Some believe that the expression best endeavours is as close as possible to an absolute obligation without being absolute. This is wrong. In Midland Land Reclamation Ltd and Anor vs Warren Energy Ltd (1997, unreported), Judge Bowsher said: “I reject the submission made on behalf of the defendant that a best endeavours obligation is the next best thing to an absolute obligation or a guarantee.” So, what is it?
In Terrell vs Mabie Todd & Co (1952, 69 RPC 234), the defendant had agreed to use its best endeavours to exploit inventions licensed to it by the plaintiff. The judge disagreed with the defendant’s argument that the obligation only required it to do what was “commercially practicable”, and said that it had to do what it could reasonably do in the circumstances. That was what a reasonable and prudent board of directors acting properly in the interests of the company and applying their minds to their contractual obligations would have done.
Best endeavours is not, therefore, a particularly onerous obligation. But Rackham vs Peak Foods Ltd (1990, BCLC 895) seems to limit the obligation further.
The defendant’s directors agreed to use their best endeavours to obtain the shareholders’ approval to buy a business from the plaintiff.
In the event, the market moved against the defendant and the directors issued circulars to the shareholders saying that the transaction was not recommended. The plaintiff sued.
The court, however, said that the plaintiff must have been aware that the directors of the defendant were under a duty to give proper advice, and that there could be no breach if the directors did just that. “On its true construction the best endeavours covenant did not oblige the directors … to give advice which they genuinely believed to be bad advice,” the ruling said.
The outcome to be achieved may affect the obligation. In Little vs Courage Ltd (1995, 70 P&CR 469), the Court of Appeal said: “An undertaking to use one’s best endeavours to obtain planning permission or an export licence is sufficiently certain and is capable of being enforced. An undertaking to use one’s best endeavours to agree, however, is no different from an undertaking to agree … or to negotiate with a view to reaching agreement; all are equally uncertain and incapable of giving rise to an enforceable legal obligation.”
Therefore, the objective of a best endeavours obligation must be identifiable and capable of being enforced. If it is not, there may be no obligation at all.
An obligation to use best endeavours requires no more than doing what is reasonable in the circumstances and may be overruled by conflicting obligations to third parties. Extraneous circumstances may mean nothing need be done and if the intended outcome cannot be certainly identified, there may be no obligation.
If that is all that best endeavours means, what about reasonable endeavours?
UBH (Mechanical Services) Ltd vs Standard Life Assurance Co (1990, BCLC 895) described reasonable endeavours as being “appreciably less than best endeavours”. The expression seems, in the light of best endeavours, to mean precious little.
In assessing a reasonable endeavours obligation, a party can have regard to its own interests, particularly its own financial interests, as in Phillips Petroleum Co UK Ltd and Ors vs Enron Europe Ltd (1997, CLC 329). A party should have done enough to satisfy reasonable endeavours by defending its position on the basis of its own interests, as in P&O Property Holdings Limited and Ors vs Norwich Union Life Insurance Society (1993, EGCS 69).
So, how hard do you have to try?
None of the cases quoted relate to construction, and the obligations differ from those commonly found in construction projects. However, a requirement to use best endeavours to achieve practical completion by a specified date may mean nothing if inadequate resources are available and substantial sums of money would have to be expended to secure those resources.
An undertaking to use reasonable endeavours to ensure that a budget figure is not exceeded may mean no more than checking that usual practices are being followed, even if those practices mean that the budget will be exceeded. Despite this woolly position, three things can be said with certainty.
First, the obligation imposed by either clause is not particularly burdensome and is nothing like an absolute obligation.
Second, the extent of the obligation will depend on the circumstances of each case.
Third, the position is uncertain and the courts are free to come to a decision that they consider fair.
This last principle is illustrated by a comment made by Lord Justice Potter in the Phillips Petroleum case cited above. He said: “I see no reason to suppose that it was the expectation, let alone the obligation, of the parties that, in any area of activity in which room was left for manoeuvre … they were not at liberty to take into account their own financial position and act in the manner most beneficial to them.”
It is evident that the courts will allow wide latitude to parties who take on best endeavours and reasonable endeavours obligations.
In a nutshell …
Neil White is the head of the construction and engineering group at Taylor Joynson Garrett.