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FM World - Best Endeavours

07 June 2012

In this article, first appearing in the 7 June 2012 edition of FM World Magazine, we look at the case of Jet2.com v Blackpool Airport, a case concerning the meaning of "endeavours" obligations.

Introduction 

Where a contracting party’s obligations are unclear, or where insufficiently precise descriptions of relevant ancillary matters are given (for example appropriate qualitative and quantitative criteria pertaining to those obligations), this can generate fertile ground for dispute.  Where phrases such as "best endeavours", "reasonable endeavours" and "all reasonable endeavours" are used to define a party’s obligations this is particularly the case. Any obligation that encompasses an “endeavours” element is inherently qualified and is therefore not absolute, but deciding where to draw the line between what is required and what is not is a grey area. 

The recent Court of Appeal case Jet2.com Limited v Blackpool Airport Limited highlights these difficulties and looks at, among other things, the question of to what extent a party owing a "best endeavours" duty can take into account its own commercial position when considering to what extent it must comply with that duty.

Background

Blackpool Airport Limited (BAL) owns and runs Blackpool Airport (BA). Normal operating hours are 7am to 9pm subject to agreement. Jet2.com (Jet) is a budget airline operator.  In 2005, Jet and BAL entered into a "Letter Agreement" (the Agreement) in which they agreed the terms on which Jet could operate from BA. 

The Agreement stated: "[Jet] and BAL will co-operate ... and use their best endeavours to promote [Jet’s] low cost services … and BAL will use all reasonable endeavours to provide a cost base that will facilitate [Jet’s] low cost pricing" (Clause 1). The Agreement was silent as to operating hours.

For four years Jet operated services outside of normal operating hours. Following a deterioration in relations, in 2010 BAL notified Jet that it could no longer operate outside of normal hours.  Jet issued proceedings seeking damages for breach of contract and a declaration. At first instance the judge ruled in favour of Jet. BAL appealed.

Argument

BAL first argued that Clause 1 was akin to a contractual preamble and that the parties had not intended it to be legally binding. Furthermore, the objects of the “reasonable endeavours” were so uncertain as to be incapable of giving rise to a legally binding obligation. 

In the event that Clause 1 was held to be legally binding, BAL argued that it did no more than impose a duty on BAL to use its “best” or “all reasonable endeavours” (which the parties accepted had the same meaning in this context).  This extended no further than “promoting” Jet’s services in the narrow sense, in other words to carrying out promotional and marketing activities. It did not require BAL to act contrary to its own commercial interests by keeping the airport open beyond normal hours, the cost of which was not recouped in extra revenue. In any event, the Agreement did not mention hours of operation. 

Defence

Jet argued that Clause 1 did oblige BAL to allow it to operate flights outside of normal opening hours.   It supported this argument by reference to the nature of the low-cost airline industry and its contention that the parties understood that in order for Jet’s business model to be viable, it would have to operate outside BA’s normal opening hours.  Even though the Agreement was silent on the matter of operating hours, the parties must therefore be taken to have understood that this was necessary.  In addition, Jet argued that the word “promote” should be given a broader interpretation and that it meant “advance” rather than “advertise” or “market”.  This therefore obliged BAL to take any steps that might help Jet’s business.

In the alternative, Jet argued that BAL should be prevented from curtailing the operating hours by means of an estoppel arising out of the previous four years’ practice.

Decision

The Court of Appeal ruled in favour of Jet by a majority of two to one.  An obligation to use “best endeavours” will be legally enforceable provided that the object is defined with sufficient certainty.  In this case the Clause 1 obligations were not uncertain and therefore bound BAL, although the court conceded that delineating their scope was a “more difficult question”. The obligation to use best endeavours in this case meant that BAL had to do “all that it reasonably could do to enable [Jet’s] business to succeed and grow” and this extended to opening the airport early and late.

With regards to BAL’s right to protect its own financial interests, the court held that BAL could not restrict the opening hours even if in so doing it incurred a loss. However, the duty was not infinite: if Jet were bound to lose money, BAL would not be expected to “promote” a failing business.

Conclusion

  •  The Court of Appeal’s decision was not unanimous and Lord Justice Lewison gave a strong dissenting judgment. The lack of consensus at this level evidences the degree of debate over these issues.
  •  Parties negotiating any agreement by which they intend to be bound are advised to take legal advice to ensure that the various rights and obligations are described with sufficient precision. 
  •  The extent to which a party can have regard to its own financial interests when complying with an “endeavours” obligation will depend on the facts of the case.
  • In Yewbelle Ltd v London Green Developments [2007] EWCA Civ 475, a party subject to an “all reasonable endeavours” obligation to secure a section 106 agreement was not required to expend considerable funds purchasing a third party’s interest of which the parties were unaware at the time of contracting.
  • In Rhodia International Holdings Ltd v Huntsman International LLC [2007] EWHC 292, the court held that a “reasonable endeavours” obligation did not oblige a party to sacrifice its commercial interests unless specific steps were envisaged at the outset.

Case: Jet2.com v Blackpool Airport Limited [2012] EWCA Civ 417

This article was first published in the 7 June 2012 edition of FM World Magazine, the magazine of the British Institute of Facilities Management.