'Best', 'all reasonable' or 'reasonable endeavours' - what do I actually need to do?

Many construction contracts seek to place obligations on parties which are absolute – the party must perform. If a party fails to carry out such obligations, in the absence of any agreed justification, a breach of contract and liabilities for damages will occur.

We spend a great deal of time involved in negotiations where the parties seek to dilute such absolute obligations to an agreed compromise lower standard of performance. Rather than a party being absolutely obliged, it may be agreed that it only needs to use either “best”, “all reasonable” or “reasonable” endeavours to perform. If the party can demonstrate it has used such endeavours to carry out the obligation (even if it has not been satisfied), there will be no breach of contract.

Often in these negotiations we see that there is misunderstanding by the parties about what each type of endeavours clause actually obliges the party to do.

For example, a contractor under a building contract may be obliged to “use all reasonable endeavours to procure a collateral warranty from the steel sub-contractor in favour of the Employer”, but what does this actually mean?

The current legal position

In simple terms, based on recent case law* (although words must be read in context and with regard to the contractual matter in question), the general position is as follows:

Reasonable endeavours – this is the weakest wording, requiring the obligor to do only what is in its own opinion is reasonable to perform the obligation without the need to compromise its own commercial interests.

Best endeavours – this is the most onerous form of wording and obliges a party to do all possible to comply with the obligation and pursue every avenue to satisfy it (whether such actions could be viewed as reasonable or not). The party may need to incur costs to adhere to the obligation and possibly even sacrifice its own commercial interests.

All reasonable endeavours – this appears to lie somewhere in the middle (guidance is relatively vague) but it is closer to ‘best’ than ‘reasonable’. It obliges a party to take all reasonable steps objectively viewed to perform and may involve costs being incurred.

Remember:

Best endeavours requires significant effort and cost.

The difference between a “reasonable” and “all reasonable” endeavours obligation is significant. One involves a party potentially incurring cost to comply with its obligations (“all reasonable”) while the other is weak and may not require a party to go to any great lengths to satisfy the obligation to perform (“reasonable”). Those three letters really can make all the difference.

If you wish to know more about this topic or have any general construction law queries, please do not hesitate to contact Michael Conroy

* See EDI Central Ltd v National Car Parks Ltd [2012] CSIH 6 and Jet2.com Ltd v Blackpool Airport Ltd [2012] EWCA Civ 417