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Best Endeavours & Reasonable Endeavours – What Do They Mean?
June 14, 2012 | Construction Contracts
In the construction industry, it is very common to see clauses in contracts which require a contracting party to exercise “best endeavours” or “reasonable endeavours” to ensure that a particular objective is achieved. These clauses describe the amount of effort a party is required to put in to achieving an objective. They are often seen as beneficial because they mean that even if a party fails to achieve the desired objective, they will not be in breach of contract, provided that they can establish they have exercised the requisite level of endeavours.
Endeavours clauses often crop up in pre-contract negotiations, with many parties willing to accept an obligation to exercise “reasonable endeavours”, but drawing the line at a “best endeavours” obligation. However, contracting parties rarely appreciate either the legal meaning of the terms “reasonable” and “best” endeavours, or what they may be required to do to comply with such clauses. This can lead to disputes about whether a party has fulfilled its endeavours obligation.
The obligation to exercise “best endeavours” has been defined by the courts as:
- An obligation to leave no stone unturned, within the bounds of reason (Sheffield District Railway Company v Great Central Railway Company).
- An obligation to do what can reasonably be done in the circumstances, short of acting in a way which would ruin the company (Terrell v Mabie Todd & Co).
In the recent case of Jet2.com v Blackpool Airport, the Court of Appeal held that a clause requiring the airport to exercise best endeavours to promote Jet2’s business meant that the airport was required to do all it reasonably could to enable Jet2’s business to succeed and grow, even if that caused the airport to suffer some degree of financial loss.
A best endeavours obligation is widely understood to impose the most demanding sort of obligation on a contracting party (although it falls short of an absolute obligation which states that you must achieve an objective). It is likely to entail:
- taking all steps within your power in order to achieve the desired result; and
- if necessary, incurring a certain level of cost (but not to the extent of causing your own financial ruin).
The obligation to exercise “reasonable endeavours” has been defined by the courts as:
- An obligation to go on exercising endeavours until the point when all reasonable endeavours are exhausted and you would simply be repeating yourself to pursue the same options again. This does not involve sacrificing your own commercial interests (Yewbelle v London Green).
- An obligation to take one reasonable course of action, whereas a “best endeavours” obligation requires you to take all reasonable courses of action which are available (Rhodia International Holdings v Huntsman International).
The term “reasonable endeavours” is generally accepted as being less onerous than “best endeavours”. A party who is required to use “reasonable endeavours” will probably not have to sacrifice its own commercial interests. Nevertheless, it will still be necessary to put in a significant amount of effort in an attempt to achieve the desired objective.
All Reasonable Endeavours
An obligation to exercise “all reasonable endeavours” is often seen as a halfway house between “reasonable” and “best” endeavours. Unfortunately, due to conflicting decisions of the courts, the meaning of “all reasonable endeavours” is far from clear.
In Rhodia v Huntsman, the court stated that an obligation to use “all reasonable endeavours” equates to an obligation to use “best endeavours”, suggesting that “all reasonable endeavours” may not be a suitable compromise for a party seeking to avoid a “best endeavours” obligation. In contrast, in CPC Group v Qatari, it was held that “all reasonable endeavours” is not equivalent to a best endeavours clause and does not always require the performing party to sacrifice its own commercial interests.
Given the ambiguity of the term “all reasonable endeavours”, it may be advisable to avoid using it, regardless of how attractive a compromise between “reasonable” and “best” it may seem.
It is very easy to become drawn into arguments about how much effort the party performing the endeavours is required to make. The best way of avoiding disputes about what an endeavours obligation entails is to specifically set out in the contract the steps the performing party is required to take to fulfil its obligation. This might include specifying:
- what level of costs the performing party will be required to incur;
- how long the objective should be pursued for;
- any particular actions the performing party will and will not be expected to take;
- whether the performing party is expected to take legal action (if possible) to achieve the objective; and
- the extent to which the performing party is allowed to consider its own interests.
Clearly, if this approach is adopted, it will require more pre-contract negotiations, not least because the party who is being required to exercise endeavours may be much less keen to agree to the obligation once it becomes clear exactly how much effort will be involved!
- Contracting parties must never assume the terms “best”, “all reasonable” and “reasonable” endeavours have a clear legal meaning.
- It is important to remember that the meaning of an endeavours clause will always be dictated by the facts of the case and the terms of the contract in question. What is a reasonable endeavour in the context of one contract may not be reasonable in the context of another.
- Although endeavours clauses can be a useful shorthand way of describing the level of effort a party must put into achieving an objective, using an endeavours clause can lead to problems if the parties later disagree about what steps the performing party was required to take.
- As a general rule, “best endeavours” clauses are the most onerous type of endeavours clause a contracting party can sign up to. They will typically require the performing party to pursue all reasonable courses of action and perhaps even incur some level of expenditure in order to achieve the objective. For this reason, many businesses will wish to avoid agreeing to a best endeavours obligation.
- “Reasonable endeavours” clauses are much less onerous than “best endeavours” clauses. They will require the performing party to put in considerable effort, but usually not to the extent of sacrificing its own commercial interests.
- “All reasonable endeavours” clauses should be viewed with caution, as their meaning is unclear and they may be just as onerous a “best endeavours” clause.
- It is worth considering minimising the uncertainty of an endeavours clause by setting out exactly what steps the performing party must take to fulfil its obligations.
This article contains information of general interest about current legal issues, but does not provide legal advice. It is prepared for the general information of our clients and other interested parties. This article should not be relied upon in any specific situation without appropriate legal advice. If you require legal advice on any of the issues raised in this article, please contact one of our specialist construction lawyers.
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