The general assumption under common law systems is that there is no requirement of fault for establishing contractual liability. Thus, in England, it was held that “in relation to a claim for damages for breach of contract it is, in general, immaterial why the defendant failed to fulfill his obligations and certainly no reference to plead that he had done his best.”1755 Similarly, in the US, there is no reference to fault in the definition of breach given in Section 235 (2) of the Restatement Second Contracts, which provides that “When performance of a duty under a contract is due any non-performance is a breach.” It is stated that the US contract law is, “in its essential design, a law of strict liability, and the accompanying system of remedies operates without regard to fault.”1756
As common law considers the contract predominantly as a means for risk allocation, the contractual liability arises where, under the contract, a party has taken the risk of certain events, and the relevant risk materializes, even if those events are beyond his control and occur without his fault. Nonetheless, the liability under common law is not absolute but only strict. It does not depend on fault, but it is subject to the doctrine of supervening impossibility or frustration.1757 Moreover, this general principle of strict liability is subject to significant
1755 Raineri v. Miles [1981] AC 1050, 1086
1756 Farnsworth E.A., Farnsworth on Contracts, Aspen Publishers, 3rd ed., 2004, at 195–96
1757 Treitel, G. H, Fault in the Common Law of Contract, in Maarten Bos & Ian Brownlie (eds.) Liber amicorum for the Rt. Hon. Lord Wilberforce, Oxford University Press, 1987, at 192
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exceptions, in which fault becomes an element of contractual liability. For instance, the party is only under a duty of diligence, when he has to make arrangements or to obtain an approval in order to bring about the occurrence of a condition, on which the principal obligations depend. In these cases, the party under obligation is not liable if, in spite of making reasonable efforts, he fails to bring about the specified event.1758
Another exception to the strict liability regime under common law arises in the field of the contracts for the provision of services where, both strict liability and liability based on fault are recognized. For instance, the Supreme Court of Minnesota held that “Architects, doctors, engineers, attorneys, and others deal in somewhat inexact sciences and are continually called upon to exercise their skilled judgment in order to anticipate and provide for random factors which are incapable of precise measurement. The indeterminable nature of these factors makes it impossible for professional service people to gauge them with complete accuracy in every instance . . . . Because of the inescapable possibility of error which inheres in these services, the law has traditionally required, not perfect results, but rather the exercise of that skill and judgment which can reasonably be expected from similarly situated professionals.”
1759 On the other hand, the Supreme Court of Kansas pointed out that the “work performed by architects and engineers is an exact science; that performed by doctors and lawyers is not,” so one “who contracts with an architect or engineer for a building of a certain size and elevation has a right to expect an exact result.”1760
In English law, Section 13 of the Supply of Goods and Services Act 1982 provides that a person who supplies a service in the course of a business impliedly undertakes to carry out the service with reasonable care and skill. For instance, the standard for construction contracts with regard to the contractor’s obligation of carrying out of the work is one of care.1761 Mainly, the contractor’s obligation is to execute and complete the works and remedy any defects therein, in conformity with the provisions of the contract. As far as this obligation relates to the supervision of the supply of works and materials by others, the contractor is expected to exercise a reasonable degree of professional care and skill. However, Section 16 (3) (a) provides that nothing in this part of the Act prejudices any rule of law which imposes on the supplier of services a duty stricter than that imposed by Section 13. Under common law, if the contractor undertakes obligations relating to the design of the works, the standard of liability becomes strict. The expectation of the parties in such cases is that the contractor’s design will serve the agreed or contemplated purpose, not merely that he will take reasonable care to do so. In general, where the other party makes known the result that he desires the service to achieve, there is an implied warranty under English law that the services are of such nature that they might reasonably be expected to achieve the result. This is strict liability, since the other party bargains not for skill but for an end-result, and the duty to achieve that result is not performed merely by exercising due care and skill.1762
Under the contractual liability regime of common law systems, the party under an obligation to perform is, in principle, considered as guaranteeing the result and has to achieve the result
1758 Ibid., at 208
1759 Mounds View v. Walijarvi, 263 N.W.2d 420, 424 (Minn. 1978)
1760 Tamarac Dev. Co. v. Delameter, Freund & Assocs., 675 P.2d 361, 365 (Kan. 1984).
1761 Treitel, G. H, Fault in the Common Law of Contract, in Maarten Bos & Ian Brownlie (eds.) Liber amicorum for the Rt. Hon. Lord Wilberforce, Oxford University Press, 1987, at 197
1762 Ibid., at 200
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of such performance. Such a party may protect himself from the strict liability regime by expressly contracting “best efforts” clauses. In the introductory note to Chapter 11 of Restatement Second Contracts, it is stated that “Contract liability is strict liability. It is an accepted maxim that pacta sunt servanda, contracts are to be kept. The obligor is therefore liable in damages for breach of contract even if he is without fault… The obligor who does not wish to undertake so extensive an obligation may contract for a lesser one by using one of a variety of common clauses: he may agree only to use his “best efforts”.”1763 The contracting practice in common law jurisdictions reflects an attempt of drafters to expressly regulate the element of fault in establishing contractual liability through “best effort” clauses and their variants thereby broadening the scope of fault under the default liability regime.
In both England and the US, there are various judicial decisions in relation to the concept of
“best efforts” and its variants: the tendency being to prefer “best endeavors” in England and
“best efforts” in the US.1764 Under common law, although the judges traditionally start their examination of the meaning of a word or phrase with their objective and natural meaning, they have not been able to use such a literal approach without difficulty in the cases of “best endeavors”.1765 This is mainly because of the uncertain nature of the standard, which was criticized by Goff J. in the case Bower v Bantam Investments Ltd., who stated that, “I ask myself, could anything be less specific or more uncertain? There is absolutely no criterion by which best endeavors and practicability are to be judged.”1766
Under English law, the leading authority with regard to “best endeavors” clauses is the decision of Sheffield District Railway Co. v Great Central Railway Co. from 1911. The decision reflects the general attitude of courts to adopt a literal approach as far as possible, and to consider the promisor’s commercial interests in determining the limits of the duty. In Sheffield District Railway Co. v Great Central Railway Co., the court had to consider an agreement that required Great Central Railway Company to use their best endeavors to develop the through and local traffic of Sheffield Railway, which it was alleged that they had failed to do. The court stated that “We think "best endeavors" means what the words say; they do not mean second-best endeavors. We quite agree with the argument … that they cannot be construed to mean that the Great Central must give half or any specific proportion of its trade to the Sheffield District. They do not mean that the Great Central must so conduct its business as to offend its traders and drive them to competing routes. They do not mean that the limits of reason must be overstepped with regard to the cost of the service; but short of these qualifications the words mean that the Great Central Company must, broadly speaking, leave no stone unturned to develop traffic on the Sheffield District line.” 1767
In the case of IBM United Kingdom Ltd v Rockware Glass Ltd, the contract contained a clause requiring the purchaser to use its best endeavors to obtain planning permission.
Buckley L.J. from the Court of Appeal stated that “in the absence of any context indicating to the contrary, this should be understood to mean that the purchaser is to do all he reasonably can to ensure that the planning permission is granted. If it were refused by the Local Planning
1763 Restatement (Second) of Contracts ch. 11, introductory note (1981).
1764 Fontaine, Marcel & Filip De Ly, Drafting International Contracts: An Analysis of Contract Clauses, Brill Academic Publishers, 2009, at 208
1765 Varcoe-Cocks, M.D., Best Endeavours, The Law Society’s Gazette, (1986), at 1992
1766 [1972] 3 All ER 349 at 355
1767 (1911) 27 TLR 451
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Authority, and if an appeal to the Secretary of State would have a reasonable chance of success, it could not, in my opinion, be said that he had "used his best endeavors" to obtain the planning permission if he failed to appeal . . . I cannot find . . . any context which satisfies me that the words "use its best endeavors to obtain consent" could be construed otherwise than in accordance with what I take to be their clear, primary and natural meaning.”1768 In Midland Land Reclamation Ltd v Warren Energy Ltd, Bowsher J., delivering the judgment, held that the “best endeavors” obligation was not the next best thing to an absolute obligation or guarantee, but it “must at least be construed in the light of the art as it developed from time to time during the life of the contract”. He stated that “To be satisfied of a breach of a "best endeavours" clause by one party or the other, I would wish to hear evidence that in the light of the knowledge available at the time of the alleged default the party alleged to be in default was culpable.”1769
Under a literal interpretation, the difference in language of the clauses suggests that the terms
“reasonable endeavors” and “best endeavors” should have different meanings. However, in the case law of England, the difference is not perfectly clear as the decided cases suggest that it is simply a matter of degree, in the sense of the extent or number of the measures that have to be attempted by the party undertaking the obligations of such endeavors. In Overseas Buyers Ltd v Granadex SA, Mustill J. was doubtful that there was a difference between reasonable endeavors and best endeavors. He observed that “Perhaps the words "best endeavors" in a statute or contract mean something different from doing all that can reasonably be expected -- although I cannot think what the difference might be...”1770 In Pips (Leisure Productions) Ltd v Walton, the distinction between reasonable and best endeavors was also unclear in the statement that “I would construe a contract by the parties to ‘use their best endeavors’ to complete a purchase by a given date to mean what it says. ‘Best endeavors’
are something less than efforts which go beyond the bounds of reason, but are considerably more than casual and intermittent activities. There must at least be the doing of all that reasonable persons reasonably could do in the circumstances.”1771 On the other hand, Rougier J., in UBH (Mechanical Services) v Standard Life, appeared to consider that an obligation to use reasonable endeavors was less stringent than an obligation to use best endeavors and stated “that the phrase "all reasonable endeavors" probably lies somewhere between the two, implying something more than "reasonable" but less than "best" endeavors.” 1772 Similarly, Kim Lewison QC, sitting as a Deputy High Court Judge, in Jolley v Carmel Limited, recognized that there was a spectrum of varying obligations where best and reasonable endeavors are at opposite ends, and “all reasonable endeavors” at somewhere in the middle.1773 More recently, in Yewbelle v London Green Developments, it was held that the obligation to use all reasonable endeavors required the party to go on using reasonable endeavors until the point had been reached when all reasonable endeavors have been exhausted, and to go on would be mere repetition, but the party was not required to sacrifice its own commercial interests.1774
1768 IBM United Kingdom Ltd v Rockware Glass Ltd [1980] FSR 335
1769 Midland Land Reclamation Ltd, Leicestershire CC v. Warren Energy Ltd [1997] EWHC TCC 375
1770 [1980] 2 Lloyd's Rep 608
1771 (1980) 43 P & CR 415
1772 UBH (Mechanical Services) Ltd v Standard Life Assurance Company, The Times, 13 November 1986).
1773 Jolley v Carmel Limited [2000] 2 EGLR 154
1774 Yewbelle v London Green Developments [2006] EWHC 3122 (Ch); Yewbelle Ltd v London Green Developments Ltd & Anor [2007] EWCA Civ 475 (23 May 2007)
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In the case of Rhodia International Holdings Ltd v Huntsman International LLC, Rhodia had agreed to sell a chemical manufacturing business to a subsidiary of Huntsman. The sale agreement contained provisions governing the manner in which the parties agreed to transfer and novate a number of contracts from the seller to the purchaser. The agreement provided that both parties were obliged to use reasonable endeavors to obtain the consent of any third parties to the novation of their contracts to Huntsman, that Huntsman would supply to those third parties such information reasonably requested, including information about the financial position of its group, and that Huntsman would provide a parent company guarantee if reasonably requested by those third parties. One of the contracts to be transferred was an energy supply contract that Rhodia was a party to with Cogen. Pending consent, Cogen raised concerns over the financial position of Huntsman's subsidiary and sought a parent guarantee from Huntsman. Huntsman refused to give the guarantee and gave notice to Rhodia that the relevant agreement was to be excluded from the sale and purchase of the business. Julian Flaux QC, sitting as a Deputy High Court Judge, considered that, “where the contract actually specifies certain steps have to be taken (as here the provision of a direct covenant if so required) as part of the exercise of reasonable endeavors, those steps will have to be taken, even if that could on one view be said to involve the sacrificing of a party's commercial interests”. 1775 Thus, he held that Huntsman was in breach of its obligations to use its reasonable endeavors to obtain the consent of Cogen, even if giving the guarantee would be sacrificing its own commercial interests. Although not relevant to the actual decision in the case, Julian Flaux QC also commented upon the difference between best and reasonable endeavors. He held that, “in so far as it was necessary to decide the point,… an obligation to use reasonable endeavors is less stringent than one to use best endeavors.” He rejected the argument that they mean the same thing and stated that “As a matter of language and business common sense, untrammeled by authority, one would surely conclude that they did not. This is because there may be a number of reasonable courses which could be taken in a given situation to achieve a particular aim. An obligation to use reasonable endeavors to achieve the aim probably only requires a party to take one reasonable course, not all of them, whereas an obligation to use best endeavors probably requires a party to take all the reasonable courses he can.” He also doubted that an obligation to use “all reasonable endeavors” was any different to an obligation to use “best endeavors”, and stated that “In that context, it may well be that an obligation to use all reasonable endeavors equates with using best endeavors and it seems to me that is essentially what Mustill J is saying in the Overseas Buyers case.” 1776
Under common law, the duty of reasonable endeavors has also been considered by the Privy Council in supplementing the contract with implied terms in the case of Queensland Electricity Generating Board v New Hope Collieries Pty Ltd.1777 The case concerned a 15-year coal supply contract between the Collieries and the Electricity Board. The price was agreed for the first 5 years with the agreement containing base prices, which were adjustable by reference to “escalation” and “price variation” provisions. For sales and purchases after the first 5 years, the general terms of the agreement were to continue but the base price and the price variation provisions were to be agreed by the parties. The agreement contained a comprehensive arbitration clause for the resolution of disputes or differences. It was argued by the Electricity Board that, after the first 5 years, the agreement constituted an
1775 Rhodia International Holdings Ltd v Huntsman International LLC [2007] EWHC 292 (Comm)
1776 Rhodia International Holdings Ltd v Huntsman International LLC [2007] EWHC 292 (Comm)
1777 [1989] 1 Lloyd’s Rep 205.
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unenforceable “agreement to agree”. The argument was rejected by the Privy Council. In delivering the opinion of the Privy Council, Sir Robin Cooke noted that the terms of the agreement indicated that it was intended by the parties to have legal effect for more than the first 5 years. He stated that “What other reasons could there be for making such elaborate provisions, emphasizing its long-term nature? At the present day in cases where the parties have agreed on an arbitration or valuation clause in wide enough terms, the courts accord full weight to their manifest intention to create continuing legal relations. Arguments invoking alleged uncertainty, or alleged inadequacy in the machinery available to the courts for making contractual rights effective, exert minimal attraction… In accordance with the approach adopted in those cases, their Lordships have no doubt that here, by the agreement, the parties undertook implied primary obligations to make reasonable endeavors to agree on terms of supply beyond the initial five-year period and, failing agreement and upon proper notice, to do everything reasonably necessary to procure the appointment of an arbitrator. Further, it is implicit in a commercial agreement of this kind that the terms of the new price structure are to be fair and reasonable as between the parties.” 1778
This decision seems difficult to reconcile with the decision of the House of Lords in Walford v. Miles, which refused to imply a term that the parties would negotiate in good faith.1779 The difference between an obligation to use “reasonable endeavors” to reach an agreement and an obligation to negotiate in good faith is not clear and the decision in Queensland Electricity was not mentioned in Walford. Nevertheless, the House of Lords stated in Walford decision that “The reason why an agreement to negotiate, like an agreement to agree, is unenforceable is simply because it lacks the necessary certainty. The same does not apply to an agreement to use best endeavors.” 1780 In the case Little v Courage Ltd, the Court of Appeal attempted to
This decision seems difficult to reconcile with the decision of the House of Lords in Walford v. Miles, which refused to imply a term that the parties would negotiate in good faith.1779 The difference between an obligation to use “reasonable endeavors” to reach an agreement and an obligation to negotiate in good faith is not clear and the decision in Queensland Electricity was not mentioned in Walford. Nevertheless, the House of Lords stated in Walford decision that “The reason why an agreement to negotiate, like an agreement to agree, is unenforceable is simply because it lacks the necessary certainty. The same does not apply to an agreement to use best endeavors.” 1780 In the case Little v Courage Ltd, the Court of Appeal attempted to