Parties are often required to use certain endeavours to do certain things when negotiating contracts. The phrases usually used are ‘best endeavours’, ‘reasonable endeavours’ and ‘all reasonable endeavours’. What do these very similar phrases mean? What is the difference between them?
The starting point is that this phrase ‘means what the words say; they do not mean second-best endeavours’.
This has been defined by the courts to require the person under the obligation ‘to take all those steps in their power which are capable of producing the desired results … being steps which a prudent, determined and reasonable person acting in his own interests and desiring to achieve that result, would take’.
Although time-consuming, it is not (contrary to popular understanding) an absolute obligation, nor is it ‘the next best thing to an absolute obligation or a guarantee’.
One particularly striking point is the reference to reasonableness, such as the requirement that best endeavours ‘must at least be the doing of all that reasonable persons reasonably could do in the circumstances’.
The following examples show how this principle applies in practice:
- A best endeavours obligation may require expenditure on behalf of the person undertaking the obligation. For example, it obliged Blackpool Airport to open outside of its normal operating hours despite the fact it incurred a loss in doing so as the ability to schedule flights during these times was essential to one of its airline's business model.
- However, depending on the nature and terms of the contract in question, the person undertaking 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’. Accordingly, the negotiating line sometimes used about best endeavours, "I'm not going to bankrupt my business", can be dismissed
- Whilst an obligation to use best endeavours may well impose an obligation to litigate or appeal against a decision, this does not require action to be taken that is doomed to failure or would be unreasonable in all the circumstances
- It may be overridden by other duties. In one case an obligation on the directors of a company to use best endeavours to pass a resolution did not require the directors to give bad advice to the shareholders and continue to recommend the resolution once it ceased to be in the company's interests
Reasonable endeavours are less onerous.
One formulation involves the person undertaking the assessment of what is to be done balancing ‘the weight of their contractual obligation’ to the other party against ‘all relevant commercial considerations’ such as the person undertaking the obligation’s relations with third parties, its reputation, and the cost of that course of action.
It has also been stated as a question of ‘what would a reasonable and prudent person acting properly in their own commercial interest and applying their minds to their contractual obligation have done to try’ to achieve the objective.
While an objective approach has to be used, it appears it should still reflect the circumstances and position of the person undertaking the obligation. Crucially, the person undertaking the obligation is not normally required to sacrifice its own commercial interests. This is one of the major differences between a reasonable and best endeavours obligation.
When assessing this obligation, ‘the chances of achieving the desired result would also be of prime importance’. Moreover, once the person undertaking the obligation can do nothing more in terms of reasonable steps to achieve the objective, it is no longer obliged to try.
By way of example, this obligation might not extend to taking legal action of a doubtful outcome, but that is not to say it would never require any legal action to be brought, as is sometimes suggested.
It has also been suggested that reasonable endeavours only requires a party to take one reasonable course of action rather than many. It is not entirely clear how this could apply in practice, but may constitute another limitation on a reasonable endeavours obligation.
While this obligation is less stringent than that of best endeavours, it is not toothless. Coupled with a clear objective it is capable of constituting an enforceable obligation that may not always be easy to satisfy.
All Reasonable Endeavours
The third commonly used endeavours clause is ‘all reasonable endeavours’. It is commonly adopted as a compromise between best and reasonable endeavours but its precise meaning has not really been settled.
Courts have stated that it is ‘probably a middle position somewhere between the two, implying something more than reasonable endeavours but less than best endeavours’. This reflects the natural and ordinary reading of the words.
In one case, however, it was suggested that an ‘obligation to use reasonable endeavours to achieve the aim probably only requires a party to take one reasonable course, not all of them, whereas an obligation to use best endeavours probably requires a party to take all the reasonable courses he can. In that context, it may well be that an obligation to use all reasonable endeavours equates with using best endeavours’. This case is sometimes used to argue that all reasonable endeavours equates to best endeavours. However, the comment in this case may just relate to the number of courses of action a party needs to take and not to the other distinctions between these obligations (such as the extent to which a party might have to compromise its commercial position).
There is also a question of whether a party can have regard to his own financial interests. Some cases suggest that financial considerations are relevant and a person undertaking an obligation does not have to do it if it would make their activities commercially unviable. Other cases have suggested this not relevant
This will also depend on the wording of the obligation, for example, an obligation to ensure a redevelopment was ‘procured with all reasonable endeavours as would be expected of a normal prudent commercial developer experienced in developments of that nature’ indicated that the particular circumstances of the person undertaking the obligation were not relevant when making this assessment
There are several variations of these three most commonly used endeavours clauses.
For example, the terms ‘commercially reasonable endeavours’ and ‘reasonable commercial endeavours’ are often used to try and soften a reasonable endeavours obligation. However, there is little precedent to support these interpretations, and it is not clear that the courts would differentiate between the terms, given that a reasonable endeavours obligation already involves considering all relevant commercial factors.
Similarly, the term ‘utmost endeavours’ is sometimes seen as a more onerous obligation than a best endeavours clause, though again there is little precedent on its use in commercial contracts.
If a modification to one of the more common endeavours clauses is required it may be better to consider what the parties should actually do in practice, rather than relying on wordplay.