“No guarantees but I promise to try” – what do endeavours obligations mean?

“Endeavours obligations” have been in the international spotlight recently. A clause requiring supply on a “best reasonable efforts” basis in the contract between the EU and a COVID-19 vaccine manufacturer was central to the parties’ recent impasse over what vaccine supply had been agreed between them.

That vaccine supply contract was not English law governed but endeavours obligations appear in many English law commercial contracts and can give rise to disputes. The following is a short review of the common terms parties tend to use to modify their effort levels and what they may mean in practice in English law.

Why and how much to endeavour?

Endeavours obligations require a party to make efforts towards, rather than an absolute promise to achieve, a result. They are usually used where the desired result is beyond the promising party’s control or there is an element of conditionality or uncertainty about it – such as a sale being dependent on a product coming into existence and receiving a licence from a third party.

In English law contracts, the parties often seek to qualify their obligations using one of the following common terms (in descending order of effort):

• best efforts/endeavours;
• all reasonable efforts/endeavours;
• reasonable efforts/endeavours; and
• commercially reasonable efforts/endeavours (or similar).

What do the various endeavours levels mean?

Selecting one of these terms does not parachute in a meaning that it is uniform across all contracts. The words the parties choose have to be interpreted in the contractual and commercial context prevailing when the parties contracted, under the normal principles of contractual interpretation. Any specific steps or definitions agreed in the contract, for example, can modify the general standard up or down. In addition, whether an obligation is met depends on the particular circumstances existing at the time of performance, which will vary across contracts and can lead to some difficult assessments.

However, there is case law guidance on the general features of the commonly used terms, which assists with working out what a particular endeavours obligation may mean in its context:

Best endeavours

Best endeavours has been held to require the promisor to take all steps capable of producing the desired result that a prudent, determined and reasonable promisee, acting in their own interests and desiring to achieve the result, would take (IBM United Kingdom Ltd v Rockware Glass Ltd [1980] FSR 335).

The promising party often has to subordinate its own financial interests to the other contracting party (the promisee) and may need to incur significant expenditure to satisfy the obligation. In Jet2.com v Blackpool Airport Ltd [2012] EWCA Civ 417, for example, a best endeavours clause required Blackpool Airport to open outside normal operating hours for the airline despite this causing it a loss. However, case law also holds that best endeavours can still allow room for the promising party to consider its own interests to some degree (e.g. to avoid totally ruinous actions) and can yield to other obligations (e.g. directors’ duties in company law) in some circumstances.

Reasonable endeavours

Reasonable endeavours requires less effort. It has been put as a question of “what a reasonable and prudent person, acting properly in their own commercial interest and applying their minds to their contractual obligation, would have done to try to achieve the objective” (Minerva (Wandsworth) Ltd v Greenland Ram (London) Ltd [2017] EWHC 1457).

The promising party is not normally required to subordinate its own commercial interests to the promisee and can balance the obligation against all other relevant considerations, such as the cost and reputational consequences of taking a course of action and the chances of achieving the desired result (UBH (Mechanical Services) Ltd v Standard Life Assurance Company, The Times, 13 November 1986).

There is obiter judicial comment that taking just one reasonable course of action may be enough to satisfy a reasonable endeavours obligation. In other circumstances, a promisor may actually need to sacrifice its own commercial interests, where it has contractually agreed that reasonable endeavours would comprise a specific step to their commercial detriment. (Rhodia International Holdings Ltd v Huntsman International LLC [2007] EWHC 292).

All reasonable endeavours

All reasonable endeavours sits somewhere between best and reasonable endeavours, although where on that scale is less clear. It seems established that it does not always require the promising party to sacrifice its commercial interests (but the extent to which the promising party can consider its own interests will depend on the particular contract). More reasonable avenues for action are likely to need to be exhausted than for mere reasonable endeavours.

Commercially reasonable endeavours or reasonable commercial endeavours and rationality

This is used to try and water down a reasonable endeavours obligation but there is little case law in an endeavours obligations context on this and it may not have much effect in practice, as reasonable endeavours already includes a promisor orientated consideration of the commercial implications of its obligation.

However, it is possible that these sorts of modifiers could lower the bar, if principles can be taken from the general case law on commercial reasonableness. In the leading case of Barclays Bank plc v UniCredit Bank AG & anr [2014] EWCA Civ 302, 20 March 2014, the court held that acting commercially reasonably only required the party to act rationally, though in the context of a particular contractual power or discretion. This meant the party exercising the power/discretion could consider its own interests to the exclusion of the other party’s and charge a fee proportionate to its reasonable commercial expectations for a favourable exercise.

Fully re-framing an endeavours obligation into a mere contractual power or discretion to act would lower the effort burden, since the key restraint on those terms (which may or may not apply depending on the contract) is only the requirement that the party with the power or discretion acts rationally. However, more discretionary obligations are unlikely to be acceptable to both parties for uncertainties usually considered adequately adjusted for by endeavours obligations and particularly ones at the heart of a contract such as creation of the subject matter.

Takeaway

Despite the existence of some well-known endeavours obligations in English law, what they actually mean and what is required to satisfy them can be uncertain, since they are context dependent concepts and can require difficult legal and factual assessments. Parties can seek to reduce their disputes risk by specifying, to the extent they can, what they agree a particular endeavours obligation should entail in their contracts.