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A promise to try – best endeavours vs reasonable endeavours

Our Commercial & Technology team discusses the three most common endeavours obligations in light of a recent High Court decision.

A recent decision of the High Court has further clarified the reasonable endeavours obligations often appearing in contacts (MUR Shipping BV v RTI Ltd [2022] EWHC 467 (Comm)).

An endeavours clause is relevant when the party is prepared to “try” to fulfil an obligation, rather than commit to the fulfilment absolutely. In the MUR Shipping case, a standard shipping contract provided that an event would not constitute force majeure if it could be overcome by the affected party’s reasonable endeavours. The affected party in this case was the ship owners, who invoked the force majeure clause on the grounds that US sanctions imposed on the charterers would prevent the charterers from making payments in US dollars, as required under the contract. The charterers claimed that, in refusing to accept an offer of payment in a different currency, the owners had failed to use reasonable endeavours to overcome the effect of the sanctions and could therefore not rely on the force majeure clause.

The High Court ruled in favour of the owners and found that a party is not required to accept a non-contractual performance to overcome the effect of a force majeure or similar clause.

This case presents a good opportunity to revisit the three most common endeavours obligations and what is expected of a party performing under each of them. These are best endeavours, reasonable endeavours and all reasonable endeavours. Over time, case law has identified key characteristics applicable to each endeavours obligation:

Best endeavours

Best endeavours are the most burdensome endeavours out of the three and “means what the words say; they do not mean second-best endeavours” according to the courts (Sheffield District Railway Co v Great Central Railway Co [1911] 27 TLR 451). While it is an onerous obligation, it has also been clarified that it is not an absolute obligation or a guarantee. However, the obligor must take all steps in their power to ensure that the desired results are achieved, being steps which a prudent, determined and reasonable obligee, acting in his own interests and desiring to achieve that result, would take. This can include opening outside of normal operating hours or an obligation to litigate, but the obligor may still be able to consider their own commercial interest to a certain extent as well as other overriding duties depending on the nature and terms of the underlying contract.

Reasonable endeavours

This obligation is less burdensome and the obligor can balance “the weight of their contractual obligation” against “all relevant commercial considerations”. Relevant commercial consideration can include their reputation, costs and relations with third parties. The biggest difference to best endeavours therefore being that the obligor can consider all of their own commercial interests and profitability and only has to take the steps a “reasonable and prudent person acting properly in their own commercial interest and applying their minds to their contractual obligation have done to try”.

All reasonable endeavours

This is the most controversial out of the three and depends more than the others on the context of the contract. It is usually adopted as a middle ground between best endeavours and reasonable endeavours, but depending on the context, it could equate to best endeavours and the obligor may be required to sacrifice its own commercial interests.

Other variations and the timing of interpretation

The endeavours clauses lend themselves to be varied, be it as “commercially reasonable endeavours” or “utmost endeavours”. Modifications are possible, but it is important to consider the actual purpose and circumstances of the contract and the context for and within it is formed rather than just the wordplay. If there is any uncertainty as to the extent of a party’s obligations under an endeavours clause then it is best for those obligations to be expressly stated in the contract.

Generally, the endeavours clauses are interpreted with the normal rules of contractual interpretation. This means the clause will be assessed at the time the contract is formed, taking into account the other provisions as well as the overall purpose of the contract and the surrounding commercial context.

Especially noteworthy is the time of assessment. The clause itself is to be interpreted at the time of the contract. However, if reasonable or best endeavours were used, it will be assessed by taking into account the circumstances at the time of the performance. If the obligation to use endeavours is a continuing one, the specific steps to be taken might also change due to changes in circumstances.

Despite the helpful guidance provided by the courts, there remains a degree of uncertainty as to what is required under an endeavours clause and the obligations that arise from it in the context of the contract. If you would like further information on this topic then please contact Susan Wells at [email protected].

 

Article contributors:

Tamara Hartmann – Paralegal