‘Best’ endeavours, ‘reasonable endeavours’, even ‘reasonable but commercially prudent endeavours’ – which is right for you? In this article we review the spectrum of ‘endeavours’ and the degrees of obligation put upon contracting parties.
What is an ‘endeavours clause’?
Endeavours clauses allow parties to agree to meet specified objectives, without promising to be bound to an absolute contractual obligation. The obligating party is the obligor, and the person receiving the benefit of the obligation’s fulfilment is the obligee.
The meaning of an endeavours clause is ascertained using normal rules of contractual interpretation, i.e. assessing the clause when the contract is formed, by reference to the:
- Clause terms.
- Other provisions of the agreement.
- Agreement’s overall purpose.
- Surrounding commercial context and commercial common sense.
However, whether a party commits to using ‘reasonable’ or ‘best’ endeavours can have serious consequences.
Endeavours: a spectrum
Best endeavours
The term best endeavours is at the top of the list of responsibility put on the obligor. As noted in Sheffield District Railway Co v Great Central Railway Co [1911] 27 TLR 451, the phrase “means what the words say; they do not mean second-best endeavours”.
Caselaw suggests that while an onerous obligation, it is not absolute – nor the “next best thing to an absolute obligation or guarantee” (Midland Land Reclamation Ltd v Warren Energy [1997] EWHC 375 (TCC)). According to the Court of Appeal in IBM United Kingdom Ltd v Rockware Glass Ltd [1980] FSR 335, ‘best endeavours’ requires the obligor “to take all those steps in their power … being steps which a prudent, determined and reasonable [obligee], acting in his own interests and desiring to achieve that result, would take”.
There is a strong emphasis on what a reasonable person should do, although requiring them to take “all those steps in their power” is a rather high bar. The focus here is the obligee’s perspective – i.e., not the person fulfilling the obligation but the person benefitting from it.
Courts have suggested two ways someone may breach this obligation:
- The person has not been genuine in their efforts to achieve the required objective; or
- The person, even if acting in good faith, has failed to do everything they reasonably could.
From a client point of view, agreeing to best endeavours should be avoided where possible due to the high level of responsibility put upon the obligor to fulfil their obligation(s), which may involve incurring expenditure.
All reasonable endeavours
While generally seen as a compromise between best and reasonable endeavours, ‘all reasonable endeavours’ is not clear cut when assessing whether it requires sacrificing commercial interests, or if it is to be judged from the obligee’s perspective (like best endeavours) or the obligor’s (reasonable endeavours). Interestingly, it is the form of drafting we are frequently seeing in agreements, alongside reasonable endeavours (explored below).
In CIS General Insurance v IBM [2021] EWHC 347, while noted that both best and all reasonable endeavours may involve “an accumulation of moderate or sensible steps”, in “many cases there may be no discernible difference in practice”. Instead, best endeavours may go beyond this, involving “taking steps that were against [the obligor’s] own financial interests”, or that “required extraordinary efforts”.
It appears ‘best endeavours’ remains at the top of the list for obligations put upon the obligor. However, whether financial interests are to be impacted when complying with such an obligation is assessed on a case-by-case basis.
Reasonable endeavours
This is another term we are seeing frequently incorporated into agreements. The key question to assess if a party has used their reasonable endeavours is what “a reasonable and prudent” person “acting properly in their own commercial interest and applying their minds to their contractual obligation” would do to achieve the objective (UBH (Mechanical Services) Ltd v Standard Life Assurance Company, The Times, 13 November 1986). In contrast to ‘best endeavours’, the focus is what a reasonable obligor would do.
There appears to be a balance between an objective approach and assessing the obligor’s circumstances. The obligor is not usually required to sacrifice its commercial interests and may be able to consider the impact on its own profitability; a key difference to ‘best endeavours’ which may require obligees to take steps to fulfil their obligations at the expense of profitability. In Jet2.com v Blackpool Airport Ltd [2011] EWHC 1529, Blackpool Airport was required to open outside of its usual operating hours despite incurring a loss due to Jet2.com’s business model.
It is important to note that while less onerous than ‘best endeavours’, promising reasonable endeavours may become an onerous obligation if coupled with a clear objective. Furthermore, manipulating circumstances to prevent an obligation being satisfied is almost always a breach: in Gaia Ventures Ltd v Abbeygate Helical (Leisure Plaza) Ltd [2019] EWCA Civ 823 the obligee manipulated a timetable to delay development until required funding was in place and to avoid making an overage payment, and was held to have breached the contractual clause.
Key characteristics
Brooke Homes (Bicester) Ltd v Portfolio Property Partners Ltd [2021] EWHC 3015 provided the below distinctions:
- Reasonable endeavours – if one reasonable path is taken then the obligation may be discharged;
- All reasonable endeavours – may require all reasonable paths/actions to be exhausted, but unlikely to require obligor to sacrifice its own commercial interests; and
- Best endeavours – more likely to require obligor to sacrifice (some) commercial interests
What about ‘all reasonable but commercially prudent endeavours’?
In CPC Group Ltd v Qatari Diar Real Estate Investment Company [2010] EWHC 1535 it was accepted that the obligor was required to take all reasonable steps to discharge the obligation, but was “permitted to consider its own commercial interests in deciding how to respond”. However, a distinction was made between being able to consider commercial interests but not political interests, to the extent that they differed from its commercial interests.
Conclusion
The spectrum of the endeavours clause has conflicting caselaw. The general consensus is an obligor agreeing to use their ‘best endeavours’ is agreeing to a more onerous obligation compared to ‘reasonable endeavours’. However, there is no definite answer whether an obligation would require sacrificing commercial interests, or what is deemed ‘reasonable’ enough to discharge the obligation – this would depend on the agreement, the obligation(s) and the parties involved.