How far does a party need to go to show it has used its best endeavours to do something - not, surely, to the point of ruining itself?

Tim Elliot

In commercial contracts one often finds obligations to use reasonable endeavours to do something. Instead of undertaking to achieve a result, the party effectively agrees to try to achieve that result. There are various different formulations of such an undertaking - for example “best endeavours” or “reasonable endeavours” or “all reasonable endeavours”. Where a party has agreed to achieve a result - such as to complete work by a particular date - then in general terms it is not difficult to determine whether or not the obligation has been met. But in the case of obligations to use reasonable or best endeavours things are more difficult.

For example, how far does a party have to go in laying out money in trying to achieve a result? If, for example, the obligation is to use best endeavours, does that require the obliged party to take financial risks in its attempt to achieve the result? In Terrell vs Mabie Todd and Co (1952) the defendant had undertaken to use its best endeavours to sell as many fountain pens incorporating the plaintiff’s invention as was reasonably possible. The court said that this did not require the directors of the defendant company to carry on the manufacture and attempted sale of the pens to the certain ruin of the company or to the utter disregard of the interests of the shareholders.

In Yewbelle vs London Green Developments (2006) the undertaking was to use all reasonable endeavours to obtain an agreement under section 106 of the Town and Country Planning Act 1990 for the construction of a library and other facilities. Among other findings, the judge held that in using its reasonable endeavours the party under this obligation was not required to sacrifice its own commercial interests. The Court of Appeal found his approach correct.

Judges differ on the relevance of financial hardship when there is an obligation to use reasonable endeavours

Those two cases deal with the extreme position of a business sacrificing or ruining itself in the pursuit of best endeavours. The situation was a little different in vs Blackpool Airport. Blackpool had agreed to use its best endeavours to promote Jet2’s low-cost services from the airport. Jet2’s business required flights to and from Blackpool outside normal hours. This cost Blackpool more money than anticipated. It argued that the obligation to use best endeavours did not require it to incur this expense. The judge giving the leading judgment disagreed. Flights outside normal hours were fundamental to the agreement.

In effect, the cost of keeping the airport open for such flights was part of the best endeavours obligation. In Ampurius Homes Holdings vs Telford Homes (2012), commented on by Rachel Barnes in Building (5 October 2012, page 41), the question of financial hardship and an obligation to use reasonable endeavours was considered in a construction case. Telford had undertaken to use reasonable endeavours to procure completion of works by a target date. Due to the banking crisis, it hit funding problems and stopped work. It was argued that reasonable endeavours encompassed financial resources so that if completion could not be achieved by the target date because of funding problems, it would not be a breach; so long as reasonable efforts had been made to procure the necessary finance.

The judge rejected this. He said that the qualification of reasonable endeavours as opposed to an absolute obligation to complete was designed to cover matters that directly related to the physical conduct of the works; thereby providing an excuse for delay for reasons such as inclement weather or shortage of materials, for which the contractor was not responsible.
The clause did not extend to matters antecedent or extraneous to the carrying out of the work, such as having sufficient resources. He said that he found the Yewbelle case of no assistance. Effectively the judge ruled out financial hardship as a consideration in deciding whether or not best endeavours had been used.

These views were not determinative of the case and this aspect was dealt with very briefly. It appears that only Yewbelle was referred to, although there are a number of other relevant authorities. The decision is on appeal, but unfortunately, since this topic was not determinative of the result, the Court of Appeal may not have to deal with it. If so, more’s the pity. Some further clarification would not go amiss.

Tim Elliott is a barrister and arbitrator at Keating Chambers