“Best endeavours“

...ITIC's approach

ITIC makes it a condition of its insurance that its crew management Members use their best endeavours to be co-assured on their ship owners insurances. In applying this standard the Club has adopted the obligations its Members undertake in many standard form contracts, as terms requiring a party to “use their best endeavours“ are common in management contracts. One example is Clause 4.1 of “Shipman 98“, which applies this standard to the managers’ obligations to provide the agreed management services, which may include crew management. Other managers contract on the “Crewman“ agreement, which contains the same obligation in clause 2.3. The phrase is also frequently used in privately drafted agreements.

It has always been understood that “best endeavours“ is an attempt to provide a higher standard of commitment but one that falls short of an absolute obligation. It is an imprecise term and it is easier to identify conduct that falls short of the standard than provide a definition of the dividing line. What constitutes best endeavours is likely to vary according to the facts at the time. The English courts have however provided the following guidance:

(a) Best endeavours is “an obligation to take all those reasonable steps which a prudent and determined man, acting in his own interest and anxious to achieve the desired objective, would have taken“. That wording came from a case where one party was obliged to obtain planning permission.

(b) The standard of reasonableness (best endeavours) is that of “a reasonable and prudent Board of Directors, acting properly in the interests of their company.”

We certainly agree that there must be an element of reasonableness in the definition as it is not intended to impose unreasonable obligations upon a Member when it comes to co-assurance in relation to crew management. On the other hand the issue should not be treated lightly.

The importance of being co-assured on the P&I and hull and machinery cover of the owners depends on how the crew manager contracts in the supply of crew.

Where the crew manager is working on a “Crewman A – cost plus fee“ (or similar) contract, he is engaging the crew as agents for and on behalf of the owners. Subject to the affect of any applicable local legislation the owner would be the crew’s employer. The consequence of this is that any third party claimant would not be able to pursue the crew manager on the grounds of vicarious liability (i.e. that the manager is liable for the actions of the crew).

If, however, the crew manager was operating on the basis of a “Crewman B – lump sum“ (or similar) contract, the position is different. He is then the employer of the crew and the risk of direct action by a third party on the grounds of vicarious liability is a very real one. In this situation in particular a crew manager would be very exposed if he did not have full P&I cover by way of co-assurance or otherwise. It would be wrong, however, to conclude that co-assurance is not necessary for those contracting on “Crewman A“. Third parties may not have grounds to sue the crew manager as the crew’s employer (although they may still try) but the owners or their insurers may bring a claim against the crew managers to recoup sums they have paid out. “Crewman“ contains an exclusion clause absolving the manager for the negligent acts of the crew. If the manager is not a co-assured on the policy there remains the possibility of a claim against him based on alleged negligence in the supply of crew (or even the supply of incompetent crew).

In considering the obligation of best endeavours ITIC also draws on the well-known insurance concept of acting as a “prudent uninsured“. In essence, if one assumes the manager had no cover from ITIC, what would a reasonable company do in terms of pursuing the owners and their underwriters if either of them did not agree to name the manager as a co-assured, or if the owners simply did not respond?

It is unlikely that simply requesting co-assurance and then not pursuing the owners for a response would constitute using best endeavours. But how far do Members need to go in order to assert that they have used their “best endeavours“? The answer will vary depending on the individual circumstances but it is important to remember that the Club’s managers are always available for discussion.

If it is clear that the hull underwriters will not name the crew manager as a co-assured no matter how hard they are pursued, the issue then becomes one of risk management. One obvious factor is the differing levels of risk attaching to the role of the manager as defined by the “Crewman A“ and “Crewman B“ contracts. Another is the track record of the owners and the history of their dealings with the managers. There is no single determining factor. Managers should certainly consider whether they are acting prudently in undertaking the management in these circumstances. If the manager can demonstrate that all avenues have been explored with the owners, including the possibility that they change their hull underwriter, the Club would be able to accept that the Member had used his best endeavours.

No doubt once the “Crewman“ contracts become more widely accepted (as “Shipman“ has been over the last 10 years), the issues of co-assurance, best endeavours, and crew negligence exclusions are likely to become less of a problem. It is unlikely that a simple, practical and all encompassing definition of “best endeavours“ will ever be found but the phrase clearly demonstrates a need to go beyond merely making an effort while at the same time not imposing an absolute duty to succeed.