In the context of the employment relationship, and particularly when agreeing termination arrangements, employers often promise to use best or reasonable endeavours to obtain a certain outcome. For example, an employer might agree to use best endeavours to persuade a remuneration committee to allow the exercise of share options, or a private health insurer to extend cover to a redundant employee. But how much of an obligation does this place on employers? Until recently it could be argued that a contractual duty to use reasonable or best endeavours to bring about a particular end does not require sacrificing your own commercial interests in doing so. But a recent Commercial Court case, Jet2.com Ltd v. Blackpool Airport Ltd1, has limited the scope of this principle, particularly where the object of the endeavours is within the promisor’s control. It all depends on the nature of the obligation and the context in which the court has to interpret the clause. Employers need to be aware of the risks when drafting endeavours clauses to ensure the duty they assume does not go beyond what they intend.
The Facts of Jet2
Jet2 was a low cost airline operating from several UK airports. In 2005, it entered a 15-year contract with BAL, the owner and operator of Blackpool Airport, to operate flights there. BAL had made operating losses for some years. The agreement with Jet2 was part of BAL’s aim to expand the airport’s operations by attracting new carriers and to improve financial performance.
Clause 1 of the contract provided:
“Jet2 and BAL will co-operate together and use their best endeavours to promote Jet2’s low cost services from Blackpool Airport and BAL will use all reasonable endeavours to provide a cost base that will facilitate Jet2’s low cost pricing.”2
The agreement included detailed terms about matters such as airport charges and BAL’s contributions to Jet2’s marketing efforts. But it was silent on the scheduling of Jet2’s flights and the times at which these could take place. The airport had published operating hours (for example, 0600 to 2000 in summer).
For almost five years, Jet2 operated one (and later two) planes from Blackpool. Flights regularly arrived and departed outside the airport’s published operating hours, especially during the peak summer period. BAL co-operated with Jet2 in allowing this.
By 2010, tensions between the parties had materialised. BAL’s financial problems worsened when other carriers left the airport. BAL tried to mitigate this by persuading Jet2 to increase the number of its planes using the airport. Jet2 refused to do so. To rub salt into the wound, it expanded its operations at Manchester Airport.
Matters came to a head in October 2010. BAL wrote to Jet2 giving it a week’s notice that it would no longer accept departures or arrivals scheduled outside its published operating hours. Jet2 obtained an injunction, essentially requiring BAL to allow Jet2 to run its previous flight schedules. The court then ordered an expedited trial of the substantive issues. These included the scope of the endeavours obligations in clause 1 of the agreement.
Interpreting Endeavours Obligations
The court confirmed that the normal rules of interpretation apply when considering endeavours provisions. This involves deciding what the parties meant by the words used in the agreement, against the background matters known to them at the time they contracted. Here, the court thought the relevant factual matrix included:
- The low cost services envisaged by the agreement would require flexibility in scheduling early departures and late arrivals. This was especially so in the peak holiday season, to maximise “rotations” and utilisation of Jet2’s aircraft.
- Getting “slots” to land at high summer demand destinations was competitive. Jet2 would inevitably have to accept slots outside peak hours, again calling for flexibility in the hours of operation at Blackpool.
- When the parties negotiated the agreement, other carriers were operating scheduled services at Blackpool outside the published hours.
- Unforeseen delays and their knock-on effect on flight times were a fact of life in air travel.
But the fact the airport had operated outside its published hours since 2005 was irrelevant when deciding what the parties meant by the contractual language they used when entering into the agreement.
What was the Proper Interpretation of BAL’s Endeavours Obligations?
BAL argued that the duty to use best endeavours to “promote Jet2’s low cost services” meant simply that both parties had to market those activities. It did not impose a duty to operate outside the airport’s normal published hours (BAL had simply chosen to do so at various times over the early years of the contract). The court interpreted this phrase in the context of the agreement as a whole. It noted the specific and detailed marketing and advertising obligations set out in other parts of the contract. This supported Jet2’s argument that the duty to “promote” went beyond mere marketing. The judge preferred that interpretation.
BAL’s additional duty was to use all reasonable endeavours to provide a cost base that would facilitate Jet2’s low cost pricing. The court held that meant providing – in a broad sense – facilities and services that would bring about low cost pricing.
Against the relevant factual background, the object to which both endeavours obligations were directed therefore included securing flexible operating hours beyond those published by BAL.
Were BAL’s Endeavours Duties Limited by its Commercial Interests?
BAL argued that its endeavours duties did not oblige it to do anything contrary to its legitimate commercial interests. Keeping the airport open outside its published operating hours for single flights would increase BAL’s losses.
Prior authority seemed to support BAL’s view. For example, in Yewbelle v. London Green Developments,3 Yewbelle had to use all reasonable endeavours to get a third party to consent to a suitable planning agreement. The court said Yewbelle did not have to sacrifice its own commercial interests in trying to achieve that objective. The court in EDI adopted a similar analysis. EDI had an obligation to use all reasonable endeavours to bring a development project, needing planning consent, to fruition. The judge held EDI did not have to act against its own commercial interests unless the contract expressly required this.
Jet2 reviewed this earlier case law. It distinguished Yewbelle and EDI; the endeavours there involved seeking agreement from a third party. In these cases, the court thought, the sacrifice of the promisor’s commercial interests is clearly not required. Thus if, for example, the third party will only agree to the desired end at a prohibitive price or on other unrealistic terms, the promisor does not have to capitulate. But BAL’s position was different. It did not have to obtain anything from a third party. The objectives underlying its endeavours obligations were within its own power to achieve. BAL was in breach of contract by refusing to allow any Jet2 flights outside the published operating hours.
Practical Implications for Employers
The court in Jet2 made clear that the context of the agreement always affects the correct interpretation of an endeavours clause. This means that the same endeavours formula may mean different things in different factual scenarios. And there is big difference between endeavours that require agreement from third parties and those that do not. Many endeavours obligations that employers enter into do require third party agreement, such as consent from an insurer to extend insurance cover. Others, however, such as an obligation not to bad-mouth an employee, or to persuade an internal body, such as a remuneration committee, do not. To avoid ambiguity and decrease the potential for later dispute, consider the following steps when drafting an endeavours clause:
- Include as much detail as possible about the objects of the endeavours. In Jet2, the objectives to which the endeavours were directed were broad based and general. Fleshing out the bones could have clarified the scope of the duty.
- Also, specify as precisely as possible what the promisor must do to satisfy the clause. Examples might be the period of endeavours or level of any expenditure required.
- Spelling out steps the party does not have to take can also help. In Jet2, the parties could have said, for example, that BAL did not have to agree to operate flights outside the published hours unless relevant financial criteria were met, or perhaps an extra charge paid.
- Make explicit provision if you want to be able to take your own commercial interests into account when performing the endeavours duty. This is particularly important if the object of the endeavours is within the promisor’s control. This may be especially relevant in the context of an endeavour to allow the exercise of share options or other incentive arrangements.