Endeavours clauses: an international perspective

Introduction

Although endeavours clauses are common in commercial contracts worldwide, they are not as straightforward as they may seem at first blush. They have significant overlap with other clauses that go to the heart of the contract, such as force majeure clauses, which can add complexity to their interpretation. Furthermore, while commercial parties may intuitively think that they have a clear understanding of what an endeavours clause requires, a party's commercial understanding can very often differ from the legal reality. This has led to endeavours clauses receiving considerable attention from the courts over the years.

This brief article looks at the origins and purposes of endeavours clauses in English legal practice, discusses a recent decision by the Supreme Court of the United Kingdom concerning the interaction of endeavours clauses and force majeure, and finishes with some observations on endeavours clauses in an international legal context.

Endeavours Clauses

Endeavours clauses have historically been used in English legal practice to impose some level of obligation on contractual parties to achieve a particular outcome which may not be totally within the parties' control, e.g. antitrust consent or planning approval. Even in the absence of such an express clause, English courts may be prepared to imply such an obligation when necessary to give effect to the contract. For example, this has been found to be the case in the context of certain exceptions clauses[1] and the UK Supreme Court addressed this point, albeit obiter dictum, in the MUR Shipping v RTI [2024] UKSC 18 ('MUR Shipping v RTI') judgment discussed below.[2] Nevertheless, as ever, it would be unwise to assume that any such obligation would be implied into a contract and it is always best practice to be express about what has been agreed between the parties.  

Thus, a party seeking to avoid finding itself in breach of contract for a failure to achieve a specific outcome could agree the inclusion in a contract of a lower, less-than-absolute obligation to try and achieve the outcome instead. Various formulations have been developed, with the most common being 'best endeavours', 'reasonable endeavours' and 'all reasonable endeavours'. While the use of different formulations has added flexibility, it has nevertheless also added interpretative complexity. This is because each clause must be interpreted on a case-by-case basis taking into account the terms of the clause itself, the other contractual provisions, the overall purpose of the agreement, and the commercial context.

Under English law, as set out in the seminal case of Jet2.Com Ltd v Blackpool Airport Ltd [2011] EWHC 1529 (Comm), the meaning of any particular endeavours clause remains a question of construction and not of extrapolation from other cases.

The 'best endeavours' standard has received the most attention from the courts. While the precise steps required to satisfy a 'best endeavours' obligation is case dependent, the Court of Appeal has held[3] that an obligor should:

'take all those steps in their power which are capable of producing the desired results [...] being steps which a prudent, determined and reasonable (obligee), acting in his own interests and desiring to achieve that result, would take'.

A key point is that this judgment suggests that the party subject to a best endeavours obligation must place themselves in the position of the party that is owed the obligation. While this is clearly a high standard, it is balanced with the reference to reasonableness, which tempers the onerousness of the obligation. The courts have held that, depending on the circumstances, 'best endeavours' could include the obligation to incur expenditure[4] or to litigate.[5] However, the obligation should not be viewed in a vacuum and other duties, such as directors' duties, should be taken into account.[6]

'Reasonable endeavours', in turn, is a lesser obligation that has been described as requiring the steps of a reasonable and prudent person acting in their own commercial interest desiring to achieve that result.[7] This can be contrasted with 'best endeavours', as it would suggest the perspective of a reasonable obligor (rather than obligee). In the same vein, a party will not ordinarily need to sacrifice its commercial interests to satisfy an obligation of reasonable endeavours.[8]

In addition to these two main formulations, parties have also come up with various alternatives, including 'all reasonable endeavours', which has a controversial meaning upon which the courts have not definitively decided, although the traditional orthodoxy is that it is somewhere between reasonable and best endeavours,[9] and more untested alternatives such as 'utmost endeavours' and 'commercial endeavours'. These latter two have received little attention from the English courts and so it is difficult to predict how a court would interpret them. Therefore, it is good practice to use the formulations of reasonable endeavours and best endeavours as they have been tried and tested in the courts. Furthermore, for greater certainty, parties should consider expressly setting out in the agreement the steps which an obligor must take in order to satisfy the endeavours obligation. For example, parties should consider if an obligor is required to incur expenditure (and, if so, how much), how long an obligor must pursue its objective before it can abandon it, if they must pursue litigation, or other specific steps.[10]

While it may seem excessive for parties to agree all of this beforehand, the additional hours negotiating it pre-contract can help to avoid months locked in dispute post-contract. For example, the path of the recent MUR Shipping v RTI case from arbitration through to the Supreme Court underlines the potential contentiousness of endeavours clauses.

MUR Shipping v RTI

In MUR Shipping v RTI, MUR and RTI were parties to a contract of affreightment regarding the carriage of bauxite from Guinea to Ukraine. Pursuant to this contract, MUR agreed to make monthly shipments of bauxite and RTI agreed to make freight payments to MUR in US dollars. US sanctions were subsequently applied to RTI's parent company, which extended to RTI. MUR gave notice to RTI of an event of force majeure on the basis that the sanctions impeded RTI's ability to make payments to MUR in US dollars as required by the contract. Restrictions on monetary transfers and exchanges were expressly mentioned as force majeure events, but clause 36.3(d) of the contract also provided that the event must not be capable of being 'overcome by reasonable endeavours from the Party affected'. As mentioned at the outset, combining reasonable endeavours with force majeure in this way is a common contractual approach and demonstrates how endeavours clauses should not be viewed in isolation.

At the first stage of the process, an arbitration tribunal found that MUR could not rely on the force majeure clause, emphasising that RTI had offered to pay the conversion costs, and that payment in euros was a realistic alternative that would not detrimentally affect MUR. Jacobs J[11] for the High Court disagreed with the arbitration tribunal and found that a party should not, in order to satisfy reasonable endeavours, be required to accept non-contractual performance as reasonable endeavours should only strive to achieve the bargain actually made. The High Court decision, on appeal to the Court of Appeal,[12] was reversed by a majority of that court and in his judgment as part of the majority Males LJ propounded a 'common sense' approach towards achieving the parties' intentions.[13] However, the Supreme Court unanimously allowed MUR's appeal, finally arriving at the same conclusion as Jacobs J of the High Court and the dissenting Arnold LJ of the Court of Appeal. The Supreme Court decided:

• Firstly, unless a clause is drafted with clear, express wording to the contrary, a party that is subject to a reasonable endeavours obligation will not be required to accept non-contractual performance in order to satisfy it. Notably, the Supreme Court held that the 'object of the reasonable endeavours proviso is to maintain contractual performance, not to substitute a different performance'.[14]     
• Secondly, this basic premise comes from the fundamental principle of freedom of contract. Within that overarching framework is the freedom not to contract, which, in turn, encompasses the right not to accept non-contractual performance of an obligation.[15]
• Thirdly, stepping slightly away from legal theory and focussing more on practical application, if the approach of the Court of Appeal were to be followed, contractual parties would then be required to engage in the exercise of analysing whether a proposed alternative arrived at the same result as that which was intended and whether it caused detriment to the innocent party's interests. Such an exercise would create uncertainty and be anathema to the one of the fundamental goals of English contract law, contractual certainty.[16]

Given that the Supreme Court's decision was unanimous, it is particularly authoritative and persuasive.

An International Perspective

Largely due to the dominance of the English language in the world of international commerce, and the reliable reputation internationally of common law jurisdictions such as the United States and England, the Anglo-Saxon standard is often used internationally, including in contracts not subject to common law. It is not uncommon to find a contract drafted in English, using common law legal terms, but which is subject to the governing law of the jurisdiction where the asset being sold, or where one or more of the parties themselves, are located. Such contracts may contain legal terms, such as endeavours (often expressed as 'efforts') clauses, that have their roots in English legal practice but which may be interpreted differently in other common law jurisdictions and, still more so, in civil law jurisdictions. 

For example, an English-qualified lawyer may question the effectiveness of an endeavours obligation to agree some matter in the future. Under English law, this may be considered an 'agreement to agree' and, if so, would be unenforceable for lack of certainty.[17] This represents an important difference with some civil law jurisdictions, where an agreement to agree something would, in principle, be enforceable.

Finally, from a European Union law perspective, the concept of 'best efforts' has also been imported into some prominent legislative texts. For example, the recently adopted Corporate Sustainability Due Diligence Directive which was published in the Official Journal of the European Union on 5 July 2024 and entered into force on 25 July 2024 (Directive 2024/1760) requires companies within its scope to adopt and implement a climate change mitigation transition plan that, through 'best efforts', aims to ensure the company's business model and strategy are compatible with the transition to a sustainable economy and with the global warming limit of 1.5 ºC, in line with the Paris Agreement and the European Union's objectives of achieving climate neutrality by 2050 and the 2030 climate target and, where applicable, the company's exposure to coal, oil and gas activities. The Directive does not elaborate on what steps will be required to satisfy this 'best efforts' obligation and so, in theory, the interpretation of this obligation at Member State level could be informed persuasively by the jurisprudence discussed above. The Directive's obligations on the companies within its scope will start to apply from 26 July 2027 (as may be amended to 2028 by the EU Commission's proposal for an omnibus directive should it be adopted); it is hoped that clarity will be provided before then by official guidance from the European Union rather than waiting for these types of issues to be played out in the courts.

Conclusion

In conclusion, endeavours clauses are internationally popular as they accurately reflect the commercial reality that business is not black and white. Commercial parties need the flexibility for a middle ground in their contracts because the commercial reality demands it. However, it is important for commercial parties to be aware of how such clauses may be interpreted or take effect in different circumstances.

As we have seen, each endeavours clause is intertwined with other elements of the contract and thought needs to be given to how an endeavours obligation can be satisfied in that specific context. Furthermore, the concept of 'reasonableness' runs through endeavours clauses of every type, which is all the more reason to be express about what is required to satisfy it. In the absence of such express agreement, and depending on the endeavours clause in question, a party may even need to put itself in the shoes of its counterparty when evaluating what steps are required. In addition to this, a contract under civil law also requires the duty of good faith to be taken into consideration, which can further complicate the exercise.

Thus, best practice for ensuring parties have certainty (thereby avoiding future disputes) is to use tried-and-tested formulations of endeavours clauses and to be express in the contract about the steps an obligor is required to take. These best practices, and in particular the latter, arguably become all the more relevant when drafting a contract subject to civil law, where the interpretation of legal terms which have been developed in a non-civil law jurisdiction may prove difficult to predict.

Books and Articles

• K. Lewis, The Interpretation of Contracts (Sweet and Maxwell: 2020), seventh edition.
• R. Cumbley and P. Church and Practical Law Commercial, 'Best or Reasonable Endeavours' in Practical Law Commercial, (July 2024) <Best or reasonable endeavours? | Practical Law> accessed 25 November 2024.
• 'Force majeure does not require affected party to accept non-contractual performance (Supreme Court)' in Practical Law Commercial (16 May 2024) <Force majeure does not require affected party to accept non-contractual performance (Supreme Court) | Practical Law> accessed 26 November 2024.
• C. Bushell, R. Lidgate, E. Deas, and M. McIntosh, 'Force majeure and reasonable endeavours: Supreme Court provides certainty', in Practical Law Commercial (30 May 2024) <Force majeure and reasonable endeavours: Supreme Court provides certainty | Practical Law> accessed 26 November 2024.
• P. Stacey and S. Holland, 'No requirement to accept non-contractual performance to overcome force majeure event: RTI v MUR Shipping' (16 July 2024), in Slaughter and May <RTI v MUR Shipping> accessed 20 November 2024.
• F. Ewing and I. Wad, 'Overcoming Force Majeure by Reasonable Endeavours – Analysing the UK Supreme Court's ruling in RTI Ltd v. MUR Shipping BV' (14 June 2024) <Dentons - Overcoming Force Majeure by Reasonable Endeavours – Analysing the UK Supreme Court's ruling in RTI Ltd v. MUR Shipping BV> accessed 15 November 2024.
• S. Chauhan, R. Hornshaw, and J. Jamooji, 'Contract Is (Still) King—Update on the UK Supreme Court's Decision in RTI Ltd v MUR Shipping BV', in Akin (31 May 2024) <Contract Is (Still) King - Update on the UK Supreme Court's Decision in RTI Ltd v MUR Shipping BV | Akin Gump Strauss Hauer & Feld LLP> accessed 19 November 2024.
• P. Parish, C. Dobby, A. Siannaca and M. Crossley, 'UK Supreme Court preserves principles of contractual interpretation in RTI Ltd v MUR Shipping BV' (20 May 2024) in Hogan Lovells, <https://www.hoganlovells.com/en/publications/uk-supreme-court-preserves-principles-of-contractual-interpretation-in-rti-ltd-v-mur-shipping-bv> accessed 15 November 2024.

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[1] Bulman & Dickson v Fenwick & Co [1894] 1 QB 179

[2] MUR Shipping v RTI [2024] UKSC 18, para 28(i)

[3] IBM United Kingdom ltd v Rockware Glass Ltd [1980] FSR 335.

[4] Jet2.com v Blackpool Airport Ltd [2012] EWCA Civ 417.

[5] Malik Co v Central European Trading Agency Ltd. [1974] 2 Lloyd's Rep 279.

[6] Rackham v Peek Food [1990] BCLC 895.

[7] Minerva (Wandsworth) Ltd v Greenland Ram (London) [2017] EWHC 1457 (Ch).

[8] P&O Property Holdings Ltd v Norwich Union Life Insurance Society [1993] EGCS 69 (KB).

[9] UBH (Mechanical Services) Ltd v Standard Life Assurance Company, The Times, 13 November 1986.

[10] R. Cumbley and P. Church, 'Best or Reasonable Endeavours' in Practical Law Commercial, (July 2024) .

[11] MUR Shipping v RTI [2022] EWHC 467 (Comm).

[12] MUR Shipping v RTI [2022] EWCA Civ 1406.

[13] MUR Shipping v RTI [2022] EWCA Civ 1406, para 56. 

[14] MUR Shipping v RTI [2024] UKSC 18, para 38 and 102.

[15] MUR Shipping v RTI [2024] UKSC 18, para 42.

[16] MUR Shipping v RTI [2024] UKSC 18, para 47 and para 49.

[17] Little v Courage Ltd [1995] CLC 164.