Using ‘All Reasonable Endeavours’: What’s the Extent of this Obligation?
What does the phrase ‘all reasonable endeavours’ mean in commercial agreements? The concept of reasonableness is standard in contracts terms. An unreasonable term is highly likely to be struck down on the basis of unfairness.
A ‘reasonable endeavours’ clause essentially obliges a contractual party to pursue a reasonable course of action in order to bring about the desired objective. A recent case considered the words ‘all reasonable endeavours’ in the context of an obligation to negotiate a final agreement - and what this obligation meant in practice.
Compared to an obligation to use ‘best endeavours’, it’s not hard to see that the obligation on a party to use ‘reasonable endeavours’ imposes a lower bar than the former.
What’s the background?
This case1 concerned land being used for the development of an eco-town in Oxfordshire. The contractual documents included a legal obligation to use “all reasonable endeavours” to enter into a final binding agreement that captured specific ‘heads of agreement’.
Unfortunately, negotiations to develop the eco-town broke down, leading to the property development company launching a breach of contract claim.
To state the outcome in very simple terms, the court found that by a specific time, it was clear the defendant companies were not using all reasonable endeavours or acting in good faith, particularly given the lack of a production of a red line plan and transfer forms (which were basic property matters). The claimant won £13.4m in damages.
The court’s approach
First, the general question of contractual interpretation was addressed. The court must ask what the term, viewed in light of the whole contract, would mean to a reasonable person having all relevant background knowledge reasonably available to the parties at the time the contract was made (excluding previous negotiations and their declarations of subjective intent).
The court also set out further guidance on the ‘all reasonable endeavours’ duty. It said 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. Furthermore, if the claimant identifies a reasonable course, the other party can be required to explain why it was not required to do so.
Whether taking a particular path is a reasonable endeavour depends on whether it would have had a significant or substantial chance of achieving the desired result. That said, an insuperable obstacle to achieving the desired result may discharge a party from using reasonable endeavours.
What does this mean?
Businesses must take seriously their contractual obligations to use all or best reasonable endeavours and, important, understand what these obligations mean in practice. Active actions must be taken to discharge that duty – inactivity or omitting to take a reasonable course of action can clearly amount to a breach, prompting a damages claim.
We urge business organisations to take specialist advice if there is any doubt as to what your contractual obligations mean in practice.
1Brooke Homes (Bicester) Ltd v Portfolio Property Partners Ltd & Ors [2021] EWHC 3015
If you would like us to cover an issue in the next NGM Tax Law Newsletter, we would be pleased to hear from you