BEWARE: If you think you avoid an onerous obligation by merely saying "I’ll use best endeavours" - think again: the Courts treat that as a strong obligation, not just a good faith statement that you’ll try.
In commercial negotiations, a party pushing back against absolute obligations in a contract may well decide that a compromise position might be to agree to use "best endeavours", "all reasonable endeavours" or "reasonable endeavours" to perform such obligation; but what do each of these terms really mean?
The precise obligations imposed by each of these terms have frequently been the subject of judicial interpretation. These terms represent the murky areas upon the spectrum of obligation between the extremes of an absolute obligation on one end and a very limited obligation at the other.
The most onerous of the three "middle ground" terms on the spectrum requires a party to use its "best efforts" to achieve a given result. Whether such a term is enforceable will depend upon the obligation in question and whether it is certain, for example:
An undertaking to use best endeavours to obtain planning permission or an export licence is sufficiently certain and is capable of being enforced.
By contrast: an undertaking to use best endeavours to agree, is merely an "agreement to agree". It does not impose a certain obligation and so no enforceable legal obligation arises.
Assuming that such an obligation is sufficiently certain to meet its purpose, a requirement for "best endeavours" is likely to require a party to take any number of steps, potentially even if they are unreasonable, in order to achieve the result.
All reasonable endeavours
Judicial interpretation of this wording is itself open to interpretation. There is commentary to suggest that "all reasonable endeavours" may equate to "best endeavours" and that businesses should "subordinate [their] own financial interests to obtain the desired result"; however there have also been decisions where it has been held that an "all reasonable endeavours" obligation should not be seen as a requirement to outlay significant sums to resolve a commercial issue.
What appears to be certain is that there is no requirement to sacrifice one’s own commercial interests where a contract imposes an obligation to use all reasonable endeavours in relation to third parties, for example, it is not necessary to pay an extortionate price to obtain what is required from a third party. The High Court has held that a requirement to act against a party’s own commercial interest relates to matters within that party’s control.
The extent of the obligation imposed in any given case is highly fact-sensitive. Given the uncertainty of the obligations imposed by the term "all reasonable endeavours", parties would be advised to seek to set out in the contract precisely the obligations imposed and any or all steps a party must take to fulfil such obligations.
Of the three obligations examined, this is the least stringent. The standard of such an obligation is likely to require a party to be able to demonstrate that it has taken a commercially reasonable step (possibly more than one in certain cases) to achieve the desired outcome and the wording implies a reasonable balance between a party’s obligation to others and its own commercial and financial interests.
There is the possibility of using alternative terms such as:
- "utmost endeavours";
- "all reasonable but commercially prudent endeavours";
- "commercially prudent endeavours";
- "commercially reasonable endeavours"; or
- "reasonably commercial endeavours" as a variation to "reasonable endeavours".
Each of these phrases seeks to clarify the scope of the intended obligation and will, subject to English law principles of contract construction and interpretation, have their natural and ordinary meaning.
However, it should be noted there is no guarantee that, as English law currently stands, any of the above terms provides any more certainty than the terms that they seek to replace.
A requirement to use some form of endeavours does involve a degree of subjectivity and a consideration of the steps that a party is actually able to perform. An alternative approach would be to impose an objective standard, such as requiring a party to meet "good industry practice" or an appropriate degree of care and skill to be reasonably expected of a party engaged in such work and with the same level of skill and experience. Inserting such objective standards means that if a party fails to meet them, the other may be entitled to damages.
As noted above, one possible way to reduce or remove the uncertainty inherent in imposing subjective or objective standards would be to instead specify the exact steps that the performing party has to undertake to demonstrate compliance. It may also be wise to specify what (if any) costs would be reasonable to be incurred at each step and what the time limits are for such steps.
Given the inherent uncertainty of the obligations imposed by use of "endeavours" terms, it may well be preferable to set out the extent of the obligations imposed at the time the agreement is negotiated and drafted. Depending on the nature of the contract, this may be far more cost effective than having to resolve disputes concerning the precise extent of the scope of the obligations imposed. If parties do agree to "endeavours" clauses, they should do so with their eyes open to the fact that some positive action will be expected of them, although the precise extent of that obligation may prove contentious.