Beware: small words can change the meaning of an entire contract, writes Mark Klimt
A recent High Court case involving Blackpool Airport’s obligation to promote a low cost service offers an interesting discussion about the common use of the words ‘all reasonable endeavours’ in architects’ appointments.
This question has long occupied architects and other consultants with reference, for example, to an obligation to complete a project by a particular date. We advise architects against agreeing to absolute and unqualified commitments because if these are breached, a liability arises regardless of fault or cause. The use of ‘best endeavours’ is not much better, because it obliges the architect to do whatever is humanly possible to fulfil the contracted commitment, regardless of commercial cost.
The phrase ‘reasonable endeavours’ is traditionally viewed as allowing the architect to take its own commercial position into account and to do what is ‘reasonable’. ‘All reasonable endeavours’? As seen in the Jet2 case, these fall somewhere in between.
The court decision provides guidance on the interaction between a party’s commercial interests and its contractual commitments. However, you have to pick your way carefully through the available case law on this subject. Jet2 brought an action against Blackpool Airport Limited (BAL) in 2010, contending that BAL had breached its agreement, whereby both were to use ‘best endeavours to promote Jet2’s low cost service’. BAL was also to use ‘all reasonable endeavours to provide a cost base that will facilitate Jet2’s low cost pricing’. BAL suffered significant operational losses, and four years later it informed Jet2 that it would no longer accept departures or arrivals scheduled outside normal hours. In this case (only), the parties agreed that ‘best endeavours’ and ‘all reasonable endeavours’ were to be treated as the same and that the court should consider what the obligations are when contracting to use ‘all reasonable endeavours’.
In the event, it was held in Jet2’s favour that BAL had breached the contract because it based its decision to scale down Jet2’s activities on factors that should have been taken into account when negotiating the contract. These were not necessarily connected with the Jet2 business, but the court felt that this was not what the parties intended when they formed the contract. This is not to say that a party that agrees to use ‘all reasonable endeavours’ is prevented from taking its financial wellbeing into account. This is the difference between commercial factors within a party’s control and those outside its influence. Thus, the use of ‘all reasonable endeavours’ would not have precluded BAL from taking steps to protect its commercial interests if factors outside its control necessitated this approach.
This can be applied to a construction project. If an architect is to use ‘all reasonable endeavours’ to complete a project by a particular date, it would not be permitted to divert personnel to another project (in the absence of a specifically reserved right to do so in the appointment).
If time has been lost because, for instance, information is outstanding from another party, the architect would be entitled to consider the commercial effect before engaging more personnel if the obligation to complete is one of ‘all reasonable endeavours’ (although not if it were a ‘best endeavours’ obligation).
One of the lessons repeated in the Jet2 decision is that an interpretation of a contractual term is a mixture of subjective and objective tests. The judgment refers to the court interpretation of a contract according to what a reasonable person with all the relevant background knowledge of the parties would have understood by the language used. On the other hand, the use of ordinary English words that have been given particular meaning by courts when other contracts have been considered ought to have provided objective definitions against which to operate. Without these, how can a professional institute be confident in recommending the use of its standard terms, if they are open to interpretation? What should you do?
· Avoid absolute and unqualified commitments
· Beware the phrase ‘best’
· Note the interaction between a party’s commercial interests and their contractual commitments
· Distinguish between commercial factors within your control and those that are not
Above all, the Jet2 case is another indication that simple and clear language, carefully chosen, gives one the best chance of contracting on the terms one intends, without unexpected trips to the Royal Courts of Justice.
Mark Klimt is a partner at Fishburns. He is legal adviser to the RIBA and operates the RIBA Legal Helpline