What is "reasonable"?

Published: 8th May 2008

Endeavours clauses, such as "best endeavours", "reasonable endeavours" and variants in between, are a common feature of commercial contracts even though the actual meanings of these clauses continues to be a subject of debate.

There is a spectrum of endeavours clauses, with best endeavours being more stringent than reasonable endeavours. However, what an endeavours clause will require in any particular case depends on the other provisions of the agreement as well as the surrounding commercial context.

Cases on this point go back some time. (Sheffield District Railway Co v Great Central Railway Co [1911] 27 TLR 451) held that "best endeavours" "means what the words say; they do not mean second-best endeavours" and best endeavours "must at least be the doing of all that reasonable persons reasonably could do in the circumstances" (Pips (Leisure Productions) Ltd v Walton [1982] 43 P&CR 415).

While best endeavours may require expenditure on behalf of the obligor, they do allow the obligor some regard for its own commercial interests and certainly would not require action resulting in "the certain ruin of the Company or... the utter disregard for the interests of shareholders" (Terrell v Mabie Todd and Co. Ltd [1952].

An obligation to use best endeavours may well impose an obligation to litigate or appeal against a decision, though this would not extend to action that was doomed to failure or would be unreasonable in all the circumstances.

In two recent cases, Rhodia International Holdings Ltd v Huntsman International LLC ([2007]) EWHC 292) and Yewbelle Ltd v London Green Developments Ltd ([2007]) EWCA Civ 475) it was held that a reasonable endeavours obligation would not oblige a party to sacrifice its own commercial interests(Huntsman), while the test for compliance under an obligation to use "all reasonable endeavours" is likely to be more rigorous whilst remaining significantly short of the test under a "best endeavours" provision (Yewbelle).

The terms "commercially reasonable endeavours" and "reasonable commercial endeavours" are often used to try and soften a reasonable endeavours obligation. However, there is little precedent to support this interpretation and it is not clear that the courts would differentiate between the terms, given that a reasonable endeavours obligation already involves considering all relevant commercial factors.