Endeavours clauses remain inherently uncertain
BLACKPOOL AIRPORT v JET2.COM (CA) [2012]
The Court of Appeal (CA) has confirmed the High Court’s earlier ruling in this case on the meaning of ‘all reasonable endeavours’, rejecting the Airport’s (‘BAL’) argument that such an obligation did not require it to act against its own commercial interests. The CA also looked at the enforceability of an ‘endeavours’ provision. However, the decision leaves a tremendous amount of uncertainty and is, in many respects, very unsatisfactory.
Facts:
The facts of this case are as we reported in September 2011. BAL appealed the decision.
Decision:
- By a majority decision of 2 to 1 the CA upheld the decision of the original High Court Judge. The Judges agreed that the object of the endeavours clause (that is, the outcome towards which the endeavours must be directed) must not be too vague or uncertain. Perhaps somewhat surprisingly the majority said that "the promotion of Jet2's low cost services" was sufficiently certain and "the provision of a cost base that would facilitate Jet2's low cost pricing" was not.
- The Judges agreed that an endeavours clause would be too unclear to enforce if the contract supplied no objective criteria by which to judge whether a party's endeavours were sufficient. This was ultimately not considered to be a problem in this case although query what criteria the contract had, in fact, supplied? So it is a matter of fact and degree in each situation – not very helpful particularly as the Judges supplied no criteria by which to assess performance! The minority Judge felt that both obligations were simply too uncertain to be enforceable.
- One of the majority Judges emphasised that "the fact that [a party] has agreed to use his best endeavours pre-supposes that he may well be put to some financial cost, so financial cost cannot be a trump card to enable him to extricate himself from what would otherwise be his obligation". However, unfortunately, he then went on to say "whether and, if so, to what extent a person who has agreed to use his best endeavours can have regard to his own financial interests will depend very much on the nature and terms of the contract in question".
- On the facts of the case, the majority agreed that BAL's losses had not justified its actions. However, crucially, like the High Court Judge, they refused to define what circumstances might justify an end to the out-of-hours flight movements. The most they would accept was that, if it became clear that J could never operate profitably from the airport, BAL need not spend more money to promote a failing business. However, even this seems a strange comment since it focusses on the profitability of the airline not the cost to the airport which seems the wrong way round”.
Points to Note:
- Whilst endeavours clauses can be useful, they remain inherently uncertain, difficult to rely upon and it is not easy to know with confidence whether the commitment has been fulfilled. It is often better to try to define more precisely what is expected in order to fulfil the obligation in the contract although this is sometimes hard to do. As was seen here, the extent of an endeavours commitment had expensive unexpected consequences for BAL.
- A definition of ‘reasonable endeavours’ or ‘best endeavours’ which takes account not just of the cost to the performing party but the obligation owed to the other contracting party is more balanced and perhaps fairer as between the parties. An agreed definition is less susceptible to the changing opinions of Judges and allows the commitment to more closely reflect what the parties might themselves expect.
- Consider carefully whether an endeavours obligation is really appropriate or necessary in the circumstances.