Try, try (and try again)? – The meaning of contractual “endeavours” clauses

Endeavours clauses – what are they and why are they important?

The tension over COVID-19 vaccine supplies has highlighted the difficulties that can arise when including endeavours clauses in contracts.  These debates illustrate the scope for different interpretations of endeavours-type clauses.

The terms of a contract are usually absolute – if you do not comply, you are in breach. Endeavours clauses instead require a party to try to do (or not do) something. They are useful when a party has to promise to  achieve a stated outcome that is not totally within its control or in relation to which there is less certainty.

While there are no specific definitions of the most common forms of endeavours clause (“reasonable”, “best” and “all reasonable” endeavours), the courts have provided a framework to illuminate the differences between them. The key difference is how hard a party has to try in each case.

Reasonable endeavours

The single most common type of endeavours clause is reasonable endeavours. It is the least onerous on the spectrum of endeavours.

It requires the promise giver to objectively consider what a reasonable and prudent person in its position would do to satisfy a stated outcome. Importantly, the promise giver's circumstances and other commercial considerations can be taken into account in assessing the course of action which needs to be taken. Also, the chance of achieving the outcome is relevant here.

Such a clause may only require one reasonable course of action to be pursued to satisfy the obligation, although this interpretation has not been rubber stamped by the English courts.

While a reasonable endeavours clause is the least stringent, it is certainly not toothless and (coupled with a well-defined outcome) will ensure a party must take some steps to achieve that outcome. Exactly what those steps entail in any scenario is necessarily context dependent.

Best endeavours

This is the most onerous type of endeavours clause. It requires the promise giver to put itself in the position of the recipient and take all those steps that a reasonable recipient would itself take in trying to achieve the desired result.

There are two elements which make this wording much more strict than a reasonable endeavours obligation:

1. the promise giver has to take all steps that are reasonable to achieve the stated outcome. These steps are likely to include those that would result in financial expense (but not those that would lead to commercial ruin);
2. the promise giver has to put itself in the reasonable recipient's shoes when determining the steps to take. This contrasts to the reasonable endeavours position and again pushes the promise giver to do more to achieve the specified outcome.
   Therefore, a best endeavours obligation should only really be included where the promise giver has a good understanding of the outcome specified and is confident of all the ways in which it could be achieved, as well as the potential costs involved!

All reasonable endeavours

An all reasonable endeavours obligation sits uncomfortably between best and reasonable endeavours.
It is an ambiguous concept because it has been treated inconsistently by the courts – sometimes being classed as equivalent to best endeavours. It is not even clear whether the promise giver’s or recipient’s circumstances should be taken into account when determining the necessary steps to satisfy an all reasonable endeavours obligation.

An all reasonable endeavours obligation seems to permit the promise giver to take into account its own commercial interests, but perhaps less so than with reasonable endeavours. To remedy this, the obligation is often drafted as using “all reasonable and commercially sensible endeavours" to achieve an outcome. However, the effectiveness of these additional words is uncertain.

As its name suggests, this obligation may also require the promise giver to take all reasonable steps to achieve the specified outcome rather than just one course of action.

While it is easy to view all reasonable endeavours as a happy compromise between reasonable and best, in some ways it is the most dangerous of the bunch. Without any consistent interpretation of the wording by the courts, you may not know exactly what you are signing up to.

Stay calm, be specific

The use of endeavours clauses is not ideal, principally because it can introduce uncertainty into a contract. Though, sometimes they are unavoidable as absolute commitments cannot be given upfront. In many cases, using endeavours wording is therefore a justifiable trade off.

If you can't give an absolute contractual obligation then you should be as clear and specific as possible with any alternative. This applies both to any endeavours wording and the stated outcome you are trying to achieve.  
In relation to the latter, if there is a lack of clarity, then the endeavours qualifier will not provide the required protection.  In other words, it does not really matter how hard one has to try to do “something”, if that “something” is wrong.

As to the former, to provide maximum transparency it may be possible to specify in the contract the practical steps a party must undertake to satisfy an endeavours obligation. This might, for example, include a party applying for a permit and pursuing one appeal if the permit is not initially granted within a period of time. Unfortunately, this prescriptive approach is not a silver bullet. It may not be suitable for every contract, particularly if endeavours wording is used frequently and in different contexts within one document.

Overview

Next steps

Please contact us if you would like to discuss the issues mentioned in this article and how they impact your organisation.

Authored by Sanjay Dave