Court of Appeal considers "best" and "all reasonable endeavours" clauses

Practical Law UK Legal Update 2-518-7765 (Approx. 7 pages)

Court of Appeal considers "best" and "all reasonable endeavours" clauses

by PLC Commercial

Background

The most common kind of contractual obligation requires a party simply to do something or refrain from doing something. However, other obligations may require a party to achieve an outcome, or to procure its achievement. If unqualified, the obligation is absolute, and failure to achieve the outcome is a breach of contract; this is the case even if success depends on co-operation from an unconnected third party.

This sort of requirement is therefore often limited to an obligation to try or to "endeavour" to achieve the outcome. Case law indicates that there is a spectrum of endeavours obligations, with "best endeavours" representing the most stringent obligation, "all reasonable endeavours" probably occupying some sort of middle ground and "reasonable endeavours" being the least stringent. What an endeavours clause actually requires in any given case will depend on the other provisions of the agreement and the surrounding commercial context. The courts are often required to decide what an endeavours clause demands. For more information, see Practice note, Best or reasonable endeavours?.

Facts

Blackpool Airport Ltd (BAL) entered into a 15-year contract with Jet2.com Ltd (Jet2), a low-cost airline. The contract was prepared in the form of a letter agreement with little legal help and was "expressed in broad, but not uncertain, terms". Clause 1 of the letter agreement included the following general provisions which were at the heart of the dispute between the parties:

Best endeavours. An obligation on both parties to "co-operate together and use their best endeavours to promote Jet2.com's low cost services from [Blackpool Airport]".
All reasonable endeavours. An obligation on BAL to "use all reasonable endeavours to provide a low cost base to facilitate Jet2.com's low-cost pricing".

The parties agreed that, for this case, best endeavours and all reasonable endeavours meant the same thing. The judge and Court of Appeal therefore treated the two expressions as interchangeable.

Although clause 2 dealt specifically with a wide variety of operational matters, the contract said nothing about operating hours. As the judge found, the airport's published opening hours were 6 am to 8 pm (7 am to 9 pm in winter), and both parties understood that a low-cost operation would need flexibility to leave early and arrive late outside these hours.

The judge found that it was implied ("too obvious to mention") that the airline would not be confined to the airport's published opening hours, even though keeping the whole airport open for just one arrival or departure would cost the airport far more than it would earn. The judge referred to various items of background evidence, including a BAL document which contained indications that assumptions made by Jet2 about operating hours were shared at the time within BAL. He also noted that at the time the Jet2 contract was being negotiated, both Ryanair and Monarch were operating scheduled services at Blackpool outside BAL's advertised opening hours.

For the first four years of the contract, BAL allowed the airline to arrive and depart outside the published opening hours, and the airport ran at a loss. Then, in an attempt to improve profitability, BAL refused to accept arrivals or departures scheduled outside its published opening hours, giving the airline only one week to change its schedules.

The airline sued for breach of contract, and asked for a declaration to say what hours the airport must offer for the next ten years. (The airline had suggested that BAL must accommodate arrivals and departures from 6am to midnight, and do its best to accommodate them outside those hours.) BAL argued that its duties to use best or all reasonable endeavours did not require it to act against its own commercial interests.

The main question to be determined by the High Court was whether, by virtue of the endeavours language in clause 1 of the letter agreement, BAL was under an implied obligation to accept arrivals and departure of Jet2's aircraft outside normal opening hours.

At first instance, the judge held that BAL's sudden refusal to schedule any services outside their published opening hours was a breach of contract, not justified by BAL's need to protect its commercial interests. He found it relevant that BAL's duties to use best or all reasonable endeavours related, on this occasion, to matters within its own control. That distinguished this case from other "all reasonable endeavours" cases where a party was not required to pay an extortionate price towards achieving a result outside its control. However, the judge declined to rule on the specific operating hours BAL must provide for the remaining ten years of the contract. For a report on the High Court decision, see Legal update, High Court holds that "all reasonable endeavours" obligation was not limited by a party's commercial interests.

BAL appealed the decision, arguing that the duties to use best or all reasonable endeavours were too uncertain to be enforceable at all; and, in the alternative, that their own commercial interests justified their sudden refusal to accept late departures and early landings.

Decision

The Court of Appeal upheld the result at first instance. Lewison LJ dissented from the result.

Certainty of endeavours obligations

All three judges focused on the need to identify the object of the endeavours clause (that is, the outcome towards which the endeavours must be directed). If that is too vague or uncertain to be enforceable, they agreed, the endeavours clause as a whole will fail for uncertainty. In the present case, therefore, it was necessary to decide whether "the promotion of Jet2's low cost services" and "the provision of a cost base that would facilitate Jet2's low cost pricing" constituted a sufficiently certain object to make the endeavours obligations enforceable.

All members of the court agreed that an endeavours clause would be too uncertain to enforce if the contract supplied no objective criteria by which to judge whether a party's endeavours were sufficient.

Following general common law principles regarding the certainty of contract terms, Moore-Bick LJ saw an important difference between a clause whose content is so uncertain that it is incapable of creating a binding obligation, and a clause which gives rise to a binding obligation, the precise limits of which are difficult to define in advance, but which can nonetheless be given practical content.

Applying these principles to the facts of this case:

Longmore and Moore-Bick LJJ held that the object of the "best endeavours" obligation in the first part of clause 1 (that is "promoting Jet2.com's low cost services from Blackpool Airport") was not too uncertain, and that the promise to use best endeavours to achieve it was enforceable.
Lewison LJ, dissenting, thought that even if the parties had appeared to understand and implement this objective for 4 years, it was impossible to answer the question what else it might have required. This lack of certainty in the object made the clause unenforceable.

Contextual and background factors taken into account by Moore-Bick LJ included the following:

The language of the opening paragraph of the letter agreement made it quite clear that the intention of the parties was to enter into a binding agreement on the terms that followed.
There was a good deal of evidence before the judge to support his finding that both parties agreed that low-cost airlines depend on being able to obtain maximum use of their aircraft and that this in turn means operating schedules under which aircraft movements occur early in the morning and late at night.
It followed from the judge's findings about the nature of the low-cost airline business (and the party's shared understanding of it) that the ability to operate aircraft early in the morning and late at night was necessary in order for Jet2 to prosper, and fundamental to the agreement.

Lewison LJ refused to use the best endeavours language to imply a term that BAL should keep the airport open for Jet2 outside normal opening hours:

Clause 2 of the contract set out a large number of detailed obligations. If BAL had contractually committed itself to keeping the airport open at whatever hours Jet2 required, clause 2 would surely have said something about opening hours.
If a contract says nothing about a particular topic, then even if that topic is demonstrated by the admissible background to be an important one, the default position must surely be that the topic in question is simply not covered by the contract.

On the certainty of object issue, Lewison LJ relied on authorities to the effect that, when interpreting a clause, it is wrong in principle to focus on the particular factual situation which has given rise to the dispute without considering to what other factual situations the clause might extend if one side or the other is correct. In the present case, the clauses in dispute offered no assistance in determining other questions which might arise, for example, was BAL under an obligation to supply preferential landing slots or enhanced passenger facilities if Jet2 maintained that they were necessary for "the promotion of Jet2's low cost services". The clause offered no guidance on such issues, and was therefore too uncertain to be enforceable.

Lewison LJ concluded:

"In my judgment the judge's conclusion was not "construction of the contract" in the sense of "interpreting the contract". It was "construction of the contract" in the sense of "making the contract" which the parties had not themselves made."

With regard to the second obligation in clause 1, Moore-Bick and Lewison LJJ both doubted whether the object of the duty to use "all reasonable endeavours" (that is, "to provide a low cost base to facilitate Jet2.com's low-cost pricing") was certain enough to be enforceable. However, nothing in the decision turned on this point.

Meaning of endeavours obligations

For the purposes of this case, the Court of Appeal was not concerned with any possible difference between reasonable endeavours, all reasonable endeavours, or best endeavours. The judgments draw no distinction between the expressions and suggest that the arguments employed apply generally to all endeavours clauses.

However, on the question whether BAL's financial interests could justify its decision to restrict arrivals and departures to its published opening hours, the majority did expressly consider the "best endeavours" wording. As Longmore LJ said, "the fact that [a party] has agreed to use his best endeavours pre-supposes that he may well be put to some financial cost, so financial cost cannot be a trump card to enable him to extricate himself from what would otherwise be his obligation". But Moore-Bick LJ said "whether and, if so, to what extent a person who has agreed to use his best endeavours can have regard to his own financial interests will depend very much on the nature and terms of the contract in question."

On the facts of this case, Longmore and Moore-Bick LJJ agreed that BAL's losses had not justified its actions. And, like the trial judge, they refused to define what circumstances might justify an end to the out-of-hours flight movements. The most they would accept was that, if it became clear that Jet2.com could never operate profitably from Blackpool Airport, BAL need not spend more money to promote a failing business.

Comment

The decision provides further confirmation that endeavours clauses will, if possible, be upheld, especially in a contract that is already being performed. Even Lewison LJ, who would have deprived the endeavours clauses in this contract of any contractual effect, stressed how reluctant he was to come to that conclusion. But this case underlines the need for the parties to be clear what it is that they are to try to achieve. If that is too unclear, or if there is no standard by which to judge their efforts to achieve it, the clause may be void.

The decision also highlights that, while a party's agreement to use best endeavours pre-supposes that he will in principle be obliged to incur some costs in discharging that obligation, the extent to which he will be expected to act against his financial interests is a question of fact, and, as such, will depend on a number of factors, including the nature and terms of the contract in question. Given this uncertainty, we suggest in Practice note, Best or reasonable endeavours? that a more satisfactory approach may be to consider what steps the relevant party should take, and make express provision for it in the contract.

Case

Jet2.com Ltd v Blackpool Airport Ltd [2012] EWCA Civ 417, 2 April 2012, Longmore, Moore-Bick, and Lewison LJJ.

End of Document

Also Found In

Resource ID 2-518-7765

Published on 05-Apr-2012

Resource Type Legal update: archive

Jurisdictions

England
Wales