Reasonable Endeavours. Best Endeavours. What’s the difference??

It is quite common in negotiations over terms of a contract, for disputes to arise over whether one party should be required to use “best endeavours” or “reasonable endeavours” in satisfying an obligation. To muddy the waters further, I have also seen requests for “best efforts”, “all reasonable endeavours”, “reasonable steps”… and the list goes on…

But do these different phrases really have a different meaning? Are you arguing for a good cause at all…?

Why the argument in the first place?

There is often the perception that “best endeavours” is a stronger requirement than “reasonable endeavours”. And that phrases like “all reasonable endeavours” perhaps sit somewhere in the middle.

This belief had a place in early English law, in which a “best endeavours” obligation required a party to “leave no stone unturned” and to do all that was possible (without unreasonably damaging its own business) to achieve the contract obligation – whereas “reasonable endeavours” had much less strength, merely requiring that a party not prevent the fulfilment of the contract obligation.

But a line of caselaw in Australia has shown that the position of the courts (in Australia at least) has changed over the years.

The current Australian position

The recent case of Centennial Coal Company Limited v Xstrata Coal Pty Ltd [2009] NSWCA 341 has confirmed that in Australia there does not appear to be any practical difference between the meanings of these terms.

So what is the standard now required by one of these clauses?

The outcome of the Australian caselaw can be loosely generalised as follows – where there is an obligation for you to use “best endeavours” or the alternatives then:

• You may take into account your own commercial interests and third party interests, where it is not reasonable for you to give priority to the other party’s interests. For example, an undertaking that you will use ‘best’ or ‘reasonable’ endeavours to promote the sale of a product does not necessarily mean that you can’t sell a competing product. And an undertaking that you will use ‘best’ or ‘reasonable’ endeavours to obtain a development approval does not necessarily mean that you are required to incur a substantial detriment or payment that wasn’t forseen by the parties at the date of the contract – if that is required to obtain the development approval.
• You aren’t required to do something if it results in you breaching your own contract, or the general law.
• If you could have done more to try and achieve the objective but didn’t, you won’t be in breach if making the extra efforts would not have made any material difference to the outcome
• You are required only to weigh up your own commercial considerations against the actions required to fulfil the contract objective, and do no more than what is reasonable (in the circumstances) to carry out that objective

Warning

Even given the above, we have not yet seen how an Australian court might interpret ‘best’ and ‘reasonable’ endeavours clauses if both of those terms are within a single contract. It is highly possible that if in one contract you use each term in a different place, then a court might feel compelled to view that you have used 2 different terms for a reason, and therefore interpret them as having different meanings.

Practical tips

Start with considering seriously whether you really want to use one of these clauses anyway? Measuring ‘reasonable’ and ‘best’ endeavours can be a hard thing to do – and the golden rule is wherever there can be ambiguity – there can be arguments.

If you are intent on going for one of these clauses, here’s a couple of tips to make it a bit less likely to end in tears:

• Don’t use a ‘reasonable endeavours’ clause AND a ‘best endeavours’ clause within the same contract. Pick one set of terminology and stick with it.
• Wherever possible, get specific about what actions are required to satisfy your ‘best’ or ‘reasonable’ endeavours clause – for example, you could include:
  1. A requirement for a party to spend money – and set out a maximum or minimum value
  2. Specific time limits
  3. A list of specific actions that need to be undertaken
  4. A list of specific actions that don’t need to be undertaken

Even though this can sometimes be a difficult process – remember that the more time taken in getting specific, the less likely it is to create a problem later down the line.

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