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An introduction to endeavour clauses
In this article we consider “endeavour clauses” which obligate a party to make an effort to fulfil an obligation, but importantly do not guarantee fulfilment. These are often used in practice where a third party’s agreement or action is desirable but not absolutely necessary, and no party to the contract is able to take or procure that action themselves. They are also often used where the relevant party is unwilling to commit to an absolute obligation (and the associated breach of contract risk) or where it is not clear what action is required to achieve the intended outcome and so it cannot be expressly articulated in the contract.
The case of Rhodia International Holdings Ltd v Huntsman International LLC [2007] EWHC 292 highlighted the spectrum of endeavour clauses, each carrying different implications and obligations; some of these are discussed below. It also underlined the necessity of interpreting these clauses within the broader context of the contract; considering the specific terms of the clause as well as the other provisions of the contract, the overarching purpose of the contract, and the commercial context surrounding it. Despite their common usage, endeavour clauses often lead to uncertainty regarding the extent of the obligations they impose.
When considering which endeavours clause to use in a contract, the parties and their advisers must be clear on what the expectations are and must understand that these provisions are no guarantee of results. If the parties have an agreed and clear requirement of what is to be done, then they may consider it worthwhile to include a description of those steps within the agreement itself.
This article is for information purposes only and is not a substitute for legal advice and should not be relied upon as such. If you require advice on your specific obligations under a contract, please contact the Authors.
Reasonable endeavours
The least burdensome of these clauses is the “reasonable endeavours” clause. This type of clause was examined in the case of Minerva (Wandsworth) Ltd v Greenland Ram (London) Ltd [2017] EWHC 1457, where the court framed the obligation in terms of what a reasonable and prudent person would do when acting properly in their own commercial interests. Essentially, a party bound by a reasonable endeavours clause must take appropriate steps to achieve the contractual objective, but the obligation is limited by what is reasonable in the circumstances and, while it may require expenditure by the party, the party would not normally be required to jeopardise their own commercial interests in the process. The Rhodia case also suggested that reasonable endeavours only requires the obligor to pursue one reasonable course of action rather than multiple, thereby establishing a clear limitation on this obligation.
All reasonable endeavours
A recent case, CIS General Insurance v IBM [2021] EWHC 347 asserted that all reasonable endeavours (unlike reasonable endeavours, but similarly to best endeavours) demands multiple courses of action be pursued to give a better chance of reaching the desired outcome.
A key distinction between “all reasonable” endeavours and “best” endeavours may lie in the extent to which the obligor is able to consider their own financial interests. It will depend on the specific contractual terms and context, but case-law[1] has suggested that obligations under all reasonable endeavours are less likely to require a sacrifice of those interests, although some degree of subordination may be necessary.
Best endeavours
Famously, this means “what the words say; they do not mean second-best endeavours”[2]. The case of IBM United Kingdom Ltd v Rockware Glass Ltd [1980] FRS 335 explained that the obligor must take all steps within their power to produce the desired outcome, assessed on the basis of steps which a “prudent, determined and reasonable” obligee would take. This can sometimes require the obligor to sacrifice its commercial interests; and is likely to require the exploration of multiple avenues to achieve the goal. There has been significant amounts of case-law on whether a best endeavours obligation requires an obligor to disregard its own commercial interests, and this will depend on the specific contractual terms and context, but it is unlikely to require a company to have absolute disregard for their own financial position.
It is essential to note that it falls short of being an absolute obligation to procure the relevant outcome.
As well as the above, there are a wide range of other variations, including “commercially reasonable endeavours”, “utmost endeavours” or “good faith endeavours”. However, these provisions lack legal precedent and clarity.
Of utmost importance is the parties’ shared understanding of what is required of each of them, and what each party can expect of the others. To the extent any such steps to achieve the desired outcome can be agreed and articulated, the parties may consider expressly setting out such obligations in the contract.
To discuss any of the issues raised in this article, please contact Victoria Miller or Charlotte Pottow.
[1] Brooke Homes (Bicester) Ltd v Portfolio Property Partners Ltd [2021] EWHC 3015 (Ch)
[2] Sheffield District Railway Co V Great Central Railway Co [1911] 27 TLR 451
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