Court of Appeal interprets best endeavours obligation
15 May 2012
In Jet2.com Ltd v Blackpool Airport Ltd  EWCA Civ 417, 2 April 2012 the Court of Appeal has considered the meaning of a "best endeavours" obligation and whether it can require a party to act against its own financial interests.
The Court of Appeal held that Blackpool Airport’s "best endeavours" obligation to promote an airline operator’s low cost services included an obligation to allow flights outside normal operating hours. In interpreting the scope of the obligation to use best endeavours, emphasis was placed on whether the object of the obligation was sufficiently certain. The Court of Appeal also considered the extent to which the obligated party can have regard to its own financial interests in deciding what endeavours to undertake. The fact that the airport had to incur costs did not excuse its non-performance.
This dispute centred around whether Blackpool Airport Limited (BAL) was required to accommodate Jet2 flights arriving or departing outside the normal operating hours of 7 am to 9 pm. The parties entered into a 15-year contract in September 2005. During the first four years of this contract, Jet2 operated some flights outside normal hours. However, the relationship between the parties deteriorated, and it was proving very costly for BAL to accept Jet2’s flights outside normal hours. This culminated in BAL giving Jet2 seven days’ notice that it would not accept any departures or arrivals outside the normal operating hours. Consequently, two of Jet2’s flights had to be diverted to Manchester Airport, causing considerable disruption to passengers, and expense to Jet2. At first instance (reported in the August 2011 Review), HHJ David Mackie QC held that, as a matter of construction, in light of what the parties knew at the time of entering into the agreement, and the background factual matrix, BAL’s sudden refusal to handle flights outside normal opening hours was in breach of contract. BAL appealed.
The appeal turned on the following wording from the contract. "Jet2.com and BAL will co-operate together and use their best endeavours to promote Jet2.com’s low cost services from BA [ie the airport] and BAL will use all reasonable endeavours to provide a cost base that will facilitate Jet2.com’s low cost pricing".
Jet2 contended that an obligation to handle flights outside normal hours arose under this clause, relying heavily on the nature of the low-cost airline business to support its contention that the parties had taken the out of hours operation for granted. BAL argued that the best endeavours obligation was not enforceable and was more akin to a preamble: the object of the endeavours could not be ascertained with sufficient certainty, and even if the obligation was capable of enforcement, it did not require BAL to act contrary to its commercial interests. The Court of Appeal upheld the decision at first instance and found that BAL’s "best endeavours" obligation to promote Jet2’s low cost services included an obligation to allow flights outside normal operating hours. Lewison LJ dissented.
Best endeavours – certainty of object
In general an obligation to use best endeavours, or all reasonable endeavours, is not in itself regarded as too uncertain to be enforceable, provided that the object of the endeavours can be ascertained with sufficient certainty: see, for example, R & D Construction Ltd v Hallam Land Management Ltd  CSIH 96.1 Moore-Bick LJ stated that there is an important difference between:
a clause which is so uncertain that it is incapable of creating a binding obligation; and
a clause which gives rise to a binding obligation, the precise limits of which are difficult to define in advance, but which can nonetheless achieve certainty when it is applied in practice.
The evidence showed that the parties contemplated and intended that opening outside normal hours was part of the deal. Moore-Bick LJ’s view was that the obligation to use best endeavours to promote Jet2’s business obliged BAL to do all that it reasonably could to enable that business to succeed and grow. This was sufficiently certain, and included keeping the airport open to accommodate the flights.
Lewison LJ dissented, finding that the object of the endeavours obligation and the range of possible endeavours must be considered together in order to decide whether there is a justifiable obligation. By way of example he asked "does the obligation to ‘promote’ Jet2’s business at the airport entitle it to first pick of take off or landing slots in preference to other carriers?" (at 52). If a contract says nothing about an issue (ie opening hours) then even if that issue is shown, by the admissible background facts, to be an important one, the default position must surely be that the issue is not covered by the contract. Whilst Lewison LJ acknowledged that courts are reluctant to reach a conclusion that an apparent obligation intended to have legal content has no enforceable content, he stated that there may be no alternative conclusion if the concept embodied in the clause is too vague and there are no objective criteria that the court can apply in deciding whether or not the clause has been honoured.
Best endeavours – can it force a party to incur financial loss?
It was agreed that the question of whether the person who has undertaken to use his best endeavours can have regard to his own financial interest will depend very much on the nature and terms of the contract in question. Moore-Bick LJ was not convinced that BAL could refuse airport movements if that caused it to incur a loss and relied in the first instance on the judge’s findings that the ability to schedule aircraft movements outside of normal opening hours was essential to Jet2’s business and was therefore fundamental to the agreement. If the facts were different and it became clear that Jet2 could never expect to operate low cost services from Blackpool profitably, then Moore-Bick LJ said he could see force in the argument that BAL would not be obliged to incur further losses in seeking to promote a failing business.
Longmore LJ said that a best endeavours obligation pre-supposes that the party may well be put to some financial cost so that cost cannot be used as a trump card to extricate itself from its obligation. However, he agreed with Moore-Bick LJ that if it became clear that Jet2 could never expect to operate low cost services from Blackpool profitably, then BAL could not be expected themselves to incur losses after this point. Longmore LJ was clearly influenced by what he regarded as the "status quo", ie the fact that BAL had accepted flights outside normal operating hours for four years.
The Court of Appeal’s divergent approach in its construction of this best endeavours clause illustrates the risk associated with this type of language in contracts where greater commercial certainty may be required. The fact that the object of the best endeavours in this case was so broad left room for possible arguments on both sides. If in doubt, express terms regarding the object of the obligation and the range of possible endeavours expected within that obligation are preferable (for example: time limits, limits on expenditure, a statement of what is not to be done as well as what is to be done). Draftsmen may wish to express such an obligation to be "including but not limited to" to seek to avoid any later argument that an activity that is not covered by the express wording in a clause is therefore not part of the endeavours obligation.
The Court of Appeal’s decision also confirms the view that in executing its best endeavours obligation, a party may well be obliged to incur some expense and act against its own interests. The extent to which it will be obliged to do so appears to be fact-specific, and, although not explicit in the Court of Appeal’s judgment, is likely to be affected by whether the object of the obligation is fundamental to the performance of the contract.
Parties may also want to take heed of the attention Longmore LJ paid to the status quo which meant, in his eyes, that the onus was on BAL to justify its change of stance after four years. Moreover, opening outside of normal hours was something within BAL’s control.
Another recent case on a related topic is Compass Group UK & Ireland Ltd v Mid Essex Hospital Services NHS Trust  EWHC 781 (QB) where the High Court had to construe an obligation between a catering company and a NHS Trust that required co-operation and good faith in a long-term catering contract. Cranston J found that the Trust was in breach of this obligation as it had acted unreasonably in deducting vast sums from payments due. These deductions were not proportionate to the breaches by the catering company and had severely damaged the parties’ working relationship. Interestingly, the Court found that the Trust also had a duty to act in the best interests of the public (as they were the ultimate beneficiaries of the contract).
This case summary is part of the Allen & Overy Litigation Review, a monthly update on interesting new cases and legislation in commercial dispute resolution. For more information please contact Sarah Garvey email@example.com, or tel +44 (0)20 3088 3710.