The High Court has confirmed that there is a difference between an obligation to use reasonable endeavours and one to use best endeavours – “best endeavours” is a higher obligation than “reasonable endeavours” and requires the use of all reasonable options – “reasonable endeavours” might only require the use of one reasonable course of action – “all reasonable endeavours” might therefore be equivalent to “best endeavours”

Background

Rhodia International Holdings v Huntsman International concerned the obligations arising on the sale of a business – but the obligation in question concerned procuring transfer of a third party contract, and so the case has direct application to many outsourcing and procurement or framework deals in the IT sector. Previous cases were unclear on what the difference (if any) was between reasonable and best endeavours.

Facts

Rhodia agreed to sell a business to Huntsman, or to Huntsman’s designated purchaser, a special purpose company set up by it. This included transferring all the third party contracts to Huntsman, one of which was an energy supply contract. That contract enabled the energy supplier to require that it was provided with financial information about the proposed transferee and also to demand the provision of some form of guarantee, failing which it could refuse consent to transfer.

The sale contract required Rhodia and Huntsman to use reasonable endeavours to obtain the necessary consents for the transfer of all the third party contracts. Huntsman was also obliged to provide financial information and also, if reasonably required by the third party, to provide a parent company guarantee (or some equivalent measure).

In fact, Huntsman declined to provide a guarantee, and the financial figures for the special purpose company were unsatisfactory, leading the energy supplier to decline its consent to an assignment.

Judgment

The judge found that Huntsman was positively required by the contract to provide some sort of guarantee and so there was no need to find that it had failed to use reasonable endeavours. However, as the matter was fully argued, the judge gave a valuable judgment looking at the meaning of “reasonable endeavours” as opposed to “best endeavours”. The judge found, as a matter of business common sense, that the two terms were different. As he put it, “[t]here 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.”

The judge adopted the reasoning in another recent case (Yewbelle v London Green Developments) where the judge there had said that an obligation to use reasonable endeavours probably did not entail a party having to sacrifice its own commercial interests.

Implications

Any assessment of what is reasonable will, of course, have to depend on the particular circumstances of the case. So, in Yewbelle, in answer to the question of how long a party was expected to continue using its reasonable endeavours, the judge said that this had to take account of events as they unfolded, including extraordinary events.

The following seem to be the important points from these two cases:

• Although “reasonable endeavours” and “best endeavours” are very common expressions found in contracts, earlier judgments had been confused on what they meant, and even seemed to indicate they could mean the same thing
• This judgment emphasises that there is a distinction to be made, with “reasonable endeavours” being a lesser obligation than “best endeavours”
• This means that there is value in negotiations in arguing and making trades for, where appropriate, a higher or lower obligation to apply to particular clauses
• “Reasonable endeavours” would not necessarily require a party to act against its own commercial interests
• Using “reasonable endeavours” seems to mean using one reasonable course, “best endeavours” seems to mean using all available reasonable courses
• Accordingly, “all reasonable endeavours” might mean the same thing as “best endeavours”

March 2007

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