Reasonable endeavours less than best endeavours, but may demand sacrifice

Contracts often include an obligation on a person or company to use their best endeavours or to use reasonable endeavours to achieve an outcome. While some cases have appeared to equate the two, the High Court case has clarified their relative meaning.

In a dispute over who owes an energy company millions of pounds, Julian Flaux QC, sitting as a deputy High Court judge, said that the burdens of reasonable endeavours were less than those of best endeavours.

The distinction proved crucial to the £15 million case, as Huntsman International was found to have breached a sale agreement when the judge ruled that it did not use its reasonable endeavours to provide a guarantee for a power contract. The ruling could leave Huntsman liable for the £15 million bill, though that will be decided in a separate case.

Huntsman agreed to buy the other party in the case, Rhodia, a chemicals company. As part of the sale and purchase agreement both parties were instructed to use their reasonable endeavours to ensure that all supplier contracts passed from Rhodia to Huntsman.

One such contract was with power company Cogen, which sold it power and steam from an on-site facility in an agreement that stretched to 2009.

Cogen would not accept the transfer of the contract because the Huntsman subsidiary was a brand new company and had no financial results lodged with Companies House. It asked for a guarantee from parent company Huntsman. The argument over reasonable endeavours centred on Huntsman's refusal to provide that guarantee, and thus effect the transfer to it of the obligations of the power contract.

Huntsman paid for the power for a period, from its purchase of Rhodia in 2001 until 2004, but at that point it wrote to Rhodia saying that it was pulling out of the location and that responsibility for the power contract remained with it, because it had not been transferred.

Cogen claims that £14.8 million worth of power and services is owed, and Huntsman and Rhodia were fighting over who owed them that amount. The case eventually turned on what constituted 'reasonable endeavours' to ensure the contract transferred from one company to the other.

"There was some debate at the hearing as to whether 'reasonable endeavours' is to be equated with 'best endeavours', a question on which there seems to be some division of judicial opinion," said Flaux in his ruling.

"Huntsman was in breach of Clause 15.1.2 of the SPA in not providing whatever form of guarantee was acceptable to Cogen from October 2001 onwards," ruled Flaux. "I find that Huntsman was in breach of Clause 15.1.2 in not proffering a parent company guarantee or similar."

Flaux dealt generally with what was meant by 'reasonable endeavours'. It had been argued that previous cases indicated it should be taken to equate to best endeavours. "I am not convinced that any of the judges in the cases upon which [Rhodia lawyer] Mr Beazley relied were directing their minds specifically to the issue whether 'best endeavours' and 'reasonable endeavours' mean the same thing," he said. "As a matter of language and business common sense, untrammelled by authority, one would surely conclude that they did not. This is because there may be a number of reasonable courses which could be taken in a given situation to achieve a particular aim."

"An obligation to use reasonable endeavours to achieve the aim probably only requires a party to take one reasonable course, not all of them, whereas an obligation to use best endeavours probably requires a party to take all the reasonable courses he can. In that context, it may well be that an obligation to use all reasonable endeavours equates with using best endeavours," said Flaux.

The ruling made it clear that the terms of the sale contract are binding, even if its terms no longer suit one of the parties. The companies must abide by the contractual obligation to make a reasonable endeavour even if it is against their interests.

"Where the contract actually specifies certain steps have to be taken (as here the provision of a direct covenant if so required) as part of the exercise of reasonable endeavours, those steps will have to be taken, even if that could on one view be said to involve the sacrificing of a party's commercial interests," said Flaux.