ and found that the use of the word ‘commercial’ indicated that the parties contemplated the possibility of some commercial step being needed to effect the agreement. The Court held that the steps taken by a purchaser (namely submitting a request for funding and recommending the proposed transaction, even though the funding request was not fulfilled) constituted compliance with the “reasonable commercial endeavours” obligation.
The take-home message
Although it is common in contractual negotiations for parties to debate over whether a particular obligation should be subject to a requirement to use “best endeavours” or “(all) reasonable endeavours”, in the Australian context, these phrases all point to a similar standard of conduct and import a requirement of reasonableness. Their meaning in a particular contract will be construed in terms of the contract as a whole, the circumstances in which the contract was made and what is reasonable in the circumstances. Difficulties are more likely to arise if a contract uses two or more of these phrases because a court will assume the parties intended different standards to apply.
For this reason, one phrase should be used consistently throughout the agreement if the standard across the obligations in the contract are intended to be the same. Further, parties should ensure that obligations and the steps taken to satisfy them, are drafted in a sufficiently clear manner to ensure certainty. In some instances, it may be prudent to specify in the contract:
- Whether the party is required to incur expense to satisfy an obligation (if so, how much);
- Particular activities which must be undertaken to satisfy the obligation;
- Particular activities which are not required to satisfy the obligation;
- Whether any time limitations apply to these obligations; and
- Whether there is an industry standard or benchmark that can be referenced.
Overall, devoting effort to these issues in negotiations is likely to be more productive than arguing over the standard of the “endeavours” a party must exert.