Posts Tagged ‘endeavours’

Endeavours – merely semantics?

October 21, 2010

Constantly endeavouring…but to what end, exactly?

Lawyers can spend a lot of time arguing about such terms as “reasonable endeavours”, “best endeavours” and “all reasonable endeavours”. Why? Because the law is often uncertain about the effect of certain wording which may have a direct impact upon your entitlement to, for example, get paid.  

Getting it wrong can have serious effects for anyone entering into a construction or engineering contract, whereby payment of sums due can be conditional upon a party endeavouring to carry out certain actions. This is a fertile area of dispute if not handled carefully. The issue can and should be closed off when reviewing contracts at tender stage.

The recent decision in CPC Group Limited v Qatari Diar Real Estate Investment Company [2010] is a timely warning to dedicate some time to ensuring the scope of what you say you can achieve, is actually achievable!

In this case, joint venture parties entered into a sale and purchase agreement for the development of Chelsea Barracks which included an obligation to “use all reasonable but commercially prudent endeavours to enable the achievement of the various threshold events and Payment Dates“.

One of the parties retracted its application for planning following much publicised objections. This effectively delayed one of the payment dates under the sale and purchase agreement. The judge was asked to consider whether the withdrawal of the planning application was a breach of Qatari Diar’s obligation to “use all reasonable but commercially prudent endeavours“.

The judge rejected the submission that Qatari Diar’s behaviour was in breach of this obligation. Having considered the Court of Appeal’s decision in Yewbelle Limited v London Green Developments [2007] he found that:

  • the wording “all reasonable but commercially prudent endeavours” did not equate to a “best endeavours” obligation;
  • the obligation to use “all reasonable endeavours” does not always require the obligor to sacrifice his commercial interests; and
  • the wording “but commercially prudent endeavours” was effectively superfluous in these circumstances.

What is the impact of this judgment in real terms? The following table summarises the current distinction between the various terms:

“Reasonable Endeavours”

 

“Best Endeavours”

 

“All Reasonable Endeavours”

 

  • A “reasonable endeavours” obligation does not require a party to disadvantage itself unless the contract specifies that certain steps have to be taken in performance of the obligation. There may also be an obligation to litigate, subject to the costs and the likelihood of success.

 

  • More onerous than a “reasonable endeavours” obligation and subject to the test of reasonableness.

 

  • An “all reasonable endeavours” obligation does not necessarily equate to a “best endeavours” obligation. It does however require a party to go on using endeavours until the point is reached when all reasonable endeavours have been exhausted.

 

  • This does not require the party to exhaust all possible actions; one particular course should discharge the obligation.

 

  • Satisfying a “best endeavours” obligation does not require a party to take steps that would bring about its bankruptcy, certain liquidation or disregard the interests of shareholders.

 

  • This obligation does not always require the sacrifice of commercial interests and very much depends on the commercial context in which it is applied. It is therefore the least certain of all such endeavours obligations.

 

  • “Reasonable endeavours” applies an objective standard of what an ordinary competent person might do in the same circumstances. It also allows commercial considerations to be taken into account.

 

  • A party should probably exhaust all of a number of reasonable courses which could be taken in a given situation to achieve a particular aim.

 

 
 
  • A “best endeavours” obligation can require the party under the obligation to invest and take the risk of success or failure  but only where there is a reasonable prospect of commercial success.

 

 
 
  • A “best endeavours” obligation can be qualified by other duties such as the duty of directors to act in the best interests of the company.

 

 

 

Unless there is a reason not to do so, the best advice is to make any pre-condition an absolute obligation by the use of the words “shall” or “must”. Trying to compromise an agreement too far can lead to unintended, negative consequences. It is best to invest time upfront getting your contracts reviewed and such uncertainty stripped out, rather than fall foul of the court guidance and pay a lot more later on without a cast-iron certainty of recovery.