'All reasonable endeavours': what does it mean?

It is common to include an endeavours clause in a contract, but the decision in Brook Homes (Bicester) Limited v Portfolio Property Partners Limited and Others [2021] is a reminder that contracting parties should fully understand the extent of the obligations that these provisions impose and the potential consequences of a failure to comply. 

Purchase negotiations

The claimant, Brook Homes (Bicester) Limited (BHB) entered into a heads of terms agreement and an exclusivity agreement with the defendants, Portfolio Property Partners Limited and Others (PPP) to purchase land at Himley Village, Bicester for the purposes of residential development. Under the agreements, the parties were jointly obligated to use all reasonable endeavours and act in good faith to enter into a conditional sale agreement (CSA) to document the land purchase.

The CSA had still not been agreed some three years after the initial agreements were entered into and the relationship between the parties became strained. BHB blamed PPP for failing to conclude negotiations in respect of the CSA and subsequently brought a number of claims, including a claim against PPP for breaching their contractual obligations in respect of the agreements. BHB sought more than £500 million in damages.

At the hearing, Mr Justice Sims considered a number of points, including whether the parties had failed to use all reasonable endeavours and whether they had failed to act in good faith throughout the period of the agreements.

Endeavours obligations

In the judgment, three categories of endeavours clauses were identified: "reasonable endeavours", "all reasonable endeavours" and "best endeavours".

• Reasonable endeavours. This is the least demanding obligation. Where there is an obligation to use reasonable endeavours, a party must generally pursue only one reasonable course of action and the party's own commercial interests would not need to be sacrificed. 
• All reasonable endeavours. The court's view was that all reasonable endeavours requires all reasonable paths or actions to be exhausted and that "some subordination of commercial interests may be required". 
• Best endeavours. This could, depending on the context, mean that the party would, in addition to using their best efforts to satisfy the obligation, also need to sacrifice some of their own commercial interests. This is less likely to be required with an all reasonable endeavours clause, but this very much depends on the context and precise wording of the terms in question.

All reasonable endeavours

After considering the context and precise wording of the relevant provisions, the court held that, in order to satisfy an obligation to use all reasonable endeavours, a party is required to use active endeavours. Any passivity or inactivity is likely to be construed as a potential breach. Furthermore, if a reasonable course of action is identified by one party, the counterparty may be required to explain why it does not consider such action to be necessary.

The decision 

The court found that PPP were in breach of contract, following a number of failures, including their failure to progress negotiations with the CSA. Damages were awarded to BHB in the sum of £13.4 million for loss of chance.

OC comment

Previously, an all reasonable endeavours obligation was often seen as a compromise between reasonable and best endeavours. The High Court decision suggests that this is not the case. An all reasonable endeavours obligation is more similar in nature to best endeavours; however, context is everything. It could be close to best endeavours in the right circumstances, but, in any event, all reasonable endeavours goes well beyond reasonable endeavours – and can require undertaking significant obligations. Any assessment needs to be made on a case-by case basis, having regard to the context and precise wording of the particular provision.

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