Over Taylor Biggs

The article set out below is intended to provide a very brief and thumbnail description of the differences.  In reality, the nuances between the different undertakings are subjective and will depend on the specific facts. 

Characteristics of common endeavours clauses

The most onerous obligation on a party is where that party simply agrees to "procure" that some particular matter happens (or does not).  In many cases this can be tantamount to providing a guarantee that whatever it is that the party providing the undertaking agrees to do will happen.

The next level down is an undertaking to use "best endeavours" to procure that something happens (or does not).  As a general rule, the obligation is viewed from the perspective of the person receiving the benefit of the endeavours undertaking, but consideration may be given to the interests of the party providing the undertaking.  In practical terms, for example, how much is the party providing the undertaking expected to spend in fulfilling their "best endeavours" obligation?  Current case law provides that it may require significant expenditure by the person providing the undertaking, but not generally of a level that would ruin the relevant provider of the undertaking.  It is not an absolute obligation as a general rule.  It includes steps which a prudent, determined and reasonable person, acting in his own interests and desire to achieve that result, would take.  It may also be subject to any duties incumbent on the person providing the undertaking.  For example, if it is not able to do something as a result of contractual or other undertakings, this would be taken into account as a general rule.

The next level down after "best endeavours" is "all reasonable endeavours".  This is often used as a halfway house between best endeavours and reasonable endeavours.  There is little case law in relation to the interpretation of this term compared to the use of, for example, best endeavours or reasonable endeavours.  Although it is unclear, the implication is there may be a slant towards considering the position of the person providing the undertaking rather than the position of the person receiving the undertaking.  It may require the party providing the undertaking making some expenditure but will not generally require the person providing the undertaking to pay substantial sums.  It is likely to exhibit the characteristics of both best and reasonable endeavours. 

The next level down after "all reasonable endeavours" is "reasonable endeavours".  This is considered to be a primarily light undertaking in relation to the obligor's circumstances and interests.  It may require limited expenditure but it does not, as a general rule, require the obligor to sacrifice its commercial interests.  It is a question of balancing the contractual obligations against all relevant commercial consideration. 

The next level down after "reasonable endeavours" is the use of "endeavours".  This is below the use of reasonable endeavours and is often of little strength.  It is for that reason rarely used in that particular form.

As an overriding comment, probably the most decisive factor in applying endeavours clauses is whether the person providing the undertaking does in fact take any steps to comply with the endeavours undertaking.  The majority of the case law relates to whether or not any endeavours were used at all.  It is, therefore, prudent for the person who is providing the relevant endeavours undertaking to record evidence of the steps that it took to comply with its endeavours obligations in case there is any question as to what exactly they did to satisfy it. 

Recent Case Law

All reasonable endeavours

The High Court has recently had to consider the meaning of an obligation to use all reasonable endeavours in the context of a distribution agreement (CEP Holdings Limited and CEP Claddings Limited v Steni AS [2009] EWHC 2447 (QB)).  Whilst the Courts have provided some guidance on the meaning of reasonable endeavours and best endeavours as noted above, the scope and effect of clauses requiring the use of all reasonable endeavours is less clear.  In this particular case, a company appointed a person as a distributor of its products for certain territories under an exclusive distribution agreement.  The appointing company terminated the agreement on the grounds that the distributor had breached its contractual obligations to use all reasonable endeavours to promote the appointing company's products.  The Court held, amongst other things, that the all reasonable endeavours obligation in the agreement imposed an obligation on the distributor to do everything that a reasonably competent and energetic distributor would do to promote the products knowing that the company who appointed him was entirely dependent upon the distributor's efforts to achieve sales over a period of many years. 

It can be seen from this case that the element of subjectivity is very important under these particular circumstances.  The fact that it was the sole and exclusive distributor and it was in relation to a substantial number of years swayed the Courts to find that the distributor had not used all reasonable endeavours to promote the relevant products.  In reality in this particular case the distributor had failed to produce any structured marketing plans, its internal systems for forecasting and logging sales were inadequate, it had failed to produce marketing materials and attend trade fairs and seminars to promote the products and this was in the background of sales of the relevant products declining at a time of substantial growth in the rest of the comparable UK markets.  In reality, it appears as though the distributor had done very little, if anything, towards fulfilling its obligation to use all reasonable endeavours. 

Best / Reasonable endeavours

There have been various other methods of seeking to differentiate between reasonable endeavours and best endeavours where the Courts have in some respects tried to quantify an element of the difference by saying that in the case of reasonable endeavours this only requires a party to take one reasonable course of action rather than many.  There have been certain suggestions in judgments of the Court that an obligation to use all reasonable endeavours would require the party to take all reasonable courses of action that it can, but that this relates only to the number of courses of action that the relevant party may need to take and not to other distinctions between these obligations, for example, the extent to which a party might have to compromise its commercial position.

Certain other case law suggests that in the case of all reasonable endeavours there is an obligation to "do its best" but in the particular scenarios that the Courts were considering, which related to the assignment of a lease and to procure one of its subsidiaries to provide security if necessary, this did not extend to getting the parent company to provide a guarantee in place of the subsidiary.  In addition, the undertaking was looked at in light of any other contractual obligations upon the party providing the relevant undertaking.

Conclusion

As will be noted from the above, therefore, it is important that a party providing any form of endeavours undertaking understands the differences between the various levels of endeavours undertaking and if there is any concern with regard to providing the relevant undertaking, it may be more sensible to specifically list what it is that the party providing the undertaking should do in fulfilling the relevant obligations.  This is often time-consuming, expensive and difficult to produce a comprehensive list of the relevant steps that are required in a form satisfactory to the party who is in receipt of the benefit of the undertaking.  However, it does depend to a  point on how much of a concern it is for the party providing the undertaking as to whether they are able to fulfil that undertaking. 

This briefing note is not intended to be a comprehensive guide and does not cover every aspect of the topic and is not intended to provide legal or other advice.

Over Taylor Biggs February 2010