Voyage of the endeavour

It is a simple reality of commerce that a contemplated objective may, through no fault of either party, become unachievable – making it unfeasible that commercial contracts only ever impose absolute obligations. A contract often includes an “endeavours” clause, which sets out the lengths to which a party must go in order to avoid finding itself in breach of contract for failing to meet a particular contractual requirement.

The most commonly used clauses of this type are to use “best”, “reasonable” or “all reasonable” endeavours. However, too often these terms are simply being used (1) as standard phrases in contracts because solicitors are used to seeing them; and (2) as ping pong balls in the negotiation between solicitors, rather than because the parties to the contract have actually thought about what standard of endeavour would best apply to a given commercial aim. In addition to this, there is uncertainty about the level of effort each clause requires, which is continually evolving with case law. This makes it difficult for those drafting commercial contracts to advise their clients on the practical consequences of these types of clause.

“All reasonable endeavours”

A recent decision of the English High Court gives a useful insight into the meaning of the term “all reasonable endeavours”. CPC Group Ltd v Qatari Diar Real Estate Investment Co [2010] EWHC 1535 (Ch) was well publicised as it centred around an arm of Qatar’s sovereign wealth fund withdrawing a planning application for the redevelopment of London’s Chelsea Barracks on the back of Prince Charles’s disapproval of the plans. One aspect of the case was a finding by the judge that Qatari had not breached its obligation to use “all reasonable but commercially prudent” endeavours to secure planning permission by making that withdrawal.

The spectrum of effort required is often cited as being a sliding scale from best endeavours to all reasonable endeavours to reasonable endeavours. “Best endeavours” have been said to require a party to take “all those steps in their power... which a prudent, determined and reasonable [obligee], acting in his own interests and desiring to achieve that result, would take” (IBM United Kingdom Ltd v Rockware Glass Ltd [1980] FSR 335).

At the other end of the spectrum, the meaning of “reasonable endeavours” is far less defined, but the concept behind it is thought to be that the obligated party has to balance fulfilling its contractual obligation against relevant commercial considerations, such as cost, its reputation and its relationship with others. A fairly recent decision also suggests that an obligated party only needs to take one course of action to try and meet its obligations, rather than many.

“All reasonable endeavours” is the least developed concept. CPC’s counsel argued that Rhodia International Holdings Ltd v Huntsman International LLC [2007] EWHC 292 (Comm) demonstrated that an obligation to use all reasonable endeavours was the same as best endeavours and that the financial interests of a party obligated under such a clause come second to their contractual obligation. However, the judge pointed out that the case of Yewbelle Ltd v London Green Developments [2007] EWCA Civ 475) shows that in using all reasonable endeavours an obligated party does not have to sacrifice his own commercial interests. The judge found that the clauses here 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”. It seems then that not wanting to take on the next in line to the throne in a planning dispute, particularly given that person’s very vocal opinions on modern property development, is beyond the reasonable endeavours requirement!

Your endeavours

When preparing any contract for a client it is always best practice to pay strict attention to the circumstances and possibilities that form the background to the drafting. While in this instance disapproval from the Prince of Wales was probably beyond the contemplation of the parties (and the drafters) at the time of preparing the contract, the inclusion of the actual words “commercially prudent”, whilst not the defining factor, did make matters even clearer. Not many would want to lock horns with the next in line to the throne, but it is easy to see how without careful drafting (by accepting a best endeavours requirement, for example), the contract might have bound the client to do just that!

• Pamela Abbott, solicitor, CCW LLP