Out-Law Guide 2 min. read
16 Aug 2011, 10:37 am
Under English law, contractual obligations are normally absolute obligations and damages for breach of contract may be payable by a party that does not manage to meet them. For this reason, commercial contracts in the construction industry often qualify obligations by requiring a party to use 'reasonable' endeavours, or a variation on that theme.
As these phrases are usually undefined, there is scope for interpretation - particularly in the question of the difference in meaning between 'reasonable endeavours' and 'best endeavours'.
In 2007 the High Court clarified, in a case between Rhodia International Holdings and Huntsman International, that a reasonable endeavours obligation is less onerous than a best endeavours one. The courts have indicated that, although 'best' endeavours is not an absolute obligation, the party concerned needs to take all reasonable courses it can and this may sometimes – but not always – require it to ignore its own commercial interests. On the other hand, 'reasonable' endeavours only requires the party to take one, rather than all, reasonable course of action. The party would not be expected to sacrifice its commercial interests for example, except perhaps where a particular course of action is specified in the contract.
While it makes sense when looking at ordinary language that 'best' should require something more than 'reasonable', this leaves another question - what does it mean when a contract obliges a party to use 'all' reasonable endeavours? In the Rhodia case above, the court doubted that 'all reasonable endeavours' would be very different from best endeavours, but it did not have to decide the matter on that occasion.
A later case in 2010, between CPC Group and Qatari Diar Real Estate, takes a slightly different view. The dispute related to the redevelopment of the Chelsea Barracks site, and one of the issues considered was an obligation to use 'all reasonable but commercially prudent endeavours' to obtain planning permission.
In considering this obligation, the High Court offered some helpful clarification. Apparently, an obligation to use all reasonable endeavours is not necessarily the same as a best endeavours obligation, and does not always require a party to sacrifice its commercial interests. The position in this case was clearer because the parties had expressly limited the all reasonable endeavours obligation by adding the 'commercially prudent' wording. Therefore, it remains a matter of fact and degree in each case as to what the relevant obligation requires.
So where does this leave a party who has signed up to an endeavours-type obligation? Whatever the exact meaning of the obligation in question, one thing that can help is keeping records to demonstrate what steps were taken to comply with that obligation. The reported case law as summarised above might not set out precisely what each type of endeavours obligation requires, but the outcome of any case will frequently depend on whether the party can demonstrate that it has taken steps to comply with the obligations it signed up to.