When Only The Best Will Do - May 08
When Only The Best Will Do – The Difference Between “Best” And “Reasonable Endeavours”.
“Best endeavours”, “all reasonable endeavours” and “reasonable endeavours” are common terms to be found in a wide range of commercial contracts. There has been much debate for years over their precise meaning. But does it really matter which you use? According to the latest case law the answer is a resounding yes.
The terms are generally used to qualify an obligation in a contract so that it is not absolute. The fundamental question of whether a party should agree to use “best”, “reasonable” or “all reasonable" endeavours is frequently raised in negotiations in all manner of commercial contexts.
Whilst these phrases had no specific legal definition, well established common principles regarding their meaning evolved from case law over the years. At one end of the spectrum was “best endeavours” which imposed a more onerous obligation than “all reasonable endeavours” which in turn was more stringent than “reasonable endeavours” at the lower end of the spectrum.
Now a recent High Court decision has shed new light on the subject. The Commercial Court case of Rhodia International Holdings Limited & Another v Huntsman International LLC [2007] EWHC 292 (Comm) held that an undertaking to use “reasonable endeavours” was not the same as an undertaking to use “best endeavours”.
The case concerned the sale of Rhodia’s chemical business to Huntsman. As part of the sale agreement both parties entered into an obligation to use “reasonable endeavours” to ensure that certain supply contracts were transferred from Rhodia to Huntsman. However, one supplier, Cogen, would not accept the novation of its energy supply agreement with Rhodia to Huntsman without a parent company guarantee (which Huntsman would not provide). Rhodia therefore remained liable for energy supply bills of around £15 million. Rhodia claimed Huntsman was in breach of its obligation to use reasonable endeavours to procure the novation of the contract.
Although the court found in Rhodia’s favour it rejected an argument that “best” and “reasonable endeavours” amounted to the same thing.
“Best Endeavours”
According to the court “best endeavours” “probably ” requires the party subject to the obligation to exhaust all of a number of reasonable courses which could be taken in a given situation to achieve a particular aim. Other case law has incorporated a concept of reasonableness which effectively means parties are not required to take steps which would cause serious detriment to them. The courts will look at the circumstances and take account of the commercial viability of any course of action.
“Reasonable Endeavours”.
The court held that “reasonable endeavours” “probably” requires the party subject to the obligation to take only one reasonable course of action in a given situation to achieve a particular objective. Other case law has held that “reasonable endeavours” does not require a party to take a course of action which disadvantages it.
“All Reasonable Endeavours”
In the Rhodia case the court doubted that there was any difference between “best endeavours” and “all reasonable endeavours” on the basis that both obligations required a party to take all reasonable courses available to it in the circumstances.
The prudent approach to take in order to dispel some of the uncertainty over whether a party has tried hard enough to honour its obligations is to add specific obligations where possible setting out what course of action is envisaged by the parties. For example, in the Rhodia case they could have specified that Huntsman would arrange for a parent company guarantee if required. Alternatively it may be possible to specify what the obligation does not encompass.
For further information on this or should you have any queries please contact Christina Maclean at christina.maclean@rickerbys.com.
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