Endeavours Clauses – Best or Reasonable?
Obligations under a commercial contract are mostly absolute – so failure to perform an obligation will be a breach of the contract itself. However, in some cases one party may not wish to be bound to perform an obligation in full, rather it may only be prepared to “try” to fulfil an obligation.
In such circumstances, it is commonplace to make use of an endeavours clause. Most of us are familiar with ‘best endeavours’ and ‘reasonable endeavours’ as well as the notion that best endeavours are more stringent than reasonable; however, there is generally some uncertainty as to what efforts each different endeavours clause requires in practice.
How far should I go?
A ‘best endeavours’ obligation is widely accepted to be the most onerous of endeavours clauses – the courts themselves describe the phrase as “meaning what it says; it does not mean second-best endeavours”.
I was once asked whether the sole difference between ‘best’ and ‘reasonable’ endeavours was the requirement to spend money. This assumption is quite often made and is not always correct as, in some cases, a ‘reasonable endeavours’ may also require expense – more on that later.
Going to ‘best endeavours’; where there is an obligation to incur expense, it is important to note that whilst expenditure may need to be significant in order to satisfy the obligation, it is not expected to be ruinous.
What is equally key about these clauses is that, regardless of expenditure incurred, it is important that the obligation considers the other party’s interests.
In other words, a ‘best endeavours’ obligation includes steps, which a prudent, determined and reasonable operator, acting in his own interests and desiring to achieve that result, would take. That being said, and as onerous as a best endeavours clause might be, it will never be an absolute obligation.
Reasonable endeavours is a lesser obligation, as we all know. However, contrary to popular belief, it may still require limited expenditure.
Rather than the need for significant expenditure to perform the obligation as required by a best endeavours clause, any expenditure under a reasonable endeavours clause need not sacrifice the commercial interests of the party bound by it.
In other words, and unlike a ‘best endeavours’ obligation, a party need not put itself in the shoes of the other party under a reasonable endeavours clause. Instead, it involves balancing the contractual obligation against all relevant commercial considerations.
Regardless of the type of clause, the meaning of an endeavours clause is decided using the normal rules of contractual interpretation. This means the causes must be assessed at the time the contract is entered into and must be interpreted in the commercial context of the agreement itself.
If you’d like advice on endeavours clauses or any other contractual matter, please contact Ed Manning on 01473 230033 or firstname.lastname@example.org