The case of CPC Group Ltd v Qatari Diar Real Estate Investment Company offered some guidance on how to interpret an "endeavours clause".
The Scottish Court of Session has recently been faced again with how to interpret an "endeavours clause" in Edi Central Limited v National Car Parks Ltd. The case concerned commercial developers (Edi) and car park operators (NCP). The agreement set out that Edi and NCP "shall use all reasonable endeavours to achieve the Main Objectives [of the Agreement] and shall act in good faith in respect of the same and in accordance with this Agreement". NCP contended Edi was in material breach by failing to pursue the proposed development with "all reasonable endeavours as would be expected of a normal prudent commercial developer experienced in developments of that nature".
Edi denied being in breach and claimed that no normal prudent commercial developer would have proceeded with the project given that there was no commercial merit in pursuing the development at this time.
What did the Court say?
The Court of Session held that a clause requiring a party to use "all reasonable endeavours" did not require that party to continue trying to comply if it is clear that all further efforts would be fruitless.
The Court also examined the impact of a "good faith" clause and stated that such a clause imposed "a duty to observe reasonable commercial standards of fair dealing, faithfulness to the agreed common purpose and consistency with the justified expectations of the other party".
The Court concluded that the combined effect of an "all reasonable endeavours" obligation and a “good faith” clause meant the party was under an obligation to genuinely “do their best to achieve the desired result and not merely to go through the motions”.
What does this mean?
This decision confirms the reasoning set out in the CPC case that the Courts are prepared to take commercial considerations into account and do not expect a party under an "‘endeavours" obligation to take unreasonable or "commercially imprudent" decisions when attempting to comply with its duties under a contract.
With respect to the duty of good faith, the general position in Scots law is that contracts do not have an implicit overriding duty of good faith. It is important to note however that clauses which impose an obligation to "act in good faith" are increasingly being incorporated into commercial contracts. This decision does provide some comfort though - although the contract explicitly provided for the parties to act in good faith, the Court expressly stated that the duty of good faith did not require a party to give up its express contractual rights.
What should I do?
This case illustrates the vague nature of "endeavour" clauses and "good faith" clauses. It is therefore sensible for parties to a contract to attempt to define what they each expect from an ‘endeavours’ clause and/or a ‘good faith’ clause. A good approach may be to consider what steps the relevant party should take in the context of achieving that particular obligation and to make express provision for it in the contract.
