Most contracts will have something to say about how far the parties must go in order to meet their obligations.

Some aspects will obviously be fundamental, such as the services and underlying systems in a technology contract. The requirement to deliver these will be absolute (subject perhaps to tolerances in the performance metrics).

But there will usually be secondary obligations - perhaps connected with governance, remedial action or relations with third parties - where it’s only really possible to ‘endeavour’ to fulfil the required commitment.

There are all manner of variations but ‘endeavours’ obligations typically range from ‘best’ to ‘all reasonable’ to merely ‘reasonable’ endeavours. Unfortunately, each has become so commonplace that lawyers tend to use them without considering what’s actually likely to be needed to achieve a particular outcome. Worse, they often serve as magnets for negotiators intent on taking positions rather than focusing on commercial interests. So it pays to understand what the words mean and what you might be committing yourself to.

Broadly, the effort required under an endeavours obligation should be viewed as a spectrum running from ‘best endeavours’ (the most onerous) to ‘all reasonable endeavours’ (somewhere in the middle) to ‘reasonable endeavours’ at the easier end.

However, there are no settled definitions and case law is often inconsistent, with interpretations turning on particular facts. All we can say with any degree of confidence is that ‘reasonable endeavours’ probably require a party to take one reasonable course of action until it’s exhausted, and in considering what course to take it will probably be entitled to consider its own commcercial interests. ‘Best endeavours’ on the other hand is likely to necessitate exhausting all reasonable courses and may trump the obligor’s commercial interests (at least up to a point).

In this post I’ve (ahem) ‘endeavoured’ to summarize the jurisprudence and offer some practical advice on how to deal with the issue when managing contracts and when negotiating.

1. Best endeavours

The original formulation of ‘best endeavours’ is that it requires a party to take “all those steps in their power ... which a prudent, determined and reasonable [person], acting in his own interests and desiring to achieve that result, would take” (Sheffield District Railway Co v Great Central Railway (1911)). This is supported by a subsequent case (Terrell v Mabie Todd & Co. Limited (1953)) but that case also makes it clear a party isn’t compelled to do things which would ruin its business.

So to dispell one of the most common misconceptions among negotiators, even ‘best endeavours’ will have a basis around ‘reasonable actions’ with some scope for self-interest to influence conduct (IBM UK Ltd v Rockware Glass Ltd (1980)).

Other jurisprudence has held ‘best endeavours’ to mean:

1. •doing what can be reasonably done in the circumstances (by reference to a reasonable and prudent board of directors acting properly in the interests of shareholders) (Terrell v Mabie Todd & Co. Limited);
   

2. •leaving no stone unturned (Sheffield District Railway Co v Great Central Railway);
   

3. •not requiring actions which would be detrimental to the financial interests of the company or would undermine commercial standing or goodwill (Rackham v Peek Foods Limited (1990)).
   

It’s also important to remember is that when considering the meaning of ‘best endeavours’ the courts will asssess the commercial viability (in the circumstances) of an action and the practical outcome.

2. Reasonable endeavours

‘Reasonable endeavours’ has not been scrutinized to anything like the same extent, but the rule of thumb is that it is much less onerous than ‘best endeavours’ (UBH (Mechanical Services) Limited v Standard Life Assurance (1986)) and requires a balance between fulfilling a contractual obligation on the one hand and commercial considerations (such as cost, reputation and goodwill) on the other.

A fairly recent decision (Rhodia International v Huntsman (2007)) also suggests that where numerous alternative courses are available, only one is necessary rather than all, or even many.

In practice, ‘reasonable endeavours’ is likely to require all action which is commerially practicable in the circumstances, but only to the extent this is not to the detriment of a party’s commercial interests. It is also not likely to require the diversion of resources from elsewhere in the business.

‘Commercial interests’ may include relations with third parties, reputation, financial interests and cost, and the chances of achieving the desired result is also of prime importance (Phillips Petroleun Co UK and Others v Enron Europe Ltd (1997)).

(The Phillips Petroleum case also famously held that the phrase “reasonable endeavours to agree” does not mean an obligation to agree something reasonable.)

3. All reasonable endeavours

‘All reasonable endeavours’ is (believe it or not) even less clear than the terms examined above. But there is some useful insight from a 2010 case, CPC Group v Qatari Diar Real Estate Investment.

The case was well publicised because it arose from the Qatari sovereign wealth fund’s withdrawal of a planning application for the redevelopment of London’s Chelsea Barracks following criticism by Prince Charles. One aspect of the case was the Court’s judgment that by withdrawing the application Qatari had not breached an obligation to use “all reasonable but commercially prudent” endeavours to secure planning permission.

CPC’s counsel had argued that ‘all reasonable endeavours’ was the same as ‘best endeavours’ and that Qatari’s financial interests were therfore trumped by its contractual obligation. The Court disagreed, citing Yewbelle Ltd v London Green Developments (2007) where it was held that an ‘all reasonable endeavours’ obligation did not require a party to sacrifice its own commercial interests. The judge found that the clauses in Qatari were “not equivalent to a ‘best endeavours’ obligation, and they did not require [Qatari] to ignore or forego its commercial interests. Instead, they allow [it] to consider its own commercial interests alongside those of CPC, and require it to take all reasonable steps to procure the planning permission, provided those steps are commercially prudent”.

Yet another nuance has emerged following a recent Scottish case, EDI Central Limited v National Car Parks Limited (2010), which looked at whether a developer (EDI) had fulfilled its obligation to use ‘all reasonable endeavours’ to pursue development opportunities for the site of an NCP car park in Edinburgh. The Court followed the judgment in Yewbelle except that the judge went on to conclude that ‘all reasonable endeavours’ may require a party to tell the other about any difficulties it is encountering and, in an appropriate case, to explore whether the other party has a possible solution.

4. Practical advice

So where does this leave us when faced with contract drafting and negotiation?

The sensible approach must always be to consider the commercial background and other likely circumstances in which an endeavours obligation might be called upon. This should indicate the point (or at least the region) on the spectrum where the obligation lies.

If possible, rather than relying on generic drafting, specify what steps are required and when. So for example, are there specific activities envisaged? Is the other party required to incur expenditure (and, if so, how much)?

Likewise, if you’re taking on the obligation you should look to exclude anything you consider goes beyond ‘reasonable’ (such as taking legal action and pursuing a third party through the courts). 

Regardless of the case law it is prudent to say so if an obligation is not intended to force a party to act against its own commercial interests.

Taking note of comments by the Court in EDI, it may be worth requiring progress updates and perhaps even to insist that the other party takes due consideration of suggested alternative approaches.

Finally, remember that ‘endeavours’ deal with conduct rather than outcomes. If what you’re after is a ‘reasonable outcome’ or ‘reasonable result’ then the drafting must say so.