Reasonable or best endeavours – what are you signing up to?
If you have used the terms ‘reasonable endeavours’ or ‘best endeavours’ in your contracts, have you fully understood what you might be committing yourself to? It is surprising how often brewers and pub companies use these expressions, without realising the full implications of the terms. A recent case involving Jet2, a budget airline, provides some lessons for the industry.
But before looking at what these lessons are, it is interesting to note that the issue is a perennial one, as illustrated by the following two examples, which actually date back to the 19th century.
Case one:
A tenant took a 21 year lease of a public house and agreed to “…use their best and utmost endeavours to continue the house open as a public licensed victualling house and to increase the trade and custom” (The rather archaic language being a clue to the period).
The tenant sublet the premises and trade fell away, largely, so the report goes, because customers failed to pay their bills. Eventually the licence was taken away (under laws which have been superceded) by magistrates, and the tenants were sued for breach of contract. As the lessees had not made an application to have the licence renewed, or tried to get the pub open again, damages were awarded against them.
Case two:
In a different case, again in the 19th century, a tenant took a lease of a public house and promised the landlord to “use…best endeavours to extend the custom and business” of the public house.
The question which arose was whether the tenant, in failing to live at the pub itself, was in breach of the obligation. The court decided that residence at the pub was not required for the purposes of compliance with that covenant.
Case three:
A much more recent case related to the sale of a number of free trade accounts from one brewer to another. The intention was that the purchasing brewer would be able to take over those accounts and supply them with their products. The original brewer promised to use ‘reasonable endeavours’ to ensure that those customers purchased their future requirements from the acquiring brewer. The original intention was that the existing brewer would actually use ‘best endeavours’.
The purchasing brewer argued that the original brewer should have deployed its sales force to esnure that these customers did in fact purchase their requirements of products from the purchasing brewer. The original brewer had not done this and, it was argued, this was a breach of the obligations on the part of the outgoing brewer.
Should the outgoing brewer have deployed his sales force to visit the customers and ensure that they purchased products from the purchasing brewer, or was that a step too far? The result appears to have depended on the obligation to use ‘reasonable endeavours’ only – it might have been different if the word ”best” had been used.
What case law says: Blackpool Airport and Jet2
The essence of the point about ‘best endeavours’ is to what extent the person who has promised to use best endeavours can have regard to his own financial interests. This will depend, according to a recent case, upon the nature and terms of the contract in question.
Jet2 was a low-cost airline operating out of various airports including Blackpool Airport Ltd. In 2005 the parties signed a 15 year agreement setting out the terms on which Jet2 would operate out of Blackpool. The Civil Aviation Authority was notified that the normal opening hours for Blackpool Airport were 9am to 7pm. However, for over four years Jet2 and other airlines operated flights from the airport outside normal opening hours and the airport ran at a loss. Blackpool Airport Ltd then decided to give Jet2 one weeks notice that it would no longer be able to schedule flights outside normal opening hours. Jet2 claimed that Blackpool Airport Ltd was in breach of contract.
The obligation between the parties was in the following terms:
“Jet2.com and BAL will cooperate together and use their best endeavours to promote Jet2.com’s low-cost services from Blackpool Airport and BAL will use all reasonable endeavours to provide a cost base that will facilitate Jet2’s low-cost pricing”‘
The contract did not specifically mention operating hours but the court accepted from the background evidence that both parties understood that flexibility on the timing of late arrivals and early departures would be the key to the success of a low-cost airline. Although the High Court held that Blackpool Airport Ltd was in breach of contract, there was an appeal. Blackpool Airport Ltd argued that the obligation was too uncertain to be enforceable and, if that was not the case, if the obligation was enforceable the commercial interests of Blackpool Airport Ltd justified it in refusing to accept early departures and late landings.
The court decided that Blackpool Airport Ltd was not justified in giving notice but, specifically, did not go on to give any guidance on when the airport would be justified in refusing to operate out of hours. It did, however, say that Blackpool Airport Ltd would not be required to promote a failing business if it became clear that Jet2 would never be able to operate profitably from Blackpool Airport.
The important points to note are:
- an obligation to use ‘best endeavours’ should be enforced where possible, but this must be sufficiently certain as to what the obligation is designed to achieve
- in this particular case the parties had decided that there was no difference between the words ‘best’ and ‘reasonable’ – therefore, it should not be taken as read that these words do in fact have the same meaning
- the extent to which one party is expected to act against its own financial interests is a question of fact. depending upon the terms of the agreement.
Conclusion
If, therefore, you are agreeing to a best endeavours obligation you should consider what the financial exposure might be and list any specific steps which you agree you will take. Limitations on this obligation should be drafted from the outset.
One further point was not answered by the court. It did not specifically say that, by way of an example, if Jet2 had wanted a single airplane to land at 4am then it would be necessary for the airport to be kept open for that one flight. Specifically, the court declined to be drawn on this point.
