All Reasonable Endeavours - Commercial Contracts - Airport's Obligation Proves Terminal

The ideal commercial contract covers every eventuality with clarity and precision. Sadly if such a contract exists, we have yet to see it. In the real world, not all possibilities are foreseeable. There may be too many to cover every one, and flexibility may even be desirable - especially in long-term arrangements.

In such cases, contracts are often precise about the main business terms but deal with other aspects more broadly. For example, a requirement to use "all reasonable endeavours" to achieve an outcome that cannot be guaranteed is a common way of creating an obligation that is legally enforceable, but less than absolute.

And in contractual negotiations where deadlock seems to be looming, a party may be tempted to concede a "reasonable endeavours" obligation to gloss over a difficult issue - more often deferring an argument than avoiding it altogether.

Such terms have been much litigated, as parties strive to establish how far they have to go. In a departure from previous decisions, the Court of Appeal has recently confirmed that sometimes, an "all reasonable endeavours" clause can bind a party to act against its own interests.

Jet2.com Ltd v. Blackpool Airport Ltd concerned a 15-year contract for the low-cost airline's operation out of Blackpool Airport, owned by BAL. The contract said nothing specific about operating hours, but required the airport to "use all reasonable endeavours to provide a low cost base to facilitate Jet2.com's low-cost pricing." Both parties understood that a low-cost operator would need flexibility to leave and arrive outside the airport's published opening hours. For four years, BAL allowed Jet2.Com to arrive late and depart early accordingly. However, because it was operating at a loss BAL then changed its policy, refusing to accept arrivals or departures scheduled outside the published opening hours. It gave Jet2.Com one week to change its schedules.
By a 2:1 majority, the Court of Appeal now confirmed that the relevant obligation was sufficiently certain to be enforceable. They also agreed that an "all reasonable endeavours" clause could require a contracting party to act against his own best financial interests. What such a clause obliges him to do will depend very much on the nature and terms of the contract in question. In this case, the parties would not have contemplated that BAL could have restricted Jet2.Com's use of the airport to the published opening hours simply because BAL incurred a loss each time it had to accept an arrival or departure outside those hours, or because keeping the airport open outside normal hours had proved to have been more expensive than BAL had expected. BAL's refusal to accept further aircraft movements outside those hours had been a breach of contract.
Like the previous High Court decision in this case, the Court of Appeal's decision only goes so far in clarifying the parties' position. Although the majority of the Court ruled that on the facts BAL was in breach of contract, they did not spell out how far the contract required BAL to go. They would go no further than saying that, if it became clear that Jet2.com could never operate profitably from the airport, BAL would not be obliged to spend more money to promote a failing business. Hopefully, the Court's steer on the meaning of the phrase "all reasonable endeavours" may now enable the parties to hammer out a further agreement that balances their respective needs.

For businesspeople in tough contractual negotiations, the Court's decision is a useful reminder that an "reasonable endeavours" obligation, which may seem like harmless fudge, can have commercially costly consequences.

To find out more about commercial contracts, contact Martin Banham-Hall or Nick Crook.

Filed: 06/07/2011 09:04:54