Much ado about nothing? Understanding ‘reasonable endeavours’ provisions
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Jemima Jenks, who has been with us for the last two weeks on work experience, has written a blog post on the topic of “reasonable endeavour”. Read on to find out more. Thanks to Jemima!
Many commercial contracts include provisions which impose ABSOLUTE obligations on one or both of the parties (for example, ‘you MUST keep this information confidential’, ‘you MUST notify us within 10 business days’). Often, provisions of this sort impose an expectation which is beyond the actual ability of a counterparty to comply (for example, the ability of some counterparties to comply will depend on outside factors). Other counterparties simply object to the inclusion of such a hair-trigger provision within their contracts from a principal point of view. Either way, it is quite usual for provisions drafted as absolute obligations to get watered-down during the course of a negotiation.
In many cases, a negotiation will walk a well-trodden path which ends up in one of three compromise positions, being an agreement to use:
- “reasonable endeavours”,
- “all reasonable endeavours”, or
- “best endeavours”.
But what do these phrases ACTUALLY mean? What are the extent of our obligations if we agree to any of these standards?
Read on to find out more…
Reasonable endeavours:
Reasonable endeavours is regarded as the lowest expectation when it comes to trying hard to achieve something. Without doubt, it constitutes a lesser standard than either “all reasonable endeavours” or “best endeavours”.
Essentially, “reasonable endeavours” is a requirement to do that which is reasonable in the circumstances. A party to a contract which is required to use “reasonable endeavours” is NOT normally required to sacrifice its own commercial interests (although it may be required to incur limited expenditure in satisfying its obligations). Once the obligor has done all that is “reasonable” to achieve the objective, it has discharged the obligation to which it is subject.
However, an obligation merely to use “reasonable endeavours” does not constitute an entirely free ride for an obligor. In the case of Ampuruis Nu Homes v Telford {2012} EWHC 1820 Roth J held that a lack of funding is NOT an excuse for failing to comply with a requirement to use “reasonable endeavours”.
The term “reasonable commercial endeavours” is sometimes used to soften the phrase “reasonable endeavours” even further as it does not require the obligor to incur additional cost in compliance with its obligations.
All reasonable endeavours:
All reasonable endeavours can be regarded as the midpoint between a requirement to use “reasonable endeavours” and a requirement to use “best endeavours”. It is often regarded as the most confusing (and controversial) of the three definitions because its meaning is not clear. Some commentators argue that an assessment as to whether an obligor has complied with a requirement to use “all reasonable endeavours” should be based on the obligor’s specific circumstances. Other commentators maintain that this is irrelevant.What is clear is that a requirement to use “all reasonable endeavours” is a more onerous standard than merely a requirement to use “reasonable endeavours” and increases the chance that an obligor will be required to incur expenditure in satisfying its obligations.
Best endeavours:
A requirement to use “best endeavours” is the next best thing to an absolute obligation. Nonetheless, the concept of ‘reasonableness’ is still relevant even in the context of “best endeavours”. More specifically, a party to a contract who is obliged to use “best endeavours” must exhaust all reasonable paths in seeking to comply with the underlying obligation. This may require him/her to sacrifice (some of) their commercial interests. Some commentators believe that is will require the obligor to undertake “extraordinary efforts”. In practice, the precise nature of the obligation will depend on the context and wording.
Whether or not a party has used its “best endeavours” to comply with an obligation is a SUBJECTIVE test. In essence, the question to be asked is ‘whether the obligor did all they could do in order to comply’ with the underlying obligation. Nonetheless, the obligation to use “best endeavours” can be overridden by other duties (such as the health of their family). Moreover, the obligor can still act in his/her own interests in attempting to comply. However, at a minimum, the obligor must actually exhibit a desire to achieve the required result – indeed, some regard the phrase “best endeavours” as being synonymous with the phrase “utmost desire”.
A question of degree only?
The concepts of “reasonable endeavours” and “best endeavours” are definitely not the same. The main difference between “reasonable endeavours” and “best endeavours” is the number of alternate courses of action that must be pursued. Put simply, “reasonable endeavours” only requires a party to take one reasonable action rather than many. If one responsible path is taken then the obligation is discharged. A requirement to use “all reasonable endeavours” lies somewhere in the middle. Nonetheless, all three concepts are all hugely significant within commercial contracts. It is vital that contractual counterparties understand each concept and the differences between them.
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