All reasonable endeavours is a phrase often found in commercial contracts. It creates an obligation to ‘try’ to do something. Although at odds with the English tradition of contractual certainty, it is a well-established area of English law. No such obligation in a contract should be taken lightly. A recent case, Brooke Homes (Bicester) Limited v Portfolio Property Partners Limited and Others  EWHC 3015 (Ch), explored the meaning of an ‘all reasonable endeavours’ clause in the context of an incredibly complex and multifaceted dispute over the purchase of land. It was the ‘all reasonable endeavours’ clause, along with an exclusivity clause, which were found to be breached and lead to the award of £13.4 million in damages.
It is generally considered that there are three types of endeavours clause recognised by English contract law: reasonable endeavours, all reasonable endeavours, best endeavours.
- Reasonable endeavours – might mean that if one reasonable path is taken then the obligation is discharged.
- All reasonable endeavours – this is normally interpreted as requiring all reasonable paths or actions to be exhausted.
- Best endeavours – in many respects it may be said that there is little difference between best endeavours and all reasonable endeavours. But best endeavours is considered to be more onerous and might be said to require, depending on the context, the sacrifice of some commercial interest, whereas an obligation to use all reasonable endeavours is probably less likely to do so.
For a more detailed analysis of the differences between these clauses and how they manifest in case law, read our blog: Best Endeavours and Other Endeavours Clauses.
All reasonable endeavours – the facts
The facts of Brooke Homes (Bicester) v Portfolio Property Partners and Others are as follows. Land to the North-West of Bicester, in Oxfordshire, was designated for the building of a zero-carbon “eco-town” in 2009. This included the development of some 1,000 acres of land with 6000 units of zero-carbon homes, with a mix of affordable housing, infrastructure, schools and leisure facilities. The claim arose out of the proposed development of part of the land. Brooke Homes being the buyer/developer and Portfolio Property Partners and other entities (P3 Group) gathering the necessary portfolio of land for the development.
The claim was for an order of specific performance of a contract for the sale of as much as 500 acres of land, or in any event for 100 acres. This claim was brought on a number of different grounds including Brooke Homes trying to claim they were entitled to a trust over the land. Putting this aside, Brooke Homes also made a claim for damages, in excess of £500 million, in lieu of an order for specific performance and/or by reason of alleged breaches of contract and/or misrepresentation. This included a claim for breaching a clause ensuring the P3 Group use all reasonable endeavours to ensure the sale went ahead.
The parties entered into three agreements: the Heads of Agreement, the Exclusivity Agreement and the Addendum. In the Heads of Agreement it was agreed, subject to the grant of planning permission and certain other conditions, that Brooke Homes would purchase land at Himley Village for development. Brooke Homes paid an initial deposit of £250,000 to secure this. The exclusivity agreement created an exclusivity period for Brooke Homes and the addendum protected other pre-payments Brooke House subsequently agreed to pay totalling £1.8 million. In the Heads of Agreement it said:
- “Agreement: The parties shall use all reasonable endeavours to enter into a final binding Agreement which captures legally these Heads of Agreement acting in good faith towards each other by 31st March 2015”.
- “Good faith: Each party shall act in good faith throughout the period of this Agreement”.
- “Mutual benefit: The transaction will be structured in a manner which will most effectively achieve the desired commercial and financial outcome for both parties.”
The judge summarised the obligations of the P3 Group in the following ways:
- To use all reasonable endeavours to enter into a final binding agreement i.e. sale of land in question to Brooke Homes for development. This final binding agreement needed to capture the Heads of Agreement obligations, including entry into a conditional sale agreement (pending planning permission) for the initial 100 acres, and these efforts needed to continue for the duration of the exclusivity period.
- Acting “in that respect, and more generally in relation to the agreements, and throughout their duration, in good faith towards each other”.
- The transaction would be structured in a manner which most effectively achieved the desired commercial and financial outcome for both parties, for their mutual benefit.
- To abide by the restrictions set out in the exclusivity agreement during the exclusivity period.
- To pay back the pre-payments (subject to the addendum) after 31 December 2016, if Brooke Homes elected to ask for the money back.
All reasonable endeavours – context
The reason for giving details of some of the other obligations involved in the agreements is to give context to the all reasonable endeavours clause in question. It is often stated that context is particularly important when interpreting such clauses. As the judge in this case wrote “the precise requirement will depend on the precise wording and context in which that wording arises… the mutual benefit clause in this case has some bearing on the context”. The judge also states that context can impact upon the distinction between ‘all reasonable endeavours’ and ‘best endeavours’ (detailed above). He writes “ultimately however, even these categorisations do not tell the whole story… so even with “all reasonable endeavours clauses” some subordination of commercial interests may be required” – this is often considered to be more suitable when interpreting ‘best endeavours’ clauses.
The judge, when fleshing out the obligation in this case, wrote that “active endeavour is required on the part of the parties where all reasonable endeavours are required; passivity or inactivity is likely to be construed as a potential breach. And if a reasonable course is identified by the claimant then the defendant can be required to explain why it was not required to do so.”
The judge found that the P3 Group had breached its obligations to use all reasonable endeavours and act in good faith when ensuring a transaction would take place. A key factor was P3 Groups failure to produce a plan for use of the land in question by Brooke Homes. The judge conceded that P3 Group would not have known exactly how the land would be demarcated until planning permission was finalised. However he considered this not to be “an insurmountable problem” and pointed to a draft clause which contemplated the “provisional demarcation of the lands to be transferred, but with the potential for this to be varied, using an expert surveyor to resolve any dispute in this respect”.
This was also further contextualised by the P3 Group entering into negotiations with other third parties for the sale of the piece of land in question, breaching the exclusivity agreement. This unilateral pursuit of its own commercial interests also amounted, in the judge’s view, to breaches of the all reasonable endeavours clause and good faith clause. The mutual benefits clause did also seem to have some bearing – with the judge stating that such a clause creates some kind of obligation to consider the other party’s commercial interests and the overall outcome desired.
All reasonable endeavours – lessons
This case highlights the ambiguities found when interpreting endeavours clauses. In this instance the judge’s interpretation of the level of effort that a party should go to when fulfilling an “all reasonable endeavours” obligation put that obligation closer than in other cases to a “best endeavours” obligation – that a sacrifice of commercial interests may still be needed for a party to fulfil an all reasonable endeavours obligation. The main reason for this seems to be that the judge had taken into account the clause’s context. If the agreements did not include exclusivity obligations, which were breached, as well as a good faith and mutual obligations clause, the judge may well have interpreted the all reasonable endeavours clause more conservatively. Parties would therefore have to look to the context when considering what obligations such clauses will create. A better solution would therefore have been for the parties to try and narrow down with clear drafting what “all reasonable endeavours” meant or avoided the wording in the first place.
Here to help
This case shows that parties to contracts using endeavours clauses need to ensure that such clauses are drafted judiciously and that they understand the obligations they create. The most effective way to introduce increased certainty around endeavours clauses is to state in the contract specific ways in which the parties can ensure they are fulfilling the obligations they create. It would also be advised to ensure that parties make notes of exactly what they are doing to fulfil such obligations. Such notes could include the reasons for choosing (or not choosing) to take a particular action. The agreements in this case clearly created a lot of obligations for P3 Group to ensure the transaction took place – this context played a big role in how the all reasonable endeavours clause was interpreted. Parties should therefore be aware that these clauses will always be context specific.
EM law specialises in contract law. Get in touch if you need advice on endeavours clauses or have any questions on the above.