There are certain clauses in a contract which sound alarm bells to the trained eye. "Best endeavours", "reasonable endeavours" and "all reasonable efforts" are such clauses. Once again they are in the limelight following a recent ruling in the Court of Appeal. The Court took "best endeavours" to mean an obligation to operate outside of normal business hours and at a financial loss. Worrying? Something you wish to avoid? Then read on.
Contracts usually require a party to do something or refrain from doing something. However, other obligations are less clear cut and may require a party to procure its achievement. This sort of requirement is often limited to an obligation to try or "endeavour" to achieve the outcome. Case law indicates that there is a spectrum of endeavours obligations, with "best endeavours" representing the most stringent obligation, "all reasonable endeavours" probably occupying some sort of centre ground and "reasonable endeavours" being the least stringent.
This seems straightforward enough. However, an endeavours clause will also depend on the commercial context and the other provisions in the agreement. To quote one judge: "the expression will not always mean the same thing." Consider the case of Jet2.com Limited v Blackpool Airport Limited, decided in the Court of Appeal in April this year. Blackpool Airport Ltd entered into a 15-year contract with Jet2.com Ltd, a low-cost airline. The contract was prepared in the form of a letter agreement with little legal help and was "expressed in broad, but not uncertain, terms". Clause 1 of the letter agreement included the following general provision which was at the heart of the dispute between the parties:
An obligation on both parties to "co-operate together and use their best endeavours to promote Jet2.com's low cost services from [Blackpool Airport]".
The Court of Appeal confirmed that this obligation to use best endeavours to promote an airline's low-cost services gave rise to a more specific obligation on the airport operator to accept arrivals and departures of flights outside the airport's opening hours. Even though the contract did not say anything about operating hours, and even though the airport operator would make a loss as a result.
To operate outside of normal opening hours and to operate at a loss is a far more onerous obligation than the airport operator would have wanted. Nevertheless it is a reaffirmation of the court's strict interpretation of a "best endeavours" clause. To quote one judge "[best endeavours] means what the words say; they do not mean second-best endeavours" (Sheffield District Railway Co v Great Central Railway Co ).
The question of how far you must pursue a "best endeavours" obligation is still open to interpretation. Whilst it is accepted that financial loss is not an excuse for failing to deliver, it has also been established that the obligor may have some regard for its own commercial interests and certainly would not need to take action resulting in "the certain ruin of the Company or ... the utter disregard for the interests of shareholders" (Terrell v Mabie Todd and Co. Limited  69 RPC 234). So there are limits.
Perhaps the most useful definition may be the following (though this is not definitive for all cases): to require the obligors "to take all those steps in their power which are capable of producing the desired results … being steps which a prudent, determined and reasonable [obligee], acting in his own interests and desiring to achieve that result, would take" (IBM United Kingdom Limited v Rockware Glass Limited  FSR 335).
By contrast 'reasonable endeavour' may require limited expenditure, but does not require the obligor to sacrifice its commercial interests. It is established in case law that a party in agreeing to 'try' to procure something can balance this with its own commercial interests. This phrase, for example, would not have obliged Blackpool Airport to open its airport after hours at on-going financial loss. A simple, but costly, mistake.
To avoid falling into a similar trap parties should be careful in their choice of "endeavour clause" used. Parties should also avoid the uncertainties that an endeavour clause can give rise to. For instance, by setting out specific steps the obligor should take to achieving that particular obligation. For example:
- stating whether an obligor bear any costs or incur any expenditure and, if so, how much.
- the period for which the obligor should pursue that objective.
- whether the obligor must take legal action or appeal to achieve the objective.
- the extent to which a party is entitled to protect its own interests, is required to act in the interests of the other party, or meet an objective standard of behaviour.
Prudently recording evidence of compliance will also protect one's position in regards to potential claims.
Careful consideration of words and following these simple steps should add certainty and avoid onerous obligations in your contractual duties. When entering a long-term contract one must be particularly wary. Any "endeavours" clause should be handled with care, even "reasonable endeavours" are not toothless, often imposing obligations difficult to satisfy.
I hope by now the alarm bells are well and truly ringing. So that the next time you come across an "endeavours clause" in a contract you are better protected. It is regrettable, for the time being at least, that Blackpool airport cannot say the same.