Corporate and commercial contracts often contain references to ‘best endeavours’ and ‘reasonable endeavours’. Have you ever considered the meaning of these words? In this note we take a look at the meaning of these concepts and provide some guidance on them.
Forms of Clauses
We often come across the concepts of best endeavours and reasonable endeavours. Overall, it is helpful to view these obligations as follows:
• best endeavours provisions impose the most onerous obligations and
• reasonable endeavours provisions impose the least stringent obligations
There are different types of endeavours provisions – the clauses come in many variations – you may have come across all reasonable endeavours and it would fall somewhere in the middle. You may also come across the terms reasonable efforts and best efforts and the guidance set out herein would apply to those too – we often see this terminology when we deal with clients in the US.
The meaning and limits of these terms are not clearly defined under English law – the meaning of these concepts will very much depend on the specific facts and background to the agreement. The law however does provide some guidance on the meaning of these concepts.
An obligation to use reasonable endeavours is a less stringent obligation than a best endeavours obligation. Generally, where you are under an obligation to use a reasonable endeavours to achieve a certain outcome you will not be required to sacrifice your own commercial interests unless of course the contract specifically provides for it. It is a balancing act where you would need to balance ‘the weight of the contractual obligation’ against ‘all relevant commercial considerations’. These considerations could include your relationships with third parties, the cost involved and the chances of achieving the desired result – it may require expenditure on your part.
Where you are subject to a ‘best endeavours’ obligation you will need to put yourself in the shoes of the other side. It is an objective standard where you will need to take all step which a prudent, determined and reasonable person (i.e. the other side), acting in his own interests and desiring to achieve that result would take.
It should be noted that the obligation may require significant expenditure on your part but not to an extent where such expenditure would lead to bankruptcy. It may however require you to sacrifice your own commercial interests to satisfy the obligation.
Their exact limits of these terms are very much open for debate and highly context specific. You can address the level of uncertain of the terms by introducing more detail to the provisions, for example you can introduce:
• detailing the steps a party is required to take (or not take) to satisfy the obligation
• time limits – how much time must be spent on the obligation
• details concerning to what degree a party is entitled to protect its own interests
• monetary caps – setting out the maximum amount a party is obliged to spend on the requisite steps
• minimum spend – setting out the minimum amount a party is obliged to spend on the requisite steps
Please note that this information is only for information purposes and does not constitute legal advice. As this area of law is complex, we would suggest that you seek legal advice for your specific matter. Redfern Legal will be happy to assist you.