We often see the terms “reasonable endeavours”, “all reasonable endeavours”, “best endeavours” and similar expressions in commercial contracts. These terms usually appear where one of the contracting parties wants to limit what they are obliged to do in specified circumstances. For example, such clauses are often used where a contracting party doesn’t feel it can give an unequivocal commitment to deliver a particular outcome, perhaps because that outcome is dependent on third parties, such as regulatory or shareholder approval.

The precise meaning and effect of these terms has long been the subject of debate between lawyers. The debate was highlighted and answered in part by the recent high-profile litigation before the English High Court in CPC Group Limited v Qatari Diar Real Estate Investment Company [2010] EWHC 1535 (Ch).

The case concerned the redevelopment of the Chelsea Barracks and was widely covered in the press, not least because of the alleged intervention by HRH The Prince of Wales in respect of the planned architectural design for the site.

CPC Group Limited (“CPC”) is a Guernsey company. It entered into a joint venture with Qatari Diar Real Estate Investment Company (“QD”), a subsidiary of the Qatar Investment Authority, to develop the former Chelsea Barracks.

CPC later agreed to sell QD its interest in the joint venture, this agreement being embodied in a Sale and Purchase Agreement (“the Agreement”). Part of the price to be paid by QD was to be deferred, the threshold for payments being largely dependent on progress in obtaining planning permission. Under the Agreement QD was subject to various duties towards CPC, including one to use "all reasonable but commercially prudent endeavours to enable the achievement of the various threshold events and Payment Dates”. [emphasis added]

There were a number of difficulties with the planning application process and the application was subsequently withdrawn. Following the withdrawal of the application, CPC claimed that QD was in breach of contract for several reasons, but particularly with regards to its obligations to use “all reasonable but commercially prudent endeavours”.

The main issue in the case was whether QD was entitled to withdraw the planning application or not, and whether that withdrawal constituted a breach of its obligations under the Agreement.

In relation to the endeavour clause, the Court found that QD was not in breach of contract. The Court considered that the obligation to use “all reasonable endeavours” does not always require the obliging party to sacrifice its own commercial interests. Indeed, in QD’s circumstances the position was even clearer because of the additional words which specifically limited the obligation to use reasonable endeavours, namely the words “but commercially prudent”.

The Court considered the wording carefully and found that it did not impose an obligation to use “best endeavours” on QD and as such did not require QD to ignore or forego its own commercial interests in order to pursue the planning permission.

As a result, the Court concluded that the clause only required QD to take all reasonable steps to procure the planning permission, provided those steps were commercially prudent having regard to its own commercial interests alongside those of CPC. As to what those interests might be, having regard to the allegation that HRH The Prince of Wales had intervened to express concerns about the planning application and that this was a factor which influenced QD’s decision to withdraw the application, the judge said –

“…[QD] was, in my judgment, permitted to consider its own commercial interests in deciding how to respond. The clauses do not, as it seems to me, allow QD to consider its own political interests, insofar as they are different from its commercial interests or insofar as they require commercially impudent measures.” [Emphasis added]

In an area of some uncertainty this case provides helpful confirmation in relation to the difference in degree between “best” and “all reasonable” endeavours.

The case demonstrates the importance of these clauses and how pivotal they can be in a dispute situation. That being so, it is critical that these clauses are negotiated very carefully, and with a close eye as to what, realistically, lies within parties’ powers to deliver. Our experience is that these clauses are often overlooked as being simply standard wording but get it wrong and you may well find your counterpart’s endeavours to be rather elusive…