In the recent case of Jet2.com Ltd v Blackpool Airport Ltd [2011] the High Court considered the use and meaning of “endeavours clauses” in contracts. An endeavours clause will oblige a contracting party to use either reasonable, all reasonable or its best endeavours to “try” to fulfil a contractual obligation. When disputed, the interpretation of such endeavours clauses continue to be assessed by the courts by reference to both the contractual terms and to the surrounding commercial circumstances at the time that the contract is concluded. Indeed, Mackie J stated obiter in the Jet2 case that the “…meaning of the expression remains a question of construction…”

Background

There is a spectrum of contractual phrases which can be used to qualify an absolute contractual obligation, including the obligation to use “best endeavours”, “reasonable endeavours” or “all reasonable endeavours”.

Previous case law has indicated that a best endeavours clause, whilst not an absolute obligation, is the most stringent of the endeavour clauses in that it “means what the words say; they do not mean second-best endeavours” (Sheffield District Railway Co v. Great Central Railway Co [1911]). The Court of Appeal in the case of IBM United Kingdom Limited v. Rockware Glass Limited [1980] further refined the above interpretation to require the obliging party “to take all those steps in their power which are capable of producing the desired results … being steps which a prudent, determined and reasonable [obligor], acting in his own interest and desiring to achieve that result, would take”.

A reasonable endeavours clause is a less stringent obligation and whilst still holding some contractual weight, it has been considered by the courts as more of a balancing act between the obligor’s contractual obligations against “all relevant commercial considerations” (P&O Property Holdings Limited v. Norwich Union Life Insurance Society [1993]). The P&O case also made clear that “commercial considerations” are primarily subjective and include the level of cost to the obliging party in pursuing the particular course of action but do not require the obliging party to sacrifice its own commercial interests.

The third commonly used endeavour clause places an obligation on the contracting party to use all reasonable endeavours and such is often seen as a compromise between best and reasonable endeavours. The courts have stated obiter that it is “probably a middle position somewhere between the two, implying something more than reasonable endeavours but less than best endeavours” (UBH v. Standard Life [1986]). The courts have also, however, ruled that all reasonable endeavours will probably require the obliging party to undertake more that one course of action without sacrificing its own commercial interests (CPC Group Ltd v. Qatari Diar Real Estate Investment Company [2010]).

Facts

In the present case, the Claimant, Jet2.com Ltd (“Jet2”) operated scheduled flights from eight airports in the UK, including Blackpool Airport owned by the Defendant, Blackpool Airport Ltd (“BAL”). In September 2005, Jet2 entered into a 15 year agreement with BAL (the “Agreement”), which included the following clause:

“Jet2.com and BAL will co-operate together and use their best endeavours to promote Jet2.com’s low cost services from BA [Blackpool Airport] and BAL will use all reasonable endeavours to provide a cost base that will facilitate Jet2.com’s low cost pricing.”

Whilst the Agreement was silent on the airport’s operating times, for a period of four and a half years Jet2 operated some flights outside the airport’s operating hours (between 0700 to 2100 in the winter and 0600 to 2000 in the summer). Jet2 did so with the support and cooperation of BAL. Following commercial tensions between the parties, however, BAL informed Jet2 that it would no longer accept either departures or arrivals scheduled outside of its normal operating hours unless certain conditions were met. As a result, Jet2 was forced to divert flights, causing considerable inconvenience and expense to both to itself and its passengers.

Jet2 claimed that BAL’s actions constituted a breach of contract arguing that, on proper construction of the Agreement, BAL was obliged to accommodate flight movements between 0600 and 0000 and to do its best to accommodate movements outside these times. This line of argument was adopted in light of the Agreement expressly describing Jet2 as providing “low cost services”. Jet2 argued that the clause restated above obliged the parties to use their best endeavours to promote Jet2’s low cost services and to use all reasonable endeavours to provide a cost base that would facilitate Jet2’s low cost pricing. As the Agreement contained no restrictions on operating hours, Jet2 argued that BAL was obliged to promote low cost services and to allow Jet2 to fly in and out of Blackpool Airport at times when it was cheapest i.e. between 0600 and 0000.

By allowing Jet2 flights to arrive and depart outside the airport’s normal operating hours during the first four and a half years of the Agreement, Blackpool Airport operated at a loss and BAL argued that its contractual obligation to use all reasonable endeavours to provide a cost base which would facilitate Jet2’s low cost pricing did not oblige it to act in a way which was inconsistent with its own commercial interests.

Judgment

The High Court held that the interpretation of such terms falls to be assessed on a case by case basis and by reference to the circumstances at the time the parties conclude the contract. As such, Mackie J ruled that BAL’s actions amounted to a breach of contract and found in favour of Jet2. When considering how to interpret the phrases “all reasonable endeavours” and “best endeavours”, Mackie J stated that “it is simply a question of fact in deciding whether or not all reasonable or best endeavours have been made.” Whilst Mackie J considered the case law dealing with the interpretation of these terms and similar expressions, he made clear that the “…meaning of the expression remains a question of construction, not of extrapolation from other cases.”

Comment

This case reiterates that an endeavour clause will be interpreted by reference to the terms of the agreement in question and assessed against the parties’ intentions at the time that they entered into contractual relations. Given such uncertainty, it remains essential that contracting parties fully consider the implications of using an endeavour clause and, prior to contracting, evaluate whether an express term can be incorporated into the contract specifying what action the obliging party is in fact required to take to ensure his best, reasonable or all reasonable endeavours are used. In this regard, contracting parties should consider:

– the precise actions the obliging party is required to take and how long the obliging party is require to persist with such action;

– the precise actions the obliging party is not required to take;

– the level of costs the obliging party is required to incur;

– whether the obliging party is required to commence legal proceedings or appeal proceedings in respect of the actions required; and

– whether the obliging party is entitled to protect its own commercial interests.

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