More Than Just a Goal: Bombay High Court Defines Enforceability of 'Best Endeavour' Clauses

In a significant ruling for commercial contract law, the High Court of Bombay has underscored that the term "shall endeavour" is not merely aspirational language, but a binding obligation. Justice Sandeep V. Marne, while adjudicating a challenge to an arbitral award, affirmed that failing to make best efforts to meet agreed-upon business projections constitutes a clear breach of contract.

The dispute centered on a Management Agreement between Regus South Mumbai Business Centre Private Limited ("Regus") and Marie Gold Realtors Private Limited ("Marie Gold") regarding the operation of a high-value business center at Flora Fountain, Mumbai.

The Genesis of the Dispute

The parties entered into an agreement in 2010 where Regus was to operate a business center, with Marie Gold funding the initial refurbishment. The agreement included an annexure detailing a five-year Business Plan with specific revenue projections.

Following the three-year tenure, it became evident that Regus had achieved only 32.13% of the projected revenue. Marie Gold, having invested approximately Rs. 7.8 crores in the property, invoked a bank guarantee and subsequently initiated arbitration, claiming damages for the shortfall. The learned sole arbitrator awarded damages of Rs. 10,10,01,000 to Marie Gold, finding that Regus had breached its obligation to use its "best endeavours" to meet the business plan targets. Regus challenged this under Section 34 of the Arbitration and Conciliation Act.

Arguments on the Bench

Counsel for Regus argued that the Business Plan was merely indicative and that the arbitrator had "rewritten the contract" by treating it as a minimum guarantee, which the parties had explicitly avoided. They further contended that the burden of proof was wrongly shifted, asserting that Marie Gold should have identified specific failures in performance rather than the arbitrator assuming a breach based on the shortfall.

Conversely, Marie Gold argued that the "best endeavour" clauses (8.2 and 11.1) must have operative effect. They contended that no reasonable business entity would enter into a multi-crore investment arrangement where total underperformance of business targets carried no legal consequence.

Judicial Reasoning: Distinguishing Goals from Obligations

Justice Marne’s legal analysis provided a nuanced distinction that cuts through the ambiguity of "endeavour" clauses. The Court held that while failing to hit a target may not automatically be a breach, the failure to demonstrate the effort behind hitting that target is.

Crucially, the Court invoked Section 106 of the Indian Evidence Act, noting that because Regus held sole control over the management data, the onus to prove that they had made "best endeavours" rested with them. Regus failed to provide evidence of these efforts, choosing not to lead oral evidence during the arbitral proceedings.

Key Observations

Highlighting the importance of contractual integrity, the Court noted:

• "The learned Arbitrator has rightly held that there is failure on the part of the Petitioner to make endeavour to achieve, if not exceed, the revenue projections made in the Business Plan."
• "To construe the expression 'endeavour' as the date of handing over possession [or performance] indefinite and at the absolute discretion of the developer would leave the purchaser at the mercy of the builder."
• "The party with the initial burden of proof is the one who would lose if no evidence were presented at all... The onus then shifted on the Petitioner to prove that it made the best possible efforts to meet the revenue projections."

Final Decision and Implications

The Bombay High Court dismissed the petition, refusing to interfere with the arbitrator's findings. The ruling confirms that "best endeavour" clauses in commercial management and development agreements carry teeth.

For industry professionals, this serves as a stern reminder that contractual promises regarding business efforts are not "paper promises." If a entity commits to a business plan, they must be prepared to document and defend the specific steps taken to achieve it. In the absence of such evidence, courts and arbitrators will treat an unexplained revenue shortfall as a failure to fulfill the mandate of reasonable endeavour, opening the door for substantial damages.