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19 Nov 2019

Blog: Endeavours

by Paschal Walsh, UK Regional Director - UK

Paschal Walsh shares his views on endeavour clauses and the role they can play during a project life cycle

It is not always preferable for the parties to a construction contract to create a full obligation to complete a task when contracting. The chief problem with doing so is that it does not provide any room for manoeuvre if either party falls foul of their duties, rather it creates a breach and grounds for termination. Often, it is in the interests of both parties that the contract is allowed to endure notwithstanding any breach. This is where an endeavours clause can be useful, because it creates a duty to try and fulfill certain targets as opposed to an absolute obligation. Within these clauses, there is a further sliding scale with respect to the extent of the duty.

A reasonable endeavours clause is the least stringent among these obligations. However, to fully understand this clause, we must also examine the more stringent of the endeavours clauses and consider how case law has shaped these useful alternatives to create a hierarchy of duties. There are many reasons for wanting to include an endeavours clause as opposed to a full obligation. A full obligation may make the contract exceedingly difficult to execute or may offer an antagonistic party an easy way to cause difficulties on the project. But how do the contracting parties decide which endeavours clause to include?

The reasonable endeavours clause, which creates a lesser duty to try and achieve the stated goal, is perhaps the most effective option. The lack of a statutory definition of this clause however can cause problems in establishing the extent to which the contracting party has to “try” and fulfill any commitment under the contract. Fortunately, case law has been the key mechanism for establishing what this duty entails.

The leading case is Rhodia in which the judge observed that an “obligation to use reasonable endeavours to achieve the aim probably only requires a party to take one reasonable course, not all of them.” (1)

The limited nature of this clause means that for effective enforceability the stated goal or obligation must be clearly defined in the contract, without this the courts have not proven willing to enforce such clauses. (2)

The extent to which the duty within the contract will actually confer the obligation it intends will be defined entirely by the structure of the said clause. This results in a sliding scale of obligations within each endeavours clause as well. Within the scope of a reasonable endeavours clause, the contracting parties can be deemed to have undertaken a minimal duty to “try” and carry out its intent. Equally, they can be deemed to approach a similar duty as those imposed by “all reasonable endeavours” or “best endeavours clauses.” “Best endeavours” and “all reasonable endeavours” clauses can be judged to approach a full contractual obligation. They are inherently less onerous than a full obligation, but as with the “reasonable endeavours” clauses much will be defined by its wording.

“Best endeavours” by their nature create a greater obligation than “all reasonable endeavours”clauses. They require the party agreeing to the clause to bring about the result, even if doing so would seem to conflict with its own interests. This was demonstrated in the Jet2.com case, where the airport authority had undertaken to use its “best endeavours” to promote low cost services by a budget airline. It was held that this did create a duty to keep the airport open beyond normal hours and operating at significant losses in order to facilitate the promotion of the services of that airline. (3)

“All reasonable endeavours” clauses are positioned between the two previously described clauses. Unfortunately, it is not quite as simple as stating that it holds the middle ground between the two. While it generally doesn’t create the lesser duties of the reasonable endeavours clause, in many cases the duties imposed by all reasonable endeavours clauses can be equated to a best endeavours clause. In Rhodia, it was observed that “it may well be that an obligation to use all reasonable endeavours equates with using best endeavours.” (4)

This would seem to be evidence enough; however, it has also been argued that in contracts where both of these forms are used, the explicit wording of that clause will be the most significant factor.Further, in the CPC Group Ltd case it was held that an all endeavours clause “does not always require the promising party to sacrifice his commercial interests.” (5)

So as this demonstrates, there can be cases in which it is necessary to act in accordance with the Jet2.com precedence and the use of “always” suggests that this is a regular occurrence, but not universally applicable. As set out above, a sliding scale of obligation clearly exists between the final two points on the endeavours clause scale. With all reasonable endeavours clauses, often proving indistinguishable from best endeavours clauses in their effect.

Whilst this sliding scale does primarily exist between the two more stringent endeavours clauses, there are some circumstances where the former of the two can be closer to a reasonable endeavours clause. However, the duty created by reasonable endeavours clauses stands alone in creating a tangibly less significant obligation. This, in practice, means that while there are a variety of endeavours clauses, which can be used to create a lower level of duty under a contract, a reasonable endeavours clause grants genuine protection for the party not wishing to subject themselves to a full obligation in a way that the other two forms cannot. Reasonable endeavours can clearly be a useful protection for contracting parties who wish to employ the
stringent mechanisms of construction contracts against their opposing side.

References:

(1) Rhodia International Holdings Ltd v Huntsman
International LLC [2007] EWHC 292 [Comm]

(2) Jet2.com Ltd v Blackpool Airport Ltd [2012] EWCA
Civ 417 (2012)

(3) Ibid 2

(4) Rhodia International Holdings Ltd v Huntsman
International LLC [2007] EWHC 292 [Comm]

(5) CPC Group Ltd v Qatari Diar Real Estate Investment
Company [2010]

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