Use Of Best And Reasonable Endeavours In Contracts

Best And Reasonable Endeavours

The difference between an obligation to use 'best endeavours' and 'reasonable endeavours' in a contract has long been the subject of debate. However, it is now well established that 'best endeavours' is a more onerous obligation than 'reasonable endeavours'.

Previous case law (IBM United Kingdom Ltd v Rockware Glass Ltd (1980)) has stated that best endeavours requires a party to take "all those steps in their power which are capable of producing the desired resultsbeing steps which a prudent, determined and reasonable [party], acting in his own interests and desiring to achieve that result, would take".

Reasonable endeavours, on the other hand, requires more of a balancing act (UBH (Mechanical Services) Ltd v Standard Life Assurance Company (1986)), comparing the weight of the contractual obligations against all relevant commercial considerations. This is a subjective test depending on the circumstances of the relevant party. A party is not, however, required to sacrifice its own commercial interests (Yewbelle v London Green Developments (2006)).

Rhodia International Holdings v Huntsman International LLC

In Rhodia International Holdings & anor v Huntsman International LLC (2007) the High Court further considered the meaning of 'best' and 'reasonable' endeavours as well as the term 'all reasonable endeavours'.

The Facts

In 2001 Rhodia agreed to sell a chemical manufacturing business to a subsidiary of Huntsman. The sale agreement included clauses that:

both parties were obliged to use reasonable endeavours to obtain third party consents to transfer certain agreements;

Huntsman would supply information to a third party suppliers if reasonably requested; and

Huntsman would provide a parent company guarantee if reasonably requested by a third party supplier

One of the agreements to be transferred under the sale agreement was an energy supply contract. However, by 2004 the agreement had still not been transferred to Huntsman, although the subsidiary was performing the obligations under the agreement. The energy supplier had concerns about the financial strength of Huntsman's subsidiary and stated that it was only prepared to agree to a transfer if Huntsman provided a guarantee. Huntsman supplied financial information on its subsidiary but refused to provide a guarantee.

In March 2004 Huntsman gave notice to Rhodia that the chemical plant was closing and that it no longer intended to perform Rhodia's obligations...