Representations and undertakings in finance documents and other contracts are often qualified by phrases such as “reasonable endeavours”, “best endeavours” or “all reasonable endeavours”. What do they actually mean?
A best endeavours clause means the obligor must take all the steps in its power which are capable of producing the desired results, steps “which a prudent, determined and reasonable person, acting in his own interest and desiring to achieve that result, would take”.
Although a best endeavours obligation is onerous, it is not an absolute obligation and it is subject to a test of reasonableness. The best endeavours “must at least be the doing of all that reasonable persons reasonably could do in the circumstances”.
A best endeavours clause may require:
- expenditure by the obligor. For example, in Jet2.com Ltd v Blackpool Airport Ltd  the best endeavours obligation obliged Blackpool Airport to stay open outside of its normal business hours despite the fact that it incurred a loss in doing so. However, the obligor may have some consideration for its own commercial interests and would not be obliged to take action which would result in the “certain ruin of the Company or…the utter disregard for the interests of the shareholders”; and
- an obligation to litigate or appeal against a decision, although this would not extend to an action which is unreasonable in all the circumstances or unlikely to succeed.
A best endeavours obligation may be overridden by other duties. For instance, an obligation on directors of a company to use their best endeavours to pass a resolution was held not to require the directors to give bad advice to the shareholders and continue to recommend the resolution once it ceased to be in the company’s interests.
Reasonable endeavours are less stringent than best endeavours. The obligor will need to balance the weight of its contractual obligation against all relevant commercial considerations (for example relationships with third parties, its reputation, the cost of that action).
These considerations are subjective and are likely to be based on the obligor’s circumstances. It will not be required to sacrifice its own commercial interests or to take legal action of a doubtful outcome.
All reasonable endeavours
An “all reasonable endeavours” clause is commonly adopted as a compromise between best and reasonable endeavours. Although it is difficult to determine its meaning as there is conflicting case law, the traditional interpretation of “all reasonable endeavours” is “a middle position between the two, implying something more than reasonable endeavours but less than best endeavours”.
There are other variations on the three common endeavours clauses described above. Such as, “commercially reasonable endeavours” and “reasonable commercial endeavours”, which are often used to soften a reasonable endeavours obligation. It is not clear how the courts would differentiate between the two as a reasonable endeavours obligation already requires a consideration of all the relevant commercial factors.
Enforcement of an endeavours clause
An endeavours clause will only be enforceable if it is sufficiently certain. For example, returning to the case Jet2.com Ltd v Blackpool Airport Ltd , Blackpool Airport was under an obligation to use all reasonable endeavours to “provide a cost base that will facilitate Jet2.com’s low cost pricing”. The Court of Appeal held that such an obligation may not be enforceable, stating that the words were “too opaque to…give them that meaning with any confidence”.
Although there is a degree of uncertainty over what an endeavours clause will require in each individual case, these uncertainties could be avoided by express terms in the contract. The relevant endeavours obligation could be a defined term.
Depending on the circumstances, the steps the obligor should take to achieve that particular obligation could be set out.
The majority of cases have not been over the level of obligation imposed by such clauses, but whether the obligor used any real endeavours at all. It is therefore important for an obligor to record evidence of the steps it takes in order to comply with its endeavours obligation and to inform the other party as and when any difficulties arise.