Top 10 Tips: Using Best, All and Reasonable Endeavours
In the recent case of Brooke Homes (Bicester) Ltd v Portfolio Property Partners Ltd [2021] EWHC 3015 (Ch), Brooke Homes (“the Claimant”) successfully brought a £500 million+ breach of contract claim against the P3 Group (“the Defendant”) for failing to use all reasonable endeavours to enter into a final binding sale agreement, as agreed in heads of terms. Endeavours clauses are used when a party is obliged to try to fulfil an obligation rather than satisfy it absolutely. It is clear from cases such as the Brooke Homes case that there are differing degrees of effort required depending on the wording used, whether ‘best’, ‘all’ or ‘reasonable’.
1. Endeavours obligations can bring rise to a claim, even if contained in Heads of Terms
The heads of terms in the Brooke Homes case contained an obligation to use “all reasonable endeavours to enter into a final binding Agreement which captures legally these Heads of Agreement acting in good faith towards each other.” Although the judge did not find there was a binding contract of sale, the judge did find that the Defendant’s failure to conclude the conditional sale contract over a two year period amounted to a failure to use all reasonable endeavours and act in good faith. On this basis the Defendant was found to be in breach of contract. The case reiterates the importance of Heads of Terms being ‘subject to contract’ unless expressly agreed otherwise. The courts seem, from this case, otherwise keen to enforce the parties’ intentions.
2. Make sure there is an active endeavour
As highlighted in the Brooke Homes case, the Claimant was concerned about the defendant’s “non-action”. The Defendant had failed to provide plans and agree a mechanism for identifying the land that might be sold, thereby preventing the conclusion of the sale agreement. The judgement notes that “active endeavour is required on the part of the parties where all reasonable endeavours are required: passivity or inactivity is likely to be construed as a potential breach”. The Defendant’s failure to act amounted to breach of its obligation to act with all reasonable endeavours.
3. The meaning of ‘reasonable endeavours’
Reasonable endeavours are less burdensome than the alternative ‘best’ or ‘all reasonable’ endeavours. Using reasonable endeavours has been said to be a question of what a reasonable and prudent person acting properly in their own commercial interest would have done to try to achieve the objective. Although less stringent, combined with a clear objective it is capable of being an enforceable obligation despite the limitations that only one reasonable course of action is required.
4. The meaning of ‘all reasonable endeavours’
Using all reasonable endeavours is a higher level of obligation, requiring taking all reasonable paths although to a lesser degree than ‘best’ endeavours. The judge in the Brooke Homes case considered the meaning of ‘all reasonable endeavours’ and concluded that active endeavour is required. If a party identifies a reasonable course then the other party should take that course or explain why it has not. The Brooke Homes case noted that a precise requirement to discharge obligations will depend on the precise wording and context in which that wording arises, so even with an “all reasonable endeavours” clause, some subordination of commercial interests may be required.
5. The meaning of ‘best endeavours’
Best endeavours may require a party to sacrifice some of its commercial interests in order to carry out a contractual obligation. The words do not mean ‘second-best endeavours’ and may require expenditure be incurred or involve an obligation to litigate or appeal. It is not an absolute obligation but it is the next best thing.
6. Other variations
There are other variations such as “commercially reasonable endeavours” and “reasonable commercial endeavours”. However, it is not clear whether the courts would differentiate between the terms given that a reasonable endeavours obligation already involves considering all relevant commercial factors.
7. Information and Co-operation
An endeavours obligation may include an obligation to notify the other party if it encounters difficulties in achieving the objective.
8. Certainty
Consider whether the endeavours clause is enforceable. An endeavours obligation will likely fail if the underlying objective is unenforceable due to uncertainty. Ensure that endeavours obligation are combined with clearly defined objectives.
9. What steps must be taken to achieve the obligation?
Set out the requirements expressly. Should costs be incurred and how much? How long should they endeavour? What happens if timescales are not met, does the obligation lapse, continue, or downgrades itself over time it not achieved? What are the notice requirements and is there a requirement to litigate or appeal?
10. What steps do not have to be taken?
What is not expected to be carried out? Be clear as to the differing levels of obligation imposed. Record evidence of efforts and keep parties informed.
To avoid uncertainties as to what an endeavours clause may require in any given case, this is best dealt with expressly in contract drafting. Parties should agree the specific obligations and actions each must take, are not required to take and what happens when timings are not met.
