Going the extra mile

Monday 7 January 2013

In commercial contracts, it is common to have clauses providing that a party will use its “best or reasonable endeavours” to perform an obligation. When agreeing endeavours clauses, businesses need to be vigilant as to the scope of the clause and consider exactly what fulfilment of the clause will entail. A poorly drafted clause can either be void because of its uncertain nature or even lead to a party acting against its own commercial interests in order to fulfil it.

The case of Jet2.com Limited -v- Blackpool Airport Limited concerned the low cost airline Jet2 who were operating flights from Blackpool Airport. The parties entered into a fifteen year contract in 2005. The contract contained clauses to the effect that “Jet2 and BAL will co-operate together to use their best endeavours to promote Jet2’s low cost services” and “BAL will use all reasonable endeavours to provide a cost base that will facilitate Jet2’s low cost pricing”.

The contract did not specify the opening hours of the airport. For a period of four years, BAL permitted Jet2 to use Blackpool Airport outside their usual operating hours. Although this flexibility was crucial to Jet2’s business model, it caused BAL to incur significant additional costs at a time when the airport was already being run at a loss.

BAL gave only one week’s notice of their intention to no longer accept flights outside of normal operating hours, which led to two of Jet2’s flights being diverted to Manchester Airport at additional expense. Jet2 issued Court proceedings for breach of contract. BAL argued that the “reasonable endeavours” clause did not require it to act against its own commercial interests.

The High Court ruled that BAL were in breach of the agreement. The Court found that BAL’s profits were affected by a number of factors (including its overall efficiency and the decisions it had taken regarding other airlines operating at the airport), not just the flights operated by Jet2. This did not restrict BAL’s obligations under the agreement, which were to provide facilities and services that would bring about the low cost pricing offered by Jet2. BAL appealed to the Court of Appeal, who upheld the decision. The Court found that the clauses were sufficiently certain and should be complied with.

The Court concluded that BAL was obliged to do “all that it reasonably could to enable that business to succeed and grow”. This included allowing flights outside of normal operating hours. BAL were obliged to perform their duties, despite the fact that the contract had become commercially unviable from their point of view.

The Court did however note that had the circumstances been different, the obligation may not extend this far. For example, if Jet2 would never be able to operate a low-cost service profitably then it would not be reasonable to expect BAL to extend the airport opening hours for them.

The meaning of an endeavour clause will be a matter for interpretation on a case by case basis having regard to the commercial background and the entirety of the contract. A clause which is too vague is likely to be unenforceable and therefore parties should focus on the certainty and clarity of their agreements. Businesses should also be wary of entering into agreements containing clauses which may transpire to have a much wider scope than they had anticipated. A party will not necessarily be in a position to avoid an obligation under a contract where cost and inconvenience make it unpalatable.

Businesses should seek legal advice when negotiating and drafting commercial agreements to ensure that they are adequately protected and there is certainty as to what they are agreeing.