Commercial Contract – when Reasonable Endeavours may not be Enough.

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Two types of endeavour clauses are commonly seen in contracts. Best Endeavours and Reasonable Endeavours.

Best endeavours impose the highest endeavours obligation on a party. The party assuming a best endeavours obligation should take steps which a prudent, determined and reasonable beneficiary of the obligation, acting on its own interests and desiring to achieve that result, would take and so must exhaust all of a number of reasonable courses which could be taken in a given situation to achieve a particular aim. Such an obligation may require the party giving it to incur expenditure (although not to the extent that would lead to its financial ruin, undermine its commercial standing or goodwill, or have no likelihood of being successful).

It is not surprising therefore that the distinction between best endeavours and reasonable endeavours obligation can often be blurred. An obligation to use reasonable endeavours generally means that a party should adopt and pursue a reasonable course of action in order to achieve the desired result, bearing in mind its own commercial interests and the likelihood of success. If there are a number of reasonable courses of action which could be taken, an obligation to use reasonable endeavours probably only requires a party to take one not all of them.

The difficulties with drafting such endeavours clauses and the lack of certainty around contractual enforceability means that these obligations often fall to the courts to decide. The following points arise from a recent High Court case: 

  • The role of the court is to give effect to what the parties have agreed where that is at all possible, not to refuse to do so just because the parties have not made the task easy. To hold that an endeavours clause is unenforceable for uncertainty should thus be a last resort.
  • It should almost always be possible to give effect to an obligation to use reasonable endeavours because whether a party has complied with an obligation is a question of fact for the court to decide by making a value judgement as to whether the endeavours undertaken (if any) were sufficient.
  • The burden of proof is on the party alleging that the other party has failed to comply, but the fact that this may be difficult to prove does not mean that the obligation itself is invalid.

Endeavours clauses will, in most cases, be legally enforceable but we do not consider, because of the potential vagaries, that they are always the best and most helpful solution for the parties. The inclusion of such clauses no doubt enables the parties to conclude an agreement quickly but at the same time, might significantly increase the potential for dispute and delay. As lawyers we prefer to advise our clients to set out in the contract any specific obligations and measurable objectives. In addition, specific timetables and conditions to be met should be included. It may be necessary to include formulae to ascertain value, mechanisms for enforcing obligations and resolving disputes and long stop dates.

For further information on this or any other area of commercial contract or drafting, why not contact one of Alexander JLO’s expert commercial lawyers and see what we can do for you?

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