Why do so many construction disputes occur? This is a curious question and one that has been subject to scrutiny and debate over the years. There are several factors that contribute to the issue, however gaining a complete understanding of this matter is often challenging. The factors can be wide-ranging and unique, making it very difficult to pinpoint the exact reason. It’s typically a blend of environmental and behavioural matters that lead to disagreements between parties, but the main underlying drivers are centred around uncertainty, behaviour, and most significantly contractual problems.
One area in which many Real Estate and Construction practitioners will have confronted concerns the performance of obligations under the contract. Parties privy to a contract will be required to use ‘best’ or ‘reasonable’ endeavours when fulfilling their obligations. These terms are often found in commercial contracts and are common in bespoke contracts as well as standard forms of contract i.e. JCT, which are frequently used on a wide range of construction and engineering projects. The consensus is that these contractual terms are incredibly vague, which has led to extensive deliberation over the meaning of each term and their application in relation to certain disputes.
To the untrained eye, there may appear to be little difference in the meaning of the two terms, but the subtle change of wording is something that repeatedly goes unnoticed, especially in construction contracts. Such oversights can leave parties substantially exposed if they lack an understanding of the legal ramifications pertaining to the interpretation and meaning of these two terms and whatever is applicable in the contract.
This matter is made even more complex as, from a historical standpoint, the courts are often reluctant to draw a firm line between the two kinds of obligation. For example, in the case Overseas Buyers v Granadex (1980), Justice Mustill amplified the issue by stating that “perhaps the words best endeavours in a… contract mean something different from doing all that can be reasonably expected – although I cannot think what the difference might be.” In IBM v Rockware Glass (1980) of the same year, Buckley also stated that in the absence of any context indicating to the contrary, this [an obligation to use best endeavours] should be understood to mean that the [party] is to do all he reasonably can….” This somewhat contradictory statement further adds to the distortion between ‘best’ and ‘reasonable’ endeavours.
‘Best’ vs ‘Reasonable’ Endeavours – What is the difference?
Theoretically, it’s plausible to interpret that the term ‘best endeavours’ indicates a greater level of commitment in the undertaking of a task in comparison to ‘reasonable endeavours.’ However, it is only when things go wrong on projects that these two terms get scrutinised in a way that leads to further distinctions about their meaning and difference being understood. Since there are no clear legal definitions of these two terms, it is necessary to refer to case law (not just construction case law) to provide guidance on the difference between ‘best’ and ‘reasonable’ endeavours. According to case law, the term ‘best endeavours’ means the following:
- To leave no stone unturned. ‘Best endeavours’ does not mean ‘second best endeavours.’
- To do what is reasonably to be expected in the circumstances
- Not to do anything that will jeopardise the commercial interests of the obligor
The first point; ‘to leave no stone unturned’ and ‘Best endeavours’ does not mean ‘second best endeavours,’ is a classical statement that was set out in a case between Sheffield District Railway v The Great Central Railway (1911). This served as a robust principle but was later watered down by subsequent case law.
In contrast, the term ‘reasonable endeavours’ (note the word ‘reasonably’ is confusingly included in point 2 of the ‘best endeavours’ meaning above) came to light more recently in Yewbelle v London Green Developments (2006), when the Court of Appeal in considering this matter, asked whether the action proposed would, if taken, offer a significant chance of achieving the result aimed at.’
Another statement in a succeeding case, Rhodia Int Holdings v Huntsman (2007), further clarifies the difference between the two kinds of obligation. In this case, Mr J Flaux QC made it clear that ‘reasonable’ and ‘best’ endeavours placed different levels of obligation upon the concerned party. Mr J Flaux QC said “there may be a number of reasonable courses which could be taken in a given situation to achieve a particular aim. An obligation to use reasonable endeavours to achieve the aim probably requires a party to take one reasonable course, not all of them, whereas an obligation to use best endeavours probably requires a party to take all the reasonable courses he can.” This relates back to and emphasises the ‘leave no stone unturned’ aspect previously established.
Whilst this statement is useful, it also creates additional confusion. This is because if a party is required as an obligation to take “all the reasonable courses” of action, then this could imply a new type of obligation entirely. This came to light again in Yewbelle v London Green Developments (2006) where Mr Justice Lewison stated “the obligation to use reasonable endeavours requires you to go on using endeavours until the point is reached when all reasonable endeavours have been exhausted. You would simply be repeating yourself to go through the same matters again.” This has led to the to the creation a new term that can be found in some contracts of ‘all reasonable endeavours.’ A further complication but beyond the scope of this article is distinguishing the difference between ‘all reasonable’ and ‘best’ endeavours.
So, what do the terms mean for parties?
Based on case law, the broad stance concerning definitions of these terms can be summarised as follows.
- ‘Reasonable endeavours’ suggests that some effort or action must be taken to achieve the objective in question. That effort is somewhere beyond trying without enthusiasm or only trying once, but less than leaving no stone unturned
- Best endeavours’ typically involves something more, such as repeated attempts and different approaches whilst leaving no stone unturned.
To further summarise, if a ‘best endeavours’ clause was inserted into a contract, then this would place a party under firmer obligations in comparison to a party subject to ‘reasonable endeavours.’ The case law thus far would suggest that ‘best endeavours’ may involve the need to take unreasonable action, such as action against the commercial interests of the relevant party, so long as the suing party were acting in a way that was not a breach. Alternatively, a ‘best endeavours’ clause may require a party to commit extra resources or invest additional capital to meet an obligation within the contract. However, it could be interpreted, based on precedent, that a ‘reasonable endeavours’ clause does not oblige a party to make such sacrifices and on the whole can be considered to be less onerous than a ‘best endeavours’ obligation.
In all scenarios though, it must be stressed that parties need to be aware and have a clear understanding of the clauses in their respective contracts and the activities or services they are agreeing to undertake or provide. If a contract specifies steps to be taken, then these will have to be adhered to, as they will be enforceable even if they turn out to be against a party’s commercial interests.
This leads onto another matter, as it remains unclear as to the extent of which a party is expected to sacrifice its own commercial interests in a bid to fulfil their obligations. In an ideal world, a balance will be retained so that the commercial interests of all concerned are safeguarded, but the issue concerning ‘best’ and ‘reasonable’ endeavours has led to several parties being exposed commercially.
This issue was raised in Jet2.com v Blackpool Airport Limited (2012) which highlighted such questions focusing on the extent that a party owing a ‘best endeavours’ duty can take into account its own commercial position when considering to what extent it must comply with the said duty. In this instance, for the first 4 years of their agreement, Blackpool Airport allowed Jet2 flights to arrive and depart outside the published opening hours, meaning the Airport was running at a loss. In an attempt, to improve profitability, Blackpool Airport refused to accept arrivals or departures outside its opening hours, giving Jet2 one week to change it schedules. Jet2 sued for a breach of contract based on Blackpool Airport’s obligations to use ‘best’ and/or ‘all reasonable’ endeavours to accommodate arrivals and departures between midnight and 6m. Blackpool Airport argued that honouring this obligation did not require it to act against its own commercial interests.
Ultimately, the jury ruled in favour of Jet2 due to the status quo scenario in which Blackpool Airport had been accommodating flights outside of their published opening hours for 4 years prior to this development. The outcome may have been different had this not been the case, creating further ambiguity around this murky issue.
JCT and Covid19
To conclude things, it could be appropriate to discuss a present issue concerning ‘best’ and ‘reasonable’ endeavours in terms of the problems that parties are facing in the context of the Covid19 crisis.
In its bare form, the JCT Contract contains a base obligation for a Contractor to proceed with works “regularly and diligently” and to complete the works “on or before the relevant Completion Date”. There is then an adjustment to the Completion Date which is tied to the proviso that the Contractor “shall constantly use his best endeavours” to prevent delay in the progress of the works. Therefore, if a JCT contract is not subject to amendments, the Contractor will be obliged to use their ‘best endeavours’ to ensure the project is not delayed and that the target completion date is achieved.
In response to the Covid19 crisis, the Government’s rolling 3-week lockdown process may have created issues on projects in terms of achieving agreed practical completion dates. Due to the ongoing uncertainty as to when the lockdown would end, it could be complicated for parties to agree what measures are to be implemented to produce a sensible yet practical outcome that is in the best interests of all parties. Carrying out risk assessments to assess the status of a construction site is critical, as they can determine whether a Contractor should return or stay away from site. Obviously, there may be scope for disagreements here as an Employer’s interpretation of the government’s guidelines may differ from that of a Contractor’s. However, whatever decision is made may have implications for a Contractor if they are obliged to constantly use his ‘best endeavours’ to prevent delay in the progress of works.
Another matter related to this concerns the extent in which a Contractor should incur additional costs to prevent and reduce delays because of needing to stay away from site. Case laws ‘take’ on ‘best endeavours’ suggests that a party must take steps which a “prudent, determined and reasonable owner acting in his own interests and desiring to achieve that result would take.” When applying for Extensions of Time under JCT, the Contractor has to meet this qualification and acknowledge that it is their duty to re-programme the works either to reduce or prevent delay, but there is no reference to what the limit of expenditure is to honour the obligation.
Therefore, it could be interpreted that the Contractor must make every effort to try and re-sequence the works if possible, but not subject themselves to substantial acceleration measures that jeopardise their commercial interest. However, under a ‘best endeavours’ clause, it may be argued that they have to consider and exhaust every possible option whilst not contemplating the potential loss and expense commercially. Conversely, under a ‘reasonable endeavours’ clause, the Contractor may only need to provide one alternative option that does little to expose them. This, according to Case Law, is where the key difference lies.
To prevent disputes in relation to this matter, it’s essential to draw a line between the undertaking of actions that align with constantly using ‘their best endeavours´ in contrast to what constitutes a contractual change or variation to the works. The phrase ‘clear as mud’ really is an appropriate term when investigating matters related to ‘best’ and ‘reasonable’ endeavours. That is why it is critical for each case to be examined individually by parties in terms of the performance obligations. Parties must allocate significant resources prior to agreeing contracts, and the Covid19 outbreak and other Force Majeure type circumstances are prime examples of the many potential eventualities that need to be considered.
Image credit: iStock.com/Dusan Stankovic