‘Endeavours clauses’ are becoming increasingly popular negotiation tools as commercial contracts grow in their complexity.They provide contracting parties with enough leeway to perform their contractual obligations without being restricted to rigid methods of performance. They do, however, present an issue in their inherent uncertainty, the antithesis of what a commercial lawyer strives to achieve.
What are Endeavours Clauses?
Endeavours clauses involve an agreement to perform a contractual obligation without specifying the steps which must be taken to achieve this. For example, a party to a contract might require planning permission for a development. If the application process is particularly difficult for the specified area, an endeavour clause would be useful in that the party would only be obliged to endeavour to gain planning permission so as to avoid being in breach of contract if the permission is not successfully gained. They are an attractive tool in negotiation in that they mitigate the risk of breach of contract that comes with setting absolute objectives. They are also useful when the steps required to perform an obligation are not immediately clear at the point of agreement.
There are, however, a number of issues with using endeavours clauses. The most pressing issue is that they are naturally uncertain. While it is possible to frame an endeavours clause by specifying certain steps which must be taken, they largely leave an obligor to their own devices in deciding how to perform an obligation. This poses an important question: when has the obligation to endeavour been performed?
The Irish courts haven’t considered the issue of endeavours clauses in depth so it is worth examining the English Courts’ approach, given its persuasive authority in Ireland. There have been a number of recent decisions in the High Court of England which are useful in highlighting how endeavours clauses can be interpreted. From these decisions it can be said that the courts have taken a case-sensitive view of these clauses, in that each clause will be read in light of the facts of the case. For example, in Arsenal FC v Reed (2014) the High Court looked past the plain meaning of the written clause and considered the commercial context in which the parties operated. More recently in Bristol Rovers Ltd v Sainsbury’s Supermarkets Ltd (2016) the Court took into account various compromises and settlements that the parties had made when interpreting the contractual clause. The approach was aptly summed up in Jet2.com v Blackpool Airport (2011) where the Court held that the meaning of an endeavours clause is “a question of construction not extrapolation” in that it must be interpreted on its facts rather than by reference to previous cases.
This situation is evidently problematic to commercial lawyers. When forming a contract, parties will aim to avoid potential litigation. Even more so, they generally strive for certainty in their negotiations in order to avoid the risks associated with a case being decided by a judge, without any precedent to predict the outcome. The courts are generally reluctant to declare contracts unenforceable and so will try to enforce any problematic endeavours clauses. Therefore, it can be said that commercial lawyers can expect an endeavours clause to be enforced, other than in exceptional circumstances where the clause is so extreme as to render performance impossible.
Types of Endeavours Clauses
This clause has been described as the most onerous type of endeavours clause. Where an obligor is expected to use his or her “best endeavours” to carry out an action, they are expected to take all available steps and leave no stone unturned, figuratively. This is, however, qualified by reasonableness. For example, in the above Jet2.com case the Court held that a party may be expected to incur some personal detriment, such as operating at a loss, but that they would not be expected to act indifferently in terms of their own survival. Equally, an obligor would not be expected to honour an endeavours clause that would entirely disregard their own commercial interests or have ruinous effects on their own business. Similarly, if an obligor is expected to appeal any unsuccessful applications, such as planning permission, they would not be absolutely obliged to appeal if it is effectively certain that they will not succeed.
This type of clause is at the other end of the spectrum and can be read narrowly as obliging the party to take only reasonable courses of action to perform their obligation. In Rhodia International Holdings v Huntsman International (2007) the Court said that this could, arguably, be satisfied by pursuing one course of action. It also allows the obligor to consider their own interests when performing the obligation.
‘All Reasonable Endeavours’
This is somewhat of a middle-ground between the two clauses above. It also invites considerably more uncertainty. It has been likened to the above ‘best endeavours’ clause with a great emphasis on reasonableness. The courts have taken a particularly case-sensitive approach to this type of clause as the outcome can heavily depend on the circumstances of the case.
As mentioned, endeavours clauses have a place in negotiations by enabling flexibility and avoiding contracts being breached. The following are a number of ways to mitigate the uncertainty that they can often lead to:
- The drafting lawyers should include as much direction as possible when using an endeavours clause. By way of example, when a party is obliged to seek planning permission, make it clear in what cases they should be expected to appeal any unsuccessful decisions.
- Clearly identifying the subject and objective of the clause will greatly improve its certainty.
- Clauses should clearly identify the obligations on the parties, to ensure that the contract will not be deemed void for uncertainty. For example, where an agreement states that a party will agree to purchase land for a price that will be determined after the signature of the contract, this may be held as an ‘agreement to agree’ rather than a legally binding contract.
- Where possible, the parties should make their intentions clear when utilising an endeavours clause as the courts are likely to factor in the circumstances of the case when deciding whether or not the obligation has been performed.