Best endeavours, reasonable endeavours, all reasonable endeavours revisited.

All reasonable endeavours + commercially prudent

The recent decision in CPC Group Ltd v Qatari Diar Real Estate Investment Company involved an endeavours obligation to obtain planning permission to develop the Chelsea Barracks site in London.

Specifically, Qatari was placed under an obligation to use "all reasonable but commercially prudent endeavours".

The judge noted that an obligation to use "all reasonable endeavours" does not always require the obligor to "sacrifice his own commercial interests". Indeed, the situation was even clearer in this instance because of the use of the words "but commercially prudent". It was therefore clear in the contract that Qatari was only expected to take all reasonable steps to procure planning permission insofar as those steps were commercially prudent.

The judge accepted that when the Prince of Wales intervened, Qatari was entitled to consider its own commercial interests in deciding how to respond but was clear that Qatari would not have been able to consider its "political interests", insofar as they differed from its "commercial interests".? As it happens, the judge held that Qatari had complied sufficiently with?this particular endeavours obligation (although found?it?to be in breach elsewhere).

Best endeavours

In IBM United Kingdom Ltd v Rockware Glass Ltd [1980] FSR 335, it was held that a contracting party that had agreed to use its "best endeavours" was required to "take all those steps in their power which are capable of producing the desired results ... being steps which a prudent, determined and reasonable [person], acting in his own interests and desiring to achieve that result, would take".

While this is clearly an onerous obligation, it is not absolute, as the reference to reasonableness testifies. It will usually require a party to do all that it can within its own power to fulfil an obligation, including expending money if necessary, but as set out in Terrell v Mabie Todd and Co Ltd [1952] 69 RPC 234, not to "the certain ruin of the Company or ... the utter disregard for the interests of shareholders".

Similarly, such an obligation can impose a requirement to litigate as in Malik Co v Central European Trading Agency Ltd [1974] 2 Lloyd's Rep 279, although perhaps not if the action was doomed to failure.

It may be trumped however by other obligations such as the duty a director has to give good advice to shareholders and act in the best interests of the company (Rackham v Peek Food [1990] BCLC 895).

Reasonable endeavours

While "reasonable endeavours" is clearly a lower hurdle than best endeavours, it is unclear how much lower it is.

However, we know that the obligor is not required to sacrifice its commercial interests (P&O Property Holdings Ltd v Norwich Union Life Insurance Society [1993] EGCS 69).

In addition, Rhodia International Holdings v Huntsman International LLC [2007] EWHC 292 (see below) suggests that reasonable endeavours might only require an obligor to take one reasonable course of action rather than many.

All reasonable endeavours

Obiter in UBH v Standard Life suggests this expression is "probably a middle position somewhere between the two, implying something more than reasonable endeavours but less than best endeavours".

In Rhodia v Huntsman, obiter comments were made to the effect 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, whereas an obligation to use best endeavours probably requires a party to take all of the reasonable courses he can.

Practicalities

Even though obligations to use "best", "all reasonable" and "reasonable" endeavours are commonly used in contracts governed by English law, there remains a degree of uncertainty as to what exactly will be required to meet these standards. Where an absolute obligation cannot be achieved the focus of negotiations should be?on considering what steps a party should take in or towards performing the endeavours obligation and?including express contractual provisions to reflect this.? See also the bulletin of 17 December 2009.


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