Many commercial contracts include the terms “best endeavours”, “reasonable endeavours” or “all reasonable endeavours”, particularly in connection with obligations in respect of which a party is unwilling make an absolute commitment, but where that party is nevertheless expected to “try” to fulfil the obligations in question.
The effect of using endeavours clauses is widely misunderstood. It is not always clear in practice what level of effort is required by each of the various permutations (the above three are merely the most commonly-used in a wide spectrum of similar phrases).
“Best Endeavours”
The meaning of the term “best endeavours” has been modified significantly over the years, but the starting point is that the phrase “means what the words say; they do not mean second-best endeavours” (Sheffield District Railway Co v Great Central Railway Co [1911] 27 TLR 451).
In other judgments courts have ruled that best endeavours impose an obligation:
- to do what can reasonably be done in the circumstances;
- to leave no stone unturned; but
- that does not require actions which would lead to financial ruin of the company or undermine its commercial standing or goodwill.
Best endeavours clauses are now judged by standards of reasonableness. “All a reasonable person could do in the circumstances” has become a short way of stating the rule. Importantly, the best endeavours obligation does not extend to a situation where a company is required to put itself at the risk of ruinous financial loss to fulfill its obligation, nor does it require a party to undertake steps that have no likelihood of success.
In practice, a company subject to a best endeavours obligation:
- must take all commercially-practicable action having regard to costs and the degree of difficulty;
- may be required to incur significant expenditure; and
- may be required to divert resources elsewhere within the business.
In Jet2.com v Blackpool Airport Ltd [2012] EWCA Civ 417, the airport entered into a 15-year contact with Jet2.com, a low cost airline. The contract included a general provision which contained an obligation on both parties to “… cooperate together and use their best endeavours to promote Jet2.com’s low cost services from Blackpool Airport”. The Court of Appeal held that this obligation to use best efforts to promote an airline’s low cost services gave rise to a specific duty on the airport operator to accept arrival and departures outside the airport’s normal operating hours. This was the case even though the contract did not make reference to operating hours and the Court was aware the airport operator would lose money as a result.
In a more recent case, Astor Management AG v Atalaya Mining plc [2017], Atalaya tried to argue that an obligation to use reasonable endeavours was only enforceable if:
- “the object of the endeavours is sufficiently certain”; and
- “there are sufficient objective criteria by which to evaluate the reasonableness of the endeavours”.
The judge disagreed, ruling:
“The role of the court in a commercial dispute is to give legal effect to what the parties have agreed, not to throw its hands in the air and refuse to do so because the parties have not made its task easy.”
Reasonable Endeavours
The obligations imposed by the term “reasonable endeavours” are less onerous than those of “best endeavours”. The contractual obligation to use reasonable endeavours requires the party:
- to give it “an honest try” so as not to hinder the fulfilment of the objective; and
- take all commercially practicable action, but only to the extent that such action is not detrimental to a party’s commercial interests.
A party subject to a reasonable endeavours obligation may be required to incur limited expenditure, however as expressed above would not require the party to compromise its commercial interests. When determining what “reasonable endeavours” means the recent English case of Minerva (Wandsworth) Ltd v Greenland Ram (London Ltd [2017] EWHC 1457 suggested applying an objective approach where you should ask “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?”
All Reasonable Endeavours
The “all reasonable endeavours” clause is considered by the English Courts to sit somewhere between “best endeavours” and “reasonable endeavours”, implying something more than reasonable endeavours but less than best endeavours. In practice however, determining what is meant by “all reasonable endeavours” can be somewhat unclear. For instance, whether a party is obliged to incur expenditure in fulfilling its obligations or compromise its commercial interests, is invariably fact specific and determined on a case by case basis.
Endeavours Clauses in Omani Law Contracts
In Oman, endeavours clauses frequently appear in a wide variety of contracts, including shareholders” agreements, joint venture agreements, agency agreements and supply agreements. When faced with an endeavours clause, the Omani Courts would probably interpret “best endeavours” as imposing more onerous requirements than a “reasonable endeavours” or “all reasonable endeavours” provision. All things considered, the facts and circumstances of a case are likely to take precedence in determining how an Omani court would interpret an endeavours clause in a contract governed by Omani law.
Conclusion
If a party has agreed to a “best endeavours”, “reasonable endeavours” or “all reasonable endeavours” obligation in a contract, they should not treat it as a non-obligation. Otherwise, the risk for non-performance remains. Instead, they should understand that some real efforts will be required of them particularly if a course of action has been prescribed as part of that obligation. Equally, the parties need to be clear about what it is that they are trying to achieve in order to avoid an endeavours clause being ignored by a court or arbitral tribunal for uncertainty.
