It is often tricky to advise on the effect of undertakings or agreements to use “best”, “all reasonable” or “reasonable” endeavours to achieve specified goals. What precisely is the difference between them? Another difficult issue arising in such cases concerns the extent to which a party may be required to sacrifice its commercial interests while endeavouring to fulfil its obligations.
An agreement to use best endeavours is generally regarded as an onerous obligation. The promisor must “do all it reasonably can” to achieve the specified objective: see IBM United Kingdom Ltd v Rockware Glass Ltd [1980] FSR 335.
An all reasonable endeavours obligation approaches a best endeavours obligation: Hiscox Syndicates Ltd v The Pinnacle Ltd [2008] EWHC 145 (Ch); [2008] 05 EG 166 (CS). Obligations to use reasonable endeavours are less onerous. In Rhodia International Holdings Ltd v Huntsman International LLC [2007] EWHC 292 (Comm); [2007] 2 All ER (Comm) 577, the judge thought that where several reasonable courses of action could be taken in a given situation, an obligation to use reasonable endeavours probably requires a party to take only one of them. However, where a contract specifies that certain steps must be taken, the promisor will have to take those steps, even if compliance meant that it has to sacrifice its own commercial interests.
CPC Group Ltd v Qatari Diar Real Estate Co [2010] EWHC 1535 (Ch); [2010] PLSCS 174 offers practitioners an insight into the meaning of an agreement “to use all reasonable but commercially prudent endeavours” to attain specified objectives. The promisee argued that an obligation to use all reasonable endeavours was synonymous with a best endeavours obligation, because it obliges a promisor to take all reasonable courses of action to achieve the desired outcome. In particular, it claimed that that the promisor was obliged, if necessary, to subordinate its own financial interests to obtain the desired result.
The judge was not convinced. He ruled that the promisor had not agreed to sacrifice its own commercial interests in order to obtain planning permission for development. The promisor had made this clear because, in addition to other indications in the contract, it had expressly qualified its obligation to try to obtain planning permission by reference to commercial prudence. Consequently, the promisor was entitled to consider its own commercial interests aw well as those of the promisee.
How did the fact that the promisor was also under a duty to act in utmost good faith affect this? The judge referred to Overlook v Foxtel [2002] NSWSC 17, in which the Supreme Court of New South Wales considered the relationship between an obligation to act in good faith and the parties’ pursuit of their commercial or other interests. The court ruled that a party is not required to subordinate its own interests as long as their pursuit does not unreasonably interfere with or seriously undermine the enjoyment of benefits conferred by express contractual terms.
Allyson Colby is a property law consultant
