Earlier this year, in Jet2.com (Jet2) v Blackpool Airport Limited (BAL) the Court of Appeal considered the legal effect of clauses calling for the exercise of "best endeavours" and "all reasonable endeavours".
In September 2005, Jet2 entered into a fifteen year agreement with BAL in relation to use of the airport. For over four years, Jet2 operated some flights outside the airport’s normal operating hours.
On 22 October 2010, in a move to increase profitability, BAL wrote to Jet2 stating that from midnight on 29 October 2010 it would not accept departures or arrivals that were scheduled outside normal operating hours.
As a result, two Jet2 flights had to be diverted from Blackpool to Manchester at considerable expense to the airline. Following successful injunction applications, Jet2 was allowed to continue offering the same flight schedule for winter 2010 as it had for winter 2009.
The crux of the dispute centred on the interpretation of the parties’ obligations under clause 1 of the agreement between the parties. Clause 1 set out an obligation on both parties to "co-operate together and use their best endeavours to promote Jet2.com’s low cost services from [Blackpool Airport]". It also provided that BAL would "use all reasonable endeavours to provide a low cost base to facilitate Jet2.com’s low-cost pricing".
Although the parties agreed that, for this case, best endeavours and all reasonable endeavours meant the same thing, they differed on their interpretation of what this obligation entailed. BAL argued that the obligation did not require it to do anything that would be contrary to its legitimate commercial interests. Jet2, however, argued that BAL could not chose to reduce the level of service that it was committed to simply because it decided that it was no longer in its commercial interest to do so.
High Court decision
The judge held that BAL’s sudden refusal to schedule any services outside their published opening hours was a breach of contract, not justified by BAL’s need to protect its commercial interests. He concluded that the meaning of "all reasonable endeavours" remained a question of construction in each case and was highly fact specific and that it is not possible to formulate and adopt a general test as to what is meant by "all reasonable endeavours" or "best endeavours".
In this case, the factors which the judge took into account included the fact that BAL’s obligation to use "all reasonable endeavours" related to matters which were within its own control (e.g. allowing flights to operate outside normal opening hours) and evidence, including a BAL document which contained indications that assumptions made by Jet2 about operating hours were shared at the time within BAL. He also noted that at the time the Jet2 contract was being negotiated, both Ryanair and Monarch were operating scheduled services at Blackpool outside BAL’s advertised opening hours.
On the facts of this case, he felt that BAL’s obligation to use all reasonable endeavours to provide a cost base to facilitate Jet2’s low cost pricing meant that it had to provide facilities and services that would allow low cost pricing and this included not confining Jet2 to normal operating hours. However, "all reasonable endeavours" did not impose an obligation to make an absolute commitment to provide those specific hours throughout the fifteen year period and he declined to rule on the specific operating hours BAL were to provide for the remaining ten years of the contract.
This is different from cases where the party who is under the obligation to provide "all reasonable endeavours" is relying on the actions or decisions of third parties over whom it has no control. In such cases the requirement to use "all reasonable endeavours" does not require that party to sacrifice its own commercial interests.
Court of Appeal
The Court of Appeal upheld the High Court decision. All three judges agreed that if the object of the endeavours clause was too vague or uncertain, then the endeavours clause would as a whole fail for uncertainty.
Longmore and Moore-Bick LJJ held that the "best endeavours" obligation was in this case enforceable. They took into consideration the evidence supporting the finding that both parties were aware of the low-cost airline business model which depended upon being able to obtain maximum use of their aircraft.
It therefore followed that the ability to operate aircraft early in the morning and late at night was necessary for Jet2 to prosper and fundamental to the agreement. The fact that BAL had agreed to use best endeavours presupposed that they would be put to some financial cost and although the cost was more than they had anticipated, it was not sufficient reason to excuse them from that obligation.
The Court of Appeal did accept that if it became apparent that Jet2 could never expect to operate low cost services from Blackpool profitably, the airport would not be obliged to incur further losses in promoting a failing business. BAL’s profits were not however the determining factor in this case.
Lewison LJ gave a dissenting judgment, on the basis that he considered that the object of the best endeavours obligation was too vague to be enforceable.
The case has not been appealed.
The decision provides further confirmation that undertakings to use "endeavours" will, if possible, be upheld, especially in contracts in which a disputed obligation is already being performed.
While a party’s agreement to use best endeavours pre-supposes that he will in principle be obliged to incur some costs in discharging that obligation, this case shows that the extent to which he will be expected to act against his financial interests will depend on a number of factors, including the nature and terms of the contract in question.
It is also notable that the parties and the Court did not distinguish between best and all reasonable endeavours. Care should therefore be taken when including the phrase "all reasonable endeavours" in relation to a contractual obligation as it is likely to be considered to be equivalent to best endeavours.
Parties should be aware of the risks of entering into agreements where these types of phrase are employed and should define, with as much precision as possible, the extent and scope of their contractual commitments.
Charlotte Winter is ‘Of Counsel’ at law firm Norton Rose