Best endeavours or reasonable endeavours
Under English law, when placing obligations on a party, legal documents will often make references to either best endeavours or reasonable endeavours. Both terms imply a level of expectation on the committing party. If the clause is not drafted as intended, then there will likely be issues later down the line.
If you are negotiating a contract, we strongly recommend that you avoid inserting either best or reasonable endeavours commitments wherever possible. Both are a potential recipe for problems. Good contract drafting, above all else, creates clear commitments and certainty and best or reasonable endeavours do not meet these objectives.
There are however, situations, where it is necessary to use the terminology. The classic use of best or reasonable endeavours terminology is where 1 party requires an important commitment from the other but that other party only has partial or limited control on meeting the commitment. In this situation, the compromise is that the committing party agrees to use best or reasonable endeavours to fulfil the obligation.
In this insight, we look at
- The differences between best endeavours, and reasonable endeavours.
- How to guard against the risk of court interpretation.
- Why it is important to ensure that the clause within the business contract is drafted as the parties intended.
The difference in drafting
The standard expected from the contracting party is generally much higher where the document refers to best endeavours. This is an example where the legal interpretation of terms which appear very similar and/or innocuous can have a huge impact, not least financially, on the unwary.
There is no exact legal definition for each term and the differences are inferred into English Law by way of case law. It should be noted that neither term provides an absolute obligation on either party because if that is the intention of the parties then a stronger term would have been used, i.e. the contracting party “must procure”.
The test of whether a party has met its best endeavours obligation is a subjective test. An obligation to use best endeavours means that the party is expected to do everything that a reasonable person would be able to do in the circumstances. The extent to which a reasonable person would be expected to do something is likely to depend on the context of the agreement. However, it places a very strong obligation on the party that commits to such a clause and he/she/they ought to expect to be put to proof of compliance.
Reasonable Endeavours Basis
The test of whether a party has met its reasonable endeavours obligation is an objective test. It requires the party with the burden of the obligation to take all practicable action but only to the extent that it is not to the detriment of the party with the burden. For example, a party in default could potentially justify not complying if complying would likely cause substantial financial loss. It would be for the defaulting party to show that the loss is not justifiable in the context.
Obligations in commercial contracts
It is worth noting that most commercial contracts refer to the term “all reasonable endeavours” and it is widely accepted that this should be interpreted in the same way as “reasonable endeavours”. “Reasonable commercial endeavours” implies a more lax approach to the obligation, as it factors wider commercial impact.
Distinction Between Best Endeavours and Reasonable Endeavours
The distinction between “best endeavours” and “reasonable endeavours” was considered in a recent court case. It was suggested that the difference lies where there are a number of alternative reasonable courses of action available to the party with the obligation in order to try fulfil the obligation. Accordingly, where the obligation is to use reasonable endeavours the party with the burden must pursue one of these courses of action until it is exhausted; whereas if the obligation is to use best endeavours each course of action must be considered and exhausted.
Commercial considerations are an important part of establishing whether a party has fulfilled the obligation. When subject to a best endeavours obligations it may be that commercial considerations and efforts are not enough, whilst they may satisfy a reasonable endeavours obligation.
However, where a document specifies certain steps that the parties must undertake as part of a reasonable endeavours obligation those steps must be taken regardless of any commercial considerations.
Deciding on which level of obligation to impose on a contracting party is likely to be a commercial decision, however, both parties are likely to be advised by their lawyers not to accept a best endeavours obligation but to try and impose a best endeavours obligations wherever possible. The devil lies in the detail, and whether there is a risk of the obligated party not complying.
Addressing common issues
The difference between reasonable endeavours and best endeavours in practice can be a very difficult one. The intentions of the parties at the time of drafting and common sense are likely to prevail but the consequences of the difference in interpretation can be a recipe for dispute and litigation. Thus, clarity and sound legal advice are highly recommended in this area.
Helen Curtis is a partner in the commercial team. With years of experience drafting commercial contracts, Helen knows what is acceptable and what is not. Please do not hesitate to get in touch with Helen if she can be of assistance.