All reasonable but commercially prudent endeavours

Contracts often impose an obligation on someone to do something or to get something done. Unless the obligation is qualified, it is “absolute”, which means that failure to achieve it will be a breach of contract. Contracting parties therefore often add a qualification by agreeing instead only to use some form of endeavours. There’s a spectrum of endeavours clauses, with "best endeavours" being more stringent than "reasonable endeavours". Despite the fact that they’re widely used, there’s always been some uncertainty as to the degree of action each different endeavours clause requires.

Recent Case

The recent case of CPC Group Ltd –v- Qatari Diar Real Estate Investment Company has cast some welcome light on this uncertain area of the law, which has been the subject of numerous cases over the years.

In the 1911 case of Sheffield District Railway Co –v- Great Central Railway Co , the court decided that the phrase “best endeavours” means what the words say; they do not mean second-best endeavours.

“Reasonable endeavours” is a less tangible concept. It’s not thought to extend to taking legal action with an uncertain outcome, but that isn’t necessarily to say it would never require any legal action to be brought.

The third commonly used endeavours clause, often adopted as a compromise between best and reasonable endeavours, is "all reasonable endeavours". The traditional view was that “all reasonable endeavours” sits somewhere between “best endeavours” and “reasonable endeavours”.

However, since the 2007 case of Rhodia International Holdings Ltd –v- Huntsman International LLC, the view has often been held that all reasonable endeavours equates to best endeavours in all respects. However, it now seems that this just relates to the number of courses of action a party needs to take and not to the other distinctions between these obligations (such as the extent to which a party might have to comprise its commercial position).

Support for this approach comes in CPC –v- Qatari Diar, in which Vos J stated that an all reasonable endeavours obligation wouldn’t always require the obligor to sacrifice its commercial interests.

The case concerned the redevelopment of the Chelsea Barracks site and the intervention of the Prince of Wales, which led to a planning application being withdrawn. Qatari Diar was a subsidiary of the Qatar Investment Authority, a sovereign wealth fund. CPC is a Guernsey company.

The parties entered into a sale and purchase agreement in November 2008. Under that agreement, Qatari Diar owed CPC various obligations including one to use “all reasonable but commercially prudent endeavours” to procure planning permission.

The judge was asked to consider whether Qatari Diar's conduct in withdrawing the planning application was a breach of that obligation.

Although the judge found that Qatari Diar had breached the contract in other ways, he found, on the facts, that its conduct didn’t breach its obligation to use “all reasonable but commercially prudent endeavours”. Therefore, the judge ordered that CPC's claims for damages for breach of that obligation be dismissed.

CPC had argued that while an obligation to use reasonable endeavours is less onerous than an obligation to use best endeavours, an obligation to use "all reasonable endeavours" should be equated with an obligation to use "best endeavours", so that a party subject to such an obligation must, if necessary, subordinate its own financial interests to obtaining the desired result. This argument was based on the words of Flaux J in Rhodia, where he said

“There may be a number of reasonable courses which could be taken in a given situation to achieve a particular aim. An obligation to use reasonable endeavours to achieve the aim probably only requires a party to take one reasonable course, not all of them, whereas an obligation to use best endeavours probably requires a party to take all the reasonable courses he can. In that context, it may well be that an obligation to use all reasonable endeavours equates with using best endeavours”.

However, the judge considered the subsequent decision in Yewbelle Ltd –v- London Green Developments, in which Lloyd LJ accepted that, in using all reasonable endeavours, the seller was not required to sacrifice its own commercial interests. Furthermore, the situation was even clearer in this case, because the contract itself stated that Qatari Diar was not to be required to sacrifice its commercial interests by using the words "but commercially prudent" in the phrase "all reasonable but commercially prudent endeavours".

The judge stated that this was not equivalent to a "best endeavours" obligation, and it did not require Qatari Diar to ignore or forgo its commercial interests. Instead, the clause allowed it to consider its own commercial interests alongside those of CPC, and required it to take all reasonable steps to procure the planning permission, provided those steps were commercially prudent. In the context of the facts of this case, this distinction was important, because when Qatari Diar came to consider how to respond to the Prince of Wales's intervention, it was, according to the judge, permitted to consider its own commercial interests in doing so.

An obligation to use all reasonable endeavours is a common obligation in commercial agreements. CPC –v- Qatari Diar is a useful review of recent case law on endeavours obligations. The inclusion of the words "but commercially prudent" was not critical to the judge's decision (in light of Yewbelle), but it helped to confirm that Qatari Diar should be able to consider its commercial interests. Even better would be to include in the contract details of the steps necessary to fulfil the obligation.

Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.

Back to news