"Best endeavours" obligations

United Kingdom

The real estate sector frequently includes in various agreements obligations to use “reasonable endeavours” or “best endeavours” and like to argue over what each phrase really means.

So when you have entered into an agreement to use your “best endeavours” to do something, can you be expected to act against your own commercial interests in fulfilling this obligation? The Court of Appeal recently decided that an airport's obligation to use its “best endeavours” to promote an airline's services meant that it had to keep the airport open outside its usual hours even though it would be operating at a loss. This was clearly against the airport’s commercial interests.

The case involved a 15 year agreement made between Jet2 and Blackpool Airport. As part of the agreement the airport agreed to use its “best endeavours” to promote the airline’s low-cost services from the airport. The contract made no reference to operating hours and for four years there were no issues about Jet2’s flights being scheduled after the airport’s normal business hours. The airport realised it was making a loss and in 2010 informed Jet2 at short notice that it would no longer accept flights outside normal operating hours. Jet2 brought proceedings claiming the airport was in breach of its “best endeavours” obligations.

The court accepted that there was a distinction between a “best endeavours” clause that is so uncertain that it is incapable of providing a binding obligation and one that forms a binding obligation in general terms but in advance it is not clear exactly what is required in order to comply with that obligation. The promotion of Jet2’s business was not so uncertain as to be incapable of giving rise to a legally binding obligation on Blackpool’s part.

The extent of Blackpool’s “best endeavours” obligation to promote Jet2’s business required Blackpool to do all that it reasonably could have done to enable that business to succeed and grow.

In considering to what extent a person who had undertaken to use his “best endeavours” could have had regard to his own financial interests would be dependent on the nature and terms of the specific contract. Here it was obvious that in order to support Jet2, Blackpool would have to allow the airline to schedule flights outside the normal hours of the airport. Just because this would cause a loss to Blackpool did not mean that the airport could avoid the obligation to promote Jet2’s business.

The case highlights the dangers of using a “best endeavours” obligation as this can require a party to act against its own commercial interests. If that is all that can be agreed, laying down some examples of the extent of the obligation would assist, for example what it would or would not cover, or setting general parameters making it clear that the obligation would not extend to acting against the commercial interests of the party giving the covenant.

To take one example, an obligation on a developer to use “best endeavours” to maximise the floor area permitted to be constructed under a planning consent. This could mean being obliged to continue to push negotiations with the local planning authority (or even to appeal) notwithstanding that the delay in the intended building programme financially has a more adverse effect on the developer than the extra value which would be created by the additional square footage ultimately permitted. Any such obligation should be qualified by reference to, for example, not delaying the building programme or adversely affecting the viability of the scheme.

Law: Jet2.com Ltd -v- Blackpool Airport Ltd [2012] EWCA Civ 417