Court of Appeal decision on best endeavours clause

By a majority, the Court of Appeal has held that an airport operator's obligation to use best endeavours to promote an airline's low-cost services gave rise to an enforceable obligation to operate outside normal opening hours, as this was essential to the airline's business model. The airport could not escape this obligation on the basis that to comply would be unprofitable: Jet2.com Limited v Blackpool Airport Limited [2012] EWCA Civ 417.

Clauses requiring the use of "best", "reasonable" or "all reasonable" endeavours to achieve some objective are commonly used in commercial agreements where a party will not accept an absolute obligation. Their precise meaning is, however, open to a great deal of debate. This decision gives further illustration of the potential uncertainties. Where a clause is broadly drafted, it may be difficult to predict in advance not only what is required to fulfil the obligation, but whether it is sufficiently certain to be enforceable in the first place.

Some practical implications of the judgments include:

• Given the uncertainties, the drafting of such clauses should be approached with great care.
• Where possible, it may be best to specify what steps a party is required to take (or not take) in order to comply with an obligation, or at least set some criteria by which a party's endeavours can be assessed.
• Parties should give careful consideration to how they perform an agreement in practice. Once the status quo has been established, a party may be called upon to justify any departure from it.

Background

In September 2005 the claimant low-cost airline and defendant airport operator entered into a letter agreement setting out the terms on which the claimant would operate from the defendant's airport over a 15-year period. Clause 1 of the agreement stated that the claimant and defendant would "co-operate together and use their best endeavours to promote [the claimant's] low cost services" from the airport, and the defendant would "use all reasonable endeavours to provide a cost base that will facilitate [the claimant's] low cost pricing".

For over four years from March 2006, the claimant operated flights out of the airport in accordance with schedules accepted by the defendant which included regular departures and arrivals outside the airport's normal opening hours of 7 am to 9 pm. However, in October 2010, the defendant gave the claimant seven days' notice that it would not accept flights scheduled outside normal hours. As a result, two of the claimant's flights were diverted to another airport at short notice.

The claimant sought damages for breach of contract and a declaration that under the letter agreement the defendant was obliged to accept aircraft movements outside normal hours. The trial judge held that the defendant was in breach of contract in refusing to handle flights outside normal hours, but refused the declaration sought. The defendant appealed.

Court of Appeal decision

By a majority the Court of Appeal dismissed the defendant's appeal, rejecting the defendant's submissions that:

• clause 1 was not sufficiently certain to create binding obligations on the part of the defendant; and
• in any event, a best (or all reasonable) endeavours obligation did not require the defendant to sacrifice its own commercial interests.

The question of certainty

On the first point, the court noted that in general an obligation to use best (or all reasonable) endeavours is not too uncertain to be enforceable, so long as the object of the endeavours can be ascertained with sufficient certainty.

Moore-Bick LJ (with whose judgment Longmore LJ agreed) held that the obligation to use best endeavours to promote the claimant's business obliged the defendant to do all it reasonably could to enable that business to succeed and grow. This was not too uncertain to give rise to a binding obligation, which extended to keeping the airport open to accommodate flights outside normal hours. There was an important difference between (a) a clause which is so uncertain that it cannot create a binding obligation and (b) a clause which gives rise to a binding obligation, the precise limits of which are difficult to define in advance, but which can nonetheless be given practical content. An obligation to use best endeavours to promote another's business was of the latter sort.

The court had more difficulty identifying the content of the second obligation in clause 1, i.e. to use all reasonable endeavours to provide a cost base to facilitate low-cost pricing. Moore-Bick LJ described these words as "too opaque" to enable him to give them a meaning with any confidence, but it was unnecessary to do so in light of the court's findings on the first part of the clause.

Consideration of own commercial interests

On the question of whether the defendant was required to sacrifice its own commercial interests in promoting the claimant's business, the majority agreed with the judge that the question of whether, and to what extent, a party who has contracted to use best endeavours can have regard to his own commercial interests depends on the nature and terms of the contract in question.

Moore-Bick LJ said he "approached with some caution" the submission that the defendant was entitled to refuse to operate outside normal hours if that caused it to incur a loss, because on the judge's findings the ability to operate outside normal hours was essential to the claimant's business and therefore fundamental to the agreement. In those circumstances, one would not expect the parties to have contemplated that the defendant could restrict operations to normal hours simply because it would otherwise incur a loss.

This only went so far, however. The court could "see force" in the argument that if it became clear that the claimant could never expect to operate low cost services from the airport profitably, the defendant would not have to incur further losses in seeking to promote a failing business. Given the uncertainty about future events, the judge was right to refuse a declaration defining the defendant's obligations for the remaining 10 years of the contract.

Dissenting judgment

In his dissenting judgment, Lewison LJ concluded that clause 1 of the agreement was too vague to give rise to a binding obligation and therefore the defendant was not in breach of contract. In his view, the object of the endeavours and the range of possible endeavours must be considered together in order to decide whether there was a justiciable obligation, and it was wrong in principle to focus on the particular factual situation that had given rise to the dispute without considering to what other factual situations the clause might extend.

Here, the clause was too open-ended to allow a court to define or recognise the limits of the obligation. Since the agreement was silent about opening hours, that issue simply was not covered by the contract. Lewison LJ concluded that the judge's approach was "construction of the contract" not in the sense of interpreting it, but rather in the sense of making the contract the parties had not themselves made.

Comment

A question that is often asked is whether, and to what extent, a party must sacrifice its own commercial interests in order to comply with a "best endeavours" obligation. This decision confirms that there is no clear answer; it depends on the nature and terms of the obligation in question. Moore-Bick LJ's judgment suggests that where a particular matter is fundamental to the agreement (such as, on the judge's findings, the ability to operate outside normal hours), it will be difficult to argue that the relevant obligation is subject to consideration of the performing party's own commercial interests. Another factor that seems likely to be taken into account (though the Court of Appeal did not comment specifically on it) is the trial judge's distinction based on how much control a party has over the particular objective, i.e. the more control a party has over the result, the more difficult it is to argue that the obligation is limited by consideration of its own commercial interests.

Given the uncertainties that arise with these types of obligation, the best answer may be to specify what steps a party is required to take (or not take) in order to comply, or at least some criteria by which a party's endeavours can be assessed. Of course, there is always a risk of unforeseen events or circumstances, and so the drafting must be considered very carefully.

It is also worth noting that Longmore LJ's brief judgment contains the interesting, and perhaps worrying, suggestion that the criteria by which a party's endeavours can be assessed may be affected by how the agreement is in fact performed from its inception. He states: "Any question of best endeavours was most unlikely to arise before the agreement started to be performed. Once performance has begun, the party who proposed to change the status quo should have to justify that stance". Here, the parties had operated out-of-hours flights for four years without difficulty and, in Longmore LJ's view, the defendant's change of stance needed a justifiable explanation. Moore-Bick LJ does not address this point specifically, but Lewison LJ remarks that taking into account how the parties had in fact operated comes "close to using the parties' subsequent conduct in order to interpret the contract", which of course is not a valid approach.

The Court of Appeal's judgment does not shed light on the differences between obligations to use "best", "reasonable" or "all reasonable" endeavours. It was accepted that, for the purposes of the agreement in question, there was no difference between the obligation to use "best" or "all reasonable" endeavours, but that does not necessarily mean there will not be a distinction between these terms in other contexts.