Best vs Reasonable Endeavours
Have you ever seen a contract or agreement including terms such as “best endeavours”, “reasonable endeavours”, or “all reasonable endeavours”? What do these terms mean? What is a party expected to do under these terms?
These common terms are generally misunderstood. However, as a general rule, these terms are used to compel a person to take action to fulfil an obligation or condition that might be, to some extent, beyond that person’s immediate control.
However, as with any contractual obligation, the devil is in the detail and courts are often called upon to determine what the detail actually requires of the person under the obligation.
A best endeavours obligation is more onerous on a party than an obligation of “reasonable endeavours”. It obliges a party to take all available courses of action to fulfil the obligation that a prudent, determined and reasonable person might have taken.
The steps that must be taken will likely include spending money to fulfil the obligation. However, under current New Zealand common-law, that person would not be expected to spend more than a reasonable amount of money or put itself in financial jeopardy.
An obligation to use “reasonable endeavours” is less onerous on a party than a “best endeavours “obligation. The “reasonable endeavours” obligation is typically defined by reference to an objective standard of what an ordinary competent and reasonable person might do in the same circumstances. Under an obligation of “reasonable endeavours” a person is able to balance their contractual obligations against their commercial operations, in deciding which course of action to pursue. Accordingly, a party is not required to take any course of action that might prejudice the interests of that party.
However, if the clause that requires reasonable endeavours sets out specific steps, then the person having that obligation must take those steps regardless of costs.
All Reasonable Endeavours
The courts have grappled with the interpretation of an obligation of “all reasonable endeavours”, and considered whether it is a middle ground between “reasonable endeavours” and “best endeavours”, or as recent Court interpretation suggests, whether there is no real difference between “all reasonable endeavours” and “best endeavours”.
With that in mind, if a person is under an “all reasonable endeavours” obligation it is expected that the person will not be obliged to take a course of action in order to fulfil that condition, where fulfilling that condition is beyond that party’s control, and where that action may result in the sacrifice of its own financial interests.
However, if a party is under an “all reasonable endeavours” obligation to do something that is within its control, then that party is obliged to fulfil that condition and cannot choose what to do in light of its commercial interests. In the event that the term is extended to read “all reasonable but commercially prudent endeavours”, then the party concerned may consider its commercial interests in deciding how to fulfil the condition.
Clearing up confusion
Where these matters are left to the Court for interpretation, the situation will always be fact specific. However, the use of these terms and what they oblige a party to do or not do is always an issue. Caution should always be observed when using these terms, as the likely hood of requiring Court interpretation is ever-present.
To ensure that the interpretation of your contract or agreement does not end up in Court, it is advisable to stipulate specific steps a party must take in order to fulfil a condition. This can be bolstered by setting a timeframe in which the condition should be satisfied or endured. Outlining possible penalties, remedies or responses if the condition is not fulfilled could add some clarity around what is expected by each party.
Please note that there are a number of cases before the Courts reconsidering the position of “best endeavours”, “reasonable endeavours”, and “all reasonable endeavours”, as such the current interpretation of these terms may be subject to change.
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