Partner Article

Reasonable Endeavours

With Watson Burton LLP Law Firm

The term ‘reasonable endeavours’ is common place in commercial agreements but what does it mean?

‘Reasonable endeavours’ is softer in application than a duty to employ best endeavours and will often be subjective based on the circumstances of the particular case. What constitutes reasonable endeavours often hinges on whether action will have any real prospect of achieving the desired result . It is unlikely (but not impossible) that reasonable endeavours would require a party to sacrifice his commercial interests or take legal action where the outcome is uncertain. However, a duty to employ reasonable endeavours may require such action and go even further, as the steps required of the obliging party will be heavily dependent on the particular circumstances of the case and the terms of agreement between the parties.

The High Court and the Court of Appeal have recently discussed the meaning of ‘reasonable endeavours’.

Rhodia v Huntsman

Rhodia entered an agreement to sell part of its chemical business to Huntsman. The Agreement imposed an obligation on both parties to use reasonable endeavours to obtain third party consents to novate contracts to Huntsman. The agreement stated Huntsman or its parent company should, if so required, enter into direct covenants to effect novation.

Huntsman refused to provide a parent company guarantee and the contract in question was never novated. Rhodia alleged Huntsman had breached its obligation to use reasonable endeavours.

The court concluded that ‘reasonable endeavours’ is less onerous than ‘best endeavours’ and would not require a party to endanger its own commercial interests.

As the agreement (which was negotiated equally by both sides) contained a clause requiring Huntsman or its parent company to enter into direct covenant to achieve novation, provision of a parent company guarantee was held to have been within the ambit of reasonable endeavours in this case.

Yewbelle v London Green Developments

Yewbelle agreed to sell LGD land for development. The sale agreement was conditional on Yewbelle securing a s.106 planning agreement with the council on the terms as set out in the draft s.106 agreement and imposed an obligation on Yewbelle to use reasonable endeavours to do so. After the sale agreement was signed it was discovered that part of the land was owned by a third party.

To obtain a compliant s.106 agreement Yewbelle would have had to either purchase the third party land or join the third party as a party to the s.106 agreement. Yewbelle believing it had used all reasonable endeavours available to obtain a compliant s.106 agreement, asked LGD to waive the need for the s.106 agreement or treat the sale agreement as terminated. At first instance the judge held that Yewbelle had a duty to keep using reasonable endeavours until all had been exhausted but to continue doing so would be repetition.

The Court of Appeal held Yewbelle had used reasonable endeavours and in the circumstances this did not include an obligation on Yewbelle to incur substantial expense in purchasing the land from the third party or joining the third party in the s.106 agreement.

There are no conclusive rules as to what constitutes reasonable endeavours. However, if a company is faced with an agreement which contains an obligation to use reasonable endeavours it must carefully consider what action may be required to meet the obligation, the financial and practical cost of compliance and whether any specific action is prescribed in the agreement.

If you have any queries about this article please contact Marie-Louise Bozonet at Watson Burton LLP (email: marie-louise.bozonet@watsonburton.com or telephone 0191 244 4444).

This was posted in Bdaily's Members' News section by Ruth Mitchell .