What must you do when a contract requires you to use “best endeavours”, “reasonable endeavours” or “all reasonable endeavours”?  Are your contractual obligations for “best endeavours” or “best reasonable endeavours” higher than those for “reasonable endeavours”?

This is a vexed question and one that Courts over the world have dealt with.  The Australian position is more flexible than the position in the UK.  The 2012 decision in Australia has watered down the strict distinctions between “best endeavours”, “best reasonable endeavours” and “reasonable endeavours”.  Recommendations on how our clients should deal with these vagaries in order to protect their position are addressed at the end of this article.

The UK position:

Best Endeavours

The UK decision in Sheffield District Railway v Great Central Railway established that “best endeavours means what the words say; they do not mean second endeavours … the words mean that [the obligor] must, broadly speaking, leave no stone unturned…”.  An obligor who commits to best endeavours may well have to subordinate his interests to that of the obligee. The obligor must take all the steps in its power which are capable of producing the desired results.

More recently in Jet2.com Ltd v Blackpool Airport Ltd Blackpool Airport was obliged to stay open outside of its normal business hours resulting in a financial loss.  The Court of Appeal said that the extent of “best endeavours” will depend on the nature and terms of the contract in question and the parties’ financial interests will taken into consideration.  A test of reasonableness will be applied which allows the obligor to have some consideration for its own commercial interests and does not require the obligor to proceed to the “certain ruin of the company” .

Reasonable Endeavours

Reasonable endeavours allows the obligor to balance contractual obligations against relevant commercial considerations and does not involve the obligor to sacrifice its own commercial interests or to pursue legal action in order to comply with their “reasonable endeavours” obligations.

All Reasonable Endeavours

The common perception is that “all reasonable endeavours” is a compromise between best and reasonable endeavours implying something more than reasonable endeavours but less than best endeavours.

The Australian position

 The difference between “best endeavours”, “reasonable endeavours” and “all reasonable endeavours” is not as distinct in Australia.

The High Court  considered this term in Transfield Pty Ltd v Arlo International Ltd and found that a best endeavours clause “prescribed a standard of endeavour which is measured by what is reasonable in the circumstances having regard to the nature, capacity, qualifications and responsibilities of the [party] viewed in the light of the particular contract”

The position in Australia was most recently considered in 2011 in Hall v Foster where a contract for sale imposed a condition upon the parties that they undertake “best reasonable endeavours” for the successful registration of a subdivision.  It was observed by the Court that the word “best” raised the obligation to a higher standard than “reasonable endeavours”.

The Fosters failed to request from the Council an amendment in order for the registration to proceed.  This amounted to a breach of the Fosters’ obligation to use “best reasonable endeavours”.  It was observed by the Court that where the terms “best endeavours” and “reasonable endeavours” were used the important factors are the attempts the parties make to achieve the desired result.  If there is the possibility that the desired outcome may be reached then the “best reasonable endeavours” of the party must be employed, regardless of the likely or eventual outcome.

“Best endeavours” and “reasonable endeavours” similarly have little distinction.  The obligation imposed will be construed taking into consideration the contract as a whole, the circumstances in which the contract was made and what is reasonable in the circumstances.

How to protect your position:

 It would be wise when drafting contracts to clearly define and limit the parties’ obligations regarding the extent to which they must go in order to satisfy any “best endeavours” requirements.  The limitations should be specifically expressed (and defined) particularly in relation to time periods or “sunset clauses”, limitations on expenses to be incurred and limitations on any obligation to pursue litigation in order to meet the contract conditions.  These steps would avoid ambiguity and possibly avoid disputes which may arise from the uncertainties of terms which may be open to subjective interpretation.