Hi and a belated Happy New Year to all as we march on into 2022.
The first commercial update of the year following a break with the clan Margand focuses on that well used phrase in contracts, ‘endeavours’ and what it might mean in practice.
As you may already know, the various categories of endeavours wording used in contracts are:
- Reasonable endeavours. This obligation can be discharged if one reasonable path is taken.
- All reasonable endeavours. This requires all reasonable paths or actions to be exhausted to discharge the obligation. Depending on the wording or context, this might require some subordination of commercial interests, although less likely than if there is an obligation to use best endeavours.
- Best endeavours. This might require, depending on their context, the sacrifice of some commercial interests on the part of the party. An obligation to use all reasonable endeavours is less likely to do so.
In addition to the above ,there has also been case law on the meaning of “commercially reasonable endeavours” which is a phrase often used to try to water down a reasonable endeavours obligation.
An example of this would be the case of Barclays Bank plc v UniCredit Bank AG & anr  where the High Court held that acting commercially reasonably only required the party to act rationally, though in the context of a particular contractual power or discretion and allowed the party exercising the power/discretion to consider its own commercial interests to the exclusion of the other party’s.
In practice though, it is not certain whether this phrasing would be treated any differently to a reasonable endeavours obligation.
The trigger for this article though has been the recent case of Brooke Homes (Bicester) Ltd v Portfolio Property Partners Ltd & Ors.
In it, the High Court awarded damages of £13.4 million to a property development company after negotiations to develop an eco-town in Bicester broke down. The Defendants had entered into agreements with the Claimant which included obligations on the parties to, ‘use all reasonable endeavours’ and ‘act in good faith’ concerning entering into a conditional sale agreement under which some of the development land was to be sold to the Claimant. It was clear on the facts that the Defendants were not using all their reasonable endeavours to enter into a formal binding agreement with the Claimant.
Interestingly, the award made was as a result of a breach of contractual obligations, including to use ‘all reasonable endeavours’, with damages award on the basis of loss of chance.
So what does ‘all reasonable endeavours’ cover?
The court looked at this and concluded that and passivity or inactivity is likely to be construed as a potential breach, active endeavours were required on the part of the parties and if a reasonable course of action is identified by one party, then the other party can be required to explain why it was not required to do so.
In conclusion, it looks like the obligation to use all reasonable endeavours certainly has sharp edges and is closer to that of best endeavours, depending on the context.
Instead of using an endeavours type obligation, when pulling together a contract, try to look instead at clearly setting out in a written agreement the obligations expected.
If you are to be the party benefitting from a reasonable endeavours type obligation, it would be far better if the clause was changed to an absolute contractual obligation because if the other party fails to fulfil that obligation, it would result in a breach of contract.
However, in practice, it remains the case that most contracts do contain reasonable endeavours type obligations so if this applies to you, do keep an accurate record of the steps/actions taken (and reasons for doing so) towards whatever objective the endeavour obligation covers in order to be in a position to be able to provide evidence that this obligation has not been complied with should a contractual dispute arise.
Regards to all,