The meaning of ‘all reasonable endeavours’
CEP HOLDINGS & CEP CLADDINGS v STENI AS
Many agreements require a party to carry out certain obligations whose performance is satisfied by using ‘best endeavours’ or ‘reasonable endeavours’. In this case the term ‘all reasonable endeavours’ was referred to, which is not quite so common and is generally treated as meaning less than ‘best’ but more than ‘reasonable’. However, exactly what this term requires a party to do when used depends on the rest of the agreement and the relevant commercial context. Here, the High Court had to decide what was necessary to meet an all reasonable endeavours obligation to market and sell certain products in a distribution contract.
facts:
C was obliged in an exclusive distribution agreement with S to use "all reasonable endeavours" to promote and sell S’s products in a specified territory. S claimed that C had not fulfilled its obligation and claimed for damages in respect of C's failure to use all reasonable endeavours.
decision:
It was held that, in a distribution context, it must have been intended and understood by the parties that the distributor would carry out everything that a reasonably competent and energetic distributor would do to promote marketing and sales of the product in the relevant territory. Although no particular aspect of the evidence was conclusive, when taken together they provided sufficient verification of C’s failure to discharge the all reasonable endeavours obligation. The Judge considered C’s actions and seemed to accept counsel’s description of what the term meant. Her findings can be summarised as follows:
- Sales figures had declined. On its own this would not establish failure but the market generally had seen substantial growth and this supported S's case.
- Lack of adequately detailed marketing plan and organisation. Too much responsibility for promoting sales was left to one individual, including responsibility for maintaining and recording specifications and quotations.
- Inadequate systems for the preparation of forecasts and logs of specifications and quotations. The Judge said that a reasonably organised exclusive distributor would have had far better systems in place.
- Failure to cooperate with S. C had failed to engage with S regarding the promotion and sale of the products.
- Failure to use marketing materials. C had not used S's literature and marketing materials to distinguish and promote S's brand.
- Attendance at trade fairs and seminars. Insufficient attendance at trade fairs and seminars showed a lack of effort to reverse the negative sales trend despite these being recognised as a valuable marketing tool.
Although generally a distributor must show it has made some tangible effort to promote sales, it was acknowledged that the distributor had some discretion as to what steps it took in meeting its obligation and that certain matters were a commercial decision for it to take, such as pricing and comparisons with sales figures in other territories.
points to note:
- Although the case was decided on its facts, it gives some helpful pointers of the type of things a Court may consider in deciding if a party has satisfied a requirement to use all reasonable endeavours to sell and promote a product in distribution contracts. Different factors will, of course, apply to different types of commercial arrangements.
- It is interesting that the meaning attributed to ‘all reasonable endeavours’ in this case accords much more with common sense and does not mention the old, traditional formulation of ‘acting in your own best interests’.
- Given that terms such as ‘all reasonable endeavours’ are subject to one party’s interpretation over another in any particular circumstance and may therefore be ambiguous, it may be best to expressly state what duties and responsibilities are expected in the contract with specific, objective examples rather than rely on a necessarily vague ‘endeavours’ obligation. This would help the party required to fulfil the obligations and the other party in assessing whether there has been an actual or potential breach.
- If ‘endeavours’ commitments are to be relied upon it may be sensible to contractually define the level of effort required and the factors which may be taken into account in assessing compliance even if only in general terms. Whilst this case is a welcome step in the right direction, the inclusion of a contractual definition helps to set expectations, avoid uncertainty and avoid the risk of the Courts reverting to the rather historic and unsatisfactory interpretations.