Bulletins | February 11, 2016

Endeavours clauses: how best to deal with uncertainty in contracts?

Sometimes it is not certain whether an objective in a contract can be achieved, for example obtaining planning permission or entering into a contract with a third party. Rather than saying that the objective will be achieved, and risking a breach of contract, parties can agree that one of them will try to achieve it. But how hard does that party have to try, and what lengths do they have to go to?

Two commonly used phrases are ‘best endeavours’ and ‘reasonable endeavours’. These sound quite vague but some general rules that courts have used to interpret these phrases help to establish what they mean in practice.

Best endeavours

This wording imposes a more onerous obligation than reasonable endeavours. Where the obliged party has to use ‘best endeavours’, it must take steps which a reasonable person acting in his own interests would take.

The party might have to:

  • act in the interests of the obliging party;
  • pursue more than one avenue, and to keep going until all options are exhausted; and
  • incur significant expenditure, for example it might have to bear the cost of litigation and the risk of failure.  In Jet2.com Ltd v Blackpool Airport Ltd [2012] EWCA Civ 417, Blackpool Airport was required to open outside of its normal opening hours to accommodate Jet2 flights despite the significant cost in doing so, to satisfy the objective of promoting Jet2.com’s low cost services.

 However, this is not the same as saying that the party absolutely has to achieve the objective. The obliged party:

  • is not required to take steps that would be commercially fatal, for example steps which would have a high risk of resulting in bankruptcy; and
  • is not required to take steps that would have no prospect of success.

Reasonable endeavours

An obligation to use reasonable endeavours to achieve an objective is much less onerous, although it can still be a significant burden.

The party:

  • does not have to sacrifice its own commercial interests, and what steps are reasonable to take will depend on the circumstances e.g. the party’s financial resources and reputation;
  • will usually only have to pursue one avenue, even where there are multiple courses which could be taken; and
  • does not have to take steps that would be unlikely to result in success (unlike ‘best endeavours’ which obliges the party to take all steps unless there is no prospect of success).

The importance of clarity

Rather than relying on the interpretations given by the courts, a safer approach is to set out in the contract exactly what it is that the obliged party is required to do.

  • What is the objective? The objective should be set out as clearly as possible. Think of what it means in practical terms. If the clause is too vague, there is the danger that it will not be valid at all. In the Blackpool Airport case, the court found that a vague objective such as one to facilitate Jet2’s low cost pricing would be unenforceable.
  • What will the obliged party try to do? Consider specific steps or a specific course of action that should be carried out, and the limits of the obligation. Should the party be liable for any expenditure? Must legal action be taken to achieve the objective if necessary? Can the other party step in and pursue the objective itself?
  • Set a timeframe: for how long should the objective be pursued?
  • Appeals: establish whether and in what circumstances the obliged party is required to appeal a decision such as rejection of an application for planning permission. Consider how often, and in what timeframe, appeals will be made. Will the obliging party be able to exert any control over how the appeal is made?
  • Keep a record of steps taken to comply with the obligation.
  • Update the obliging party on progress, particularly if it starts to seem unlikely that the objective will be achieved.

Time spent at the outset of a transaction, working through the parameters and steps relating to any uncertain event or outcome, which are then expressly set out in the contract should help to avoid uncertainty and disputes in the future.