UK: "Best Endeavours" - To Act Against One’s Own Commercial Interests?

Summary

On 2 April 2012, in Jet2.com Limited v Blackpool Airport Limited the Court of Appeal delivered its decision in response to the appeal by Blackpool Airport Limited (the "Airport") against a ruling by the High Court holding that it had breached its contract with Jet2.com Limited when it refused to accept flights scheduled by Jet2 outside the Airport's usual operating hours. The Court dismissed the appeal (with one judge dissenting) stating that the obligation to use best endeavours in the contract between the parties was capable of giving rise to a legally binding obligation and obliged the Airport to do all it reasonably could to enable Jet2's business to grow. The promotion of Jet2's business extended to keeping the Airport open to accommodate flights outside its usual operating hours as this was crucial to Jet2's business as a low cost-carrier.

Background

Jet2 and the Airport entered into a contract on 23 September 2005 to govern the operation of Jet2 flights from and to the Airport for the next 15 years. Jet2 was obliged to begin flight services between Blackpool and Belfast and to base its aircraft at Blackpool as soon as practicable, and in accordance with growing demand. Jet2's first aircraft was to be based at Blackpool from March 2006. In return, the Airport agreed to promote Jet2's services from Blackpool, as well as provide ground services and marketing support for Jet2's business.

Following the execution of the contract, Jet2 operated flights to and from Blackpool for four years from March 2006, subject to the acceptance of flight schedules by the Airport. The Airport's usual opening hours were, as notified to the Civil Aviation Authority, between 7am and 9pm daily, although such opening hours were not set out in the contract. Airports are allowed to operate outside their usual opening hours, subject to notification to the CAA. During the four-year period, Jet2 operated regular flights to and from the Airport outside its usual opening hours.

However, due to the additional financial costs of keeping the Airport open outside of these hours, the Airport made significant operating losses since the execution of the contract and notified Jet2 on 22 October 2010 that it would no longer accept flights operated by Jet2 outside its usual opening hours. This meant that Jet2 had only one week to rearrange its flight schedule and forced Jet2 to divert two of its flights from Blackpool to Manchester at short notice.

The first instance proceedings

Jet2 commenced proceedings against the Airport and sought damages for breach of contract as well as a declaration that the Airport was obliged to accept Jet2 flights outside its opening hours for the term of the contract. To minimise the financial consequences of the Airport's decision, Jet2 successfully obtained an interim injunction (which was renewed until trial in March 2011) obliging the Airport to accept Jet2 flights over the 2010-2011 winter season in accordance with flight schedules that had been agreed for the winter season the previous year, which included flights operating outside of the Airport's usual opening hours.

At trial, the Court's decision centred on the following section of the contract:

The contract also provided that the Airport would contribute to Jet2's marketing expenditure, jointly promote Jet2's services from Blackpool Airport and:

Jet2 argued that the Airport was therefore obliged, by the contract, to use its best endeavours to accommodate Jet2 in accepting flights outside of its usual opening hours. However, the Airport maintained that its obligation to use its best endeavours to promote Jet2's low cost services was limited to advertising and marketing Jet2's services only and that it was under no obligation to accept flights outside its opening hours. In addition, the Airport argued that while using its best endeavours, it was entitled to consider its own commercial interests and any constraints thereon resulting from accepting such flights.

Although he allowed that the financial costs to the Airport for accepting flights outside normal hours were significant, the trial judge, Judge Mackie, found in favour of Jet2, ruling that the Airport breached the contract by refusing to accept Jet2 flights outside its usual opening hours, as it had previously done. It was held that the word "promote" meant "advance" generally rather than "advertise" and "market", and that the absence of an express clause stating that Jet2 could operate flights outside usual operating hours suggested that the parties thought it too obvious to include in the agreement.

Regarding the Airport's obligation to use its "best endeavours", the judge recognised that, for a low-cost airline, flexibility in scheduling early and late flights is paramount to ensure maximum utilisation of aircraft and to maintain its cost base. It was clear that both parties were also aware of this fact. Jet2 would also be limited by the slots that it could obtain for its summer destinations, for which there was great competition, and it would most probably only have access to slots outside peak hours. The trial judge also took into account the fact that other airlines, namely Ryanair and Monarch, were also operating flights from Blackpool outside the Airport's usual opening hours. He further held that "unforeseen delays are a fact of life in air travel", which required Jet2 to operate flights beyond the scheduled departure and arrival times to discharge its duty to its passengers.

However, the trial judge did not grant a declaration that the Airport continued to be obliged to accept flights outside its normal opening hours for the term of the contract, on the basis that the Airport was not unconditionally obliged to provide a low cost base for Jet2 and that any obligation to use "best endeavours" must be interpreted in the surrounding context.

The Airport appealed the first instance judgment.

The appeal

The appeal was heard by Court of Appeal judges Lord Justice Moore-Bick, Lord Justice Longmore and Justice Lewison (who dissented). The key issue on appeal was whether the obligation to use best endeavours to promote Jet2's business was legally enforceable and whether the obligation to accept flights outside opening hours was within the scope of the contract. The Airport argued in relation to both points in the negative, whereas Jet2 maintained that, due to the nature of the low-cost airline business, such obligation was in the contemplation of and taken for granted by the parties prior to the execution of the contract.

Moore-Bick LJ held that due to the scale of the investment involved in Jet2 building its business from Blackpool Airport, it was clear from the contract that the parties intended to enter into a binding agreement. Longmore LJ agreed, stating that, on the construction of the contract, it was clear that the parties thought that the agreement was contractually binding upon them. In addition, Moore-Bick LJ agreed with the trial judge that "promote" for the purposes of the contract should be interpreted to mean "advance" in a general sense. He also suggested that the cost base of Jet2's business was derived from the value it could extract from its assets, namely keeping its ticket prices as low as possible and obtaining maximum use of its aircraft.

Moore-Bick LJ also took the view (which was accepted by the parties) that "best endeavours" meant "all reasonable endeavours". He determined that, in order to be held as legally enforceable, the object of the endeavours must not be too uncertain to be capable of enforcement. From a review of the relevant case law, the meaning of "all reasonable endeavours" was determined to be a question of construction and to be considered on a case-by-case basis. Where there is no room in the contract for later negotiation of terms, an obligation is not conditional upon obtaining consent from a third party, and there is an intention to create legal relations, an obligation to use "all reasonable endeavours" is not too uncertain to be capable of enforcement. However, he did concede that, at times, it may be difficult to determine whether there has been a breach of such obligation.

Moore-Bick LJ therefore held that, pursuant to the obligation to use best endeavours to promote Jet2's low-cost airline business, the Airport was obliged to "do all that it reasonably could to enable that business to succeed and grow". The ability to schedule Jet2 flights outside usual opening hours was considered essential to Jet2's business and therefore essential to the performance of the contract. In accordance with such obligation, the Airport could not therefore refuse to perform the contract simply because it was not in its commercial interests to do so, particularly where performance of the contract was within its control. The parties could not be expected to have contemplated that the Airport could restrict Jet2 flights where it was in the Airport's commercial interests to do so. Longmore LJ agreed, holding that an agreement to use best endeavours by one party "pre-supposes that [they] may well be put to some financial cost" so that they cannot plead detrimental financial consequences to escape such obligation.

This is not to say that the Airport was expected to promote Jet2's business unconditionally, particularly in the event that it became clear that Jet2's services from Blackpool would be unprofitable. Together with the uncertainty of "future course of events", Moore-Bick LJ agreed with the trial judge to refuse to grant the declaration sought by Jet2 that the Airport must accept Jet2 flights outside of opening hours for the next 10 years, allowing the Airport the opportunity to terminate the contract in future following notification to Jet2 pursuant to the contract. The parties were unlikely to have contemplated at the time the contract was entered into that the Airport would be unconditionally obliged to accept such flights. It was on this basis that Jet2's argument in the alternative – that the Airport was estopped from rejecting flights outside usual opening hours – was dismissed.

The appeal was therefore dismissed. Lewison J, in a dissenting opinion, stated that he considered the object of the endeavours too vague, and that any term obliging a business to operate at a loss should be expressed in very clear terms, particularly where other obligations in the contract are set out in a detailed manner. He considered that the contract did not create a fiduciary relationship between the parties, requiring one party to consider the other party's financial interests superior to its own. He therefore held that the Airport did not breach the contract.

Conclusion

This case provides a warning of caution to persons entering into commercial contracts. Courts will, as in the above case, consider the meaning of terms on a case-by-case basis and it is of course therefore important to avoid using terms that are unclear. In particular, there is a risk in using "best endeavours" or "all reasonable endeavours" clauses in contracts, as this may lead to disagreements between the parties as to its meaning. In addition, the danger in using such clauses is that the party on which such obligation is imposed may be required to act to his financial detriment. It is therefore advisable that terms in commercial contracts be constructed to provide as much clarity as possible, even so far as avoiding "best endeavours" or "all reasonable endeavours" clauses and delineating the exact steps a performing party must take, so that the parties are fully aware of the scope of their obligations.

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