Best, All Reasonable and Reasonable Endeavours in Business Contracts

In business contracts, obligations for a party to perform may be absolute or qualified. Use of reasonable, all reasonable or best endeavours qualify what would otherwise be an absolute term to perform a contractual obligation. Well established principles of interpreting contracts require that the words used contract clauses must be construed in their contractual and factual context. Accordingly, Courts are more than likely to concentrate on the object of the ‘endeavours’ which are to be exercised within the commercial context of the contract against the factual background of the dispute. The same applies to contract clauses which contain qualified obligations to perform such as these.

An absolute (and unqualified) obligation will be imposed a clause in a contract states “The supplier shall deliver the project by [date]”. Changing this clause to read “The supplier shall use reasonable endeavours deliver the project by [date]” qualifies the performance requirement to something less than the absolute requirement to perform. In this way, in the latter case, the contracting party is not required to perform come what may, in any or all circumstances.

Accordingly, “reasonable”, “all reasonable” and “best endeavours” qualify the standard of performance required by the party obliged to perform to something less than that. In some cases the contractual context may be so vague or opaque that Courts are unwilling to uphold term as enforceable. Those situations however will be rare.

Best Endeavours in Contracts

This qualifier imposes the highest standard of performance of the three phrases. The Court of Appeal has held that . The qualifier does not require a contracting party to act in a way which would ruin a company or act with complete disregard to the interests of the company. Rather it is an obligation to do what reasonably might be done in the circumstances. In one case, the relevant standard of performance was the standard of reasonableness that of a reasonable and prudent board of directors acting properly in the interests of the company and applying their minds to their contractual obligations to exploit inventions would adopt.

All reasonable

The party to perform is required to do all that he reasonably can in the circumstances to perform the obligation. This translates to using reasonable endeavours until all reasonable endeavours to perform the obligation until reasonable avenues to perform have been exhausted. The party required to perform is entitled to have regard to events as they unfold, as what may be reasonable at one time may not be reasonable at a later date. In some cases, Courts have treated the obligation as meaning the same thing as best endeavours.

Reasonable

This imports the standard of conduct required by an officious bystander with no personal interest in the performance of the obligations. Reasonable endeavours would likely require the contracting party to do the things that such a person would do in the same circumstances to perform the relevant contractual obligation in the circumstances of the contracting party. Again, the contacting party is not required to sacrifice its own commercial interests.

What it means in Business Contracts

When interpreting the standard required of performance, Courts usually focus on the circumstances of the case, nature of the obligation which is to be performed and consider the meaning of the contract words used in the context of the circumstances. Courts have judiciously avoided precisely defining the meanings of these contractual phrases. Where the meaning of one term stops and the other starts is blurred, and is expected to remain blurred due to the open textured meaning of the word “reasonable”. It is likely that the more important the obligation is, the higher the standard of performance required. The importance of the contractual term will in turn likely to be assessed in part on the consequences of breach by the defaulting party on the innocent party.

Furthermore, business contracts impose conditions and warranties. At the time of the contract, the contract may be the standard terms of one of the parties, or some or all of the terms may be negotiated. The contractual obligations of the parties are not interpreted in a void – the facts of the case are central to determining the performance obligations of the parties.

Closing

In commercial contracts, 'best endeavours' 'all reasonable endeavours' and 'reasonable endeavours' may be supported by specific factors and/or acts which the parties agree are to taken into account to discharge the performance obligation. Other options include specifying who bears the costs of the endeavours, any cap which applies to those costs, a specific timeframe which the relevant party should pursue an endeavour or objective.

Courts interpret contractual clauses such as this by reference to what the parties had in mind as at the date of the contract. Application to the facts of the case will vary depending upon the objective intention of the parties to the contract at that time.