Commercial Law – Contract Construction – ‘Reasonable’ & ‘Best’ Endeavours

The recent case of Rhodia International Holdings Limited and Rhodia UK Limited v Huntsman International LLC [2007], provides new guidance on a long-disputed area of contract law. According to the judgment of the High Court, a duty to exercise ‘reasonable endeavours’ requires less than ‘best endeavours’ but can still demand a party to act against its own commercial interests, although the case does not resolve all the uncertainty surrounding the difference between ‘reasonable’ and ‘best’ endeavours.

The case confirms that ‘reasonable endeavours’ is a less stringent obligation than ‘best endeavours’ – a concept which is commonly assumed. The case also confirms that a ‘reasonable endeavours’ obligation may be discharged by exhausting just one of a number of possible solutions, whereas a ‘best endeavours’ obligation requires all avenues to be explored.

Huntsman International LLC (“Huntsman”) had agreed to buy Rhodia International Holdings Limited and Rhodia UK Limited (“Rhodia”), a chemicals company. As part of the sale and purchase agreement both parties were to use reasonable endeavours to ensure that all supplier contracts passed from Rhodia to Huntsman, including one with a power company called Cogen.

However, Cogen refused to accept the transfer of the contract without a guarantee from Huntsman’s parent company. The argument over what was meant by reasonable endeavours focussed on Huntsman’s refusal to provide that guarantee. That refusal therefore affected the transfer of the contract with Cogen for the supply of power.

Huntsman paid for the power from the date of its purchase of Rhodia in 2001 until 2004. However, in 2004 Huntsman told Rhodia that it was pulling out of the location and that responsibility for the power contract remained with Rhodia until the contract expired in 2009. Huntsman submitted the reason for this being that the contract for the supply of power had not been transferred. Cogen claimed that £14.8m worth of power and services was owed, and the case concerned Huntsman and Rhodia arguing over who owed Cogen that amount.

The case was eventually decided on what constituted ‘reasonable endeavours’ to ensure the contract transferred from one company to the other. It was ruled that Huntsman International had breached the sale agreement by not using its reasonable endeavours to provide a guarantee for a power contract. Julian Flaux QC, sitting as a deputy High Court Judge in the case said:

“An obligation to use reasonable endeavours to achieve the aim probably only requires a party to take one reasonable course, not all of them, whereas an obligation to use best endeavours probably requires a party to take all the reasonable courses he can. In that context, it may well be that an obligation to use all reasonable endeavours equates with using best endeavours…”

The ruling in the case made it clear that the terms of the sale contract were binding, even if its terms no longer suited one of the parties. The companies must abide by their contractual obligation to make a reasonable endeavour even if it is against their company interests.

However, there are other authorities which suggest a slightly different viewpoint. In the absence of a specific course of action assumed by a party in the context of a reasonable or best endeavours obligation, neither obligation is likely to require a party to sacrifice it own commercial interests. It appears from the other authorities – which were not discussed in this case – that ‘reasonable endeavours’ may not even require the party giving such an obligation to act to its own disadvantage. This would suggest that relatively little effort is required to comply with a ‘reasonable endeavours’ obligation.

As far as the drafting of contracts is concerned, the best way to achieve certainty would be to specify the actions a party must take in using its ‘best’ or ‘reasonable’ endeavours wherever possible. The relevant party will then be bound to take those actions in any event and the question of whether those actions are contrary to that party’s commercial interests will not arise.

© RT COOPERS, 2007. This Briefing Note does not provide a comprehensive or complete statement of the law relating to the issues discussed nor does it constitute legal advice. It is intended only to highlight general issues. Specialist legal advice should always be sought in relation to particular circumstances.

What Are My Options As a Commercial Lawyer?

Commercial law functions across a broad spectrum of business and commercial transactions including finance, accounting, management and trade. Often referred to as business law, it is one of the most widely practiced legal areas. Regularly overlapping with other areas of law and engaging many different types of clients, commercial law can offer lawyers a diverse and varied portfolio of work.

Not all roles, however, are the same. When it comes to legal recruitment in corporate law, consider all the options available to you.

In-house role. Because the focus of it is business, it is an area of legal practice that presents many opportunities for in-house positions. Many businesses employ in-house legal teams or lawyers to deal with their legal issues. In-house legal roles in this area are good positions for lawyers interested in the business world.

Law firms. Most large law firms offer expertise in commercial contract law, and most will working for these larger firms will be involved in some aspect of contract law. If you’d like to be involved in the nitty gritty of business law and interacting with those involved, smaller or boutique commercial law firms will offer more frontline opportunities. When it comes to commercial law, the age-old dictum proves true for many – bigger is not necessarily better!

International work. In today’s global world, business often crosses national boundaries. Many commercial lawyers, therefore, will be involved in international business, trade or finance dealings. Commercial law therefore offers the opportunity for lawyers to travel for work. Those looking to relocate overseas, however, will find it harder to find positions where local industry knowledge is often coveted and essential to business dealings.

If you’re interested in commercial law jobs, there are a number of different career prospects and opportunities available to you. Deciding which area and arena of commercial law you would like to work in will help you narrow down your job prospects and choose a role that suits your career objectives.

Different Kinds of Lawyers for Business

Most of the time when people think about lawyers they imagine the lawyers that are seen on television arguing back and forth in order to either prosecute or free a criminal who has created some type of heinous crime. However, criminal lawyers are not the only lawyers that are available. There are lawyers who specialize in just about every industry available. There are civil lawyers, entertainment lawyers and even dui lawyers. If you are ever in trouble and need the services of a lawyer, make sure that you get one who is skilled and trained in the area in which you need advice. For example, it really is not wise to get a general lawyer if you are trying to get a patent or a license. The following are just a few of the lawyers that practice within the business world.

Employment lawyers are required when you are having severe difficulties on the job. This is usually when a person is being harassed because of their sexual orientation, race, gender or disability. Unfortunately, these things happen. When they do, advise management that you are being harassed by fellow co-workers. When it is someone from management that is treating you unfairly, then take this matter to the Human Resource department within your company. Most companies will have policies that say that employees should never be discriminated against, no matter the reason. However, depending on the corporate environment, many companies do not enforce these policies. As a result employees are bullied or harassed, which makes the working environment hostile. However, get a lawyer if your working environment becomes hostile. He can help to get the situation taken care of.

Commercial lawyers are a necessity for any business that wants to remain profitable. A commercial lawyer can ensure that your business is running in an efficient manner. He will also make sure that your assets are property secured. He can also ensure that things such as vendor contracts are in order. Basically, any time that a company enters into a legally binding agreement, it should seek the services of an attorney.

Trademark lawyers handle all matters that deal with trademarks. It is their responsibility to counsel the client about their particular trademark. He should do the proper research and determine if your trademark is safe once you submit an application.

Corporate lawyers are there to handle all legal issues for one corporation. Depending on the size of the business, a corporation can have a whole legal team working within the company or just one person handling all legal matters. Usually anything that has to do with contracts, mergers, acquisitions or product liability will be handled by corporate lawyers.

All in all, there are many different types of lawyers that fill various needs. Although criminal lawyers are more prevalent that other types of legal professionals, this does not mean that they are not the only ones found. There are so many different areas of life in which people need legal advice. There is no way that one lawyer could every business questions that ever comes up. This is why legal professionals choose to become experts and specialize in certain areas of business. This is a good thing for business all around.

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