REUTERS | Arnd Wiegmann

Being certain in your endeavours

When negotiating commercial contracts, parties are often preoccupied with what level of obligation to accept, whether this is “reasonable endeavours”, “best endeavours” or some other standard. Alternatively, they use such terms as some sort of compromise wording where they can’t quite agree or identify what is actually required.

Importantly, they often neglect to consider the object of these endeavours. What practical actions will the parties be expected to take to satisfy these obligations? If the object of the obligations is uncertain, then the agreement may not be enforceable at all, for example agreements to agree. At the other extreme, the obligation might be far more onerous than the parties intended at the time of drafting.

Jet2 v Blackpool

In v Blackpool Airport Limited, the Court of Appeal had to consider a rather uncertain clause requiring the use of best endeavours and reasonable endeavours and decide what actions Blackpool Airport Limited (BAL) had to carry out, to satisfy its obligations. While the case concerned the operation of a low cost airline, the type of obligations dealt with by the court often crop up in construction contracts, particularly development agreements (as Lewison LJ notes in his judgment).

The obligation

The contract provided:

“ and BAL will co-operate together and use their best endeavours to promote’s low cost services from BA and BAL will use all reasonable endeavours to provide a cost base that will facilitate’s low cost pricing.”

Jet2 argued that BAL was obliged to promote its low cost services, and this included allowing it to operate outside normal opening hours. BAL argued that both obligations were too vague to be enforceable. The Court of Appeal disagreed with BAL. It found that the clause requiring BAL to use best endeavours to promote Jet2’s low cost services was capable of giving rise to a binding obligation, even if it was not clear what its content would be.

However, the obligation to use all reasonable endeavours to provide a cost base that would facilitate Jet2’s low cost pricing was probably too uncertain to be given any objective meaning.

In practice, this meant that BAL was required to continue allowing Jet2 to operate outside normal airport opening hours for the time being, even though this required BAL to incur significant losses. (However, the court did accept that the obligation on BAL might not extend to a situation where it had become clear that Jet2 would never operate profitably as a low cost airline.)

Did the court get it right?

In my view it would seem that justice has been done. It would have been unfair to allow BAL to prevent Jet2 from using the airport outside normal opening hours when there had been no change in BAL’s circumstances since the contract was entered into. However, it is slightly concerning that the courts have upheld such a broadly-worded contractual obligation. As Lewison LJ put it in his dissenting judgment:

“Leaving aside the question of flight times, to what else does the obligation extend?”

The case reflects a growing trend for the courts to give meaning to and to enforce contract terms even where those terms appear uncertain. Another example is Compass Group UK and Ireland Ltd v Mid Essex Hospital Services Trust. Typically, English law does not recognise a general duty to use good faith, but here the court found that there was a far-reaching obligation to act in good faith, taking into account the nature of the contract, which was for the provision of hospital services and contained concurrent duties to patients.

What does this mean for us?

It’s easy to imagine a development agreement where seemingly innocuous requirements to try and achieve something could be interpreted as going much further than first thought, simply because they are drafted widely and without focus. Jet2 v BAL makes it clear that the courts may well be willing to construe such an obligation as being onerous enough to require a party to act to its financial detriment, in order to meet it.

When negotiating contract terms, make sure you consider not only the standard of obligation, but also the object of the obligation. Set out with sufficient clarity and certainty what actions will be required to comply with each obligation. Unclear drafting may lead to unpredictable consequences.

Watch this space

The Court of Appeal’s decision in Jet2 v BAL was not unanimous. Lewison LJ’s persuasive dissenting judgment means there is real scope for appeal to the Supreme Court.

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