Jose Campos | Manager | Law | +44 20 7951 4770 | Jose.Campos@uk.ey.com
Until Brexit, who knew that a ‘backstop’ could elicit such fervour? The backstop – officially the Protocol on Ireland/Northern Ireland – has raised alarm that the UK could be caught indefinitely by its terms. When the Prime Minister returned from Brussels on 11 March 2019 with a revised deal, all eyes turned to the Attorney General for his legal opinion. His verdict proved pivotal. He pronounced that the revised deal “reduce[d] the risk that the United Kingdom could be indefinitely detained within the Protocol’s provisions in so far as that situation had been brought about through… bad faith or want of best endeavours of the EU.” However, he concluded that “the legal risk remains unchanged that if through no such demonstrable failure of either party the United Kingdom would have… no lawful means of exiting the Protocol’s arrangements, save by agreement.” Although ‘materially new legal obligations and commitments’ had been secured, the ‘best endeavours’ clause in the Withdrawal Agreement was not, in the Attorney General’s opinion, sufficient to allow the UK to withdraw from the backstop on its own terms or with ease.
With the fate of Brexit possibly turning on the contractual efficacy of endeavours clauses, now is an apt time to revisit their use in common law jurisdictions.
Using an endeavours clause
Before using an endeavours clause, it is important to carefully consider whether it is reasonable to include. An endeavours clause is used when the promisor is not prepared to give an absolute covenant because, for example, of factors beyond the promisor’s control.
An endeavours clause reduces the promisor’s risk of liability to the promisee due to non-performance. To the promisee, the preferred position would be to receive an unqualified promise.
Best -v- reasonable (or somewhere between)?
If the parties agree to include an endeavours clause, then the next point to negotiate is the degree of endeavour.
In English law contracts, ‘best endeavours’ represents the most burdensome endeavours clause that can be applied. English courts tend to require that a promisor takes all reasonable actions the promisee would have taken acting in his or her own interests to achieve the desired result to show that best endeavours had been utilised.
‘Reasonable endeavours’ is less burdensome than best endeavours. Whilst a best endeavours analysis considers the actions taken by the promisor from the perspective of the promisee, English courts tend to give more consideration to the circumstances of the promisor when determining whether reasonable endeavours have been taken.
‘All reasonable endeavours’ is seen as a compromise between best endeavours and reasonable endeavours. The interpretation courts have been applied is less consistent and teds to depend on context.
Define the obligation
It is important to note that, while courts can judge a party’s conduct against the endeavours clause on the basis of precedent interpretation, the parties are also free to define the endeavours clause. If provided with a definition in the contract, a court would likely respect that definition and apply it to the dispute. Upon defining the endeavours term, the parties should ensure that such definition is applied consistently throughout the contract. If the definitions are not used consistently, this will create ambiguity and confusion.
Using objective standards
Crafting a precise definition to describe the desired level of endeavours that covers all scenarios is an extremely difficult process. A practical way of adding further clarity is to provide a list of actions that a party should, or does not need to, take. Returning to Brexit for an example, the Attorney General’s legal opinion noted that, the UK and EU had agreed that “a systematic refusal to take into consideration adverse proposals or interests” would breach a party’s best endeavours duty.
The more objective standards the parties can introduce, the more likely it is that the parties’ intent will be reflected in the contract and the easier it will be for a court to enforce the contract in a way the parties intended upon forming the contract.
Requiring reporting obligations
Lastly, the parties should consider requiring the promisor to provide regular updates. Such a reporting obligation keeps the promisor accountable to the promisee, serves as a verification mechanism and would provide a factual basis for the courts to consider if the contract were ever litigated. In the case of Brexit, the negotiation of a more comprehensive verification mechanism would make it easier for the UK (and the EU) to monitor and show whether best endeavours were met by the EU (or the UK), mitigating the concern that the UK could be trapped in the backstop indefinitely.
Brexit provides a tangible example that while it may be reasonable to include an endeavours clause, the parties should detail as much as reasonably possible to ‘unpack’ the clause. By providing objective guidance, not only does this aid the courts in the event of litigation in the worst case, it also reduces the risk of dispute among parties to the contract by clarifying the contractual promise.