In the second of a series of short articles examining common contractual terms, the effect of which is often misunderstood or underestimated, Elaine McGrath examines the concept of ‘endeavours’.
Where an obligation in a contract is not absolute or the required result not certain to be possible, then commercial contracts will usually provide that one party must try or endeavour to obtain the desired outcome. This obligation to endeavour is usually qualified by the term ‘best’, ‘reasonable’ or ‘all reasonable’ endeavours or variations of such.
There has been much debate and case law over the years in an attempt to ascertain the extent of the effort required to discharge the obligation in each case.
This should be agreed with caution as it imposes quite an onerous obligation. It traditionally meant that the party would do everything within their power to achieve the desired result. Arguments as to reasonableness have been accepted to qualify this over the years but it nevertheless required that a party will do all that a reasonable person who wishes to achieve the required result would do. It imposes an obligation to take positive and active steps to achieve the result. This may include incurring financial or other costs associated with achieving the required goal even though this may be to its own commercial detriment.
It is clear simply from the meaning of the words that the obligation imposed by ‘reasonable’ endeavours is less than imposed by ‘best’ endeavours. It requires the party to give an honest try to achieve the goal. While there is still an obligation to take positive action, this would not require the party to do as far as incur a financial or other disadvantage or pursue a course of action that was unlikely to be successful.
Therefore, if agreeing to impose the lesser obligation of reasonable endeavours one might consider setting out criteria of what is required to satisfy the obligation. It should be noted that it has been held by the courts that where such criteria are set down, unless specified otherwise, they are absolute and any cost in complying with those criteria will be for the party on whom the obligation rests. However, without specifying any criteria it may be difficult to enforce a reasonable endeavours clause.
Where there is more than one possible course of action, reasonable endeavours will only require that one such course of action is attempted. While positive action is required by reasonable endeavours such action is minimal and as long as some positive action can be shown the obligation is likely to be satisfied.
All Reasonable Endeavours
This lies somewhere in between ‘best’ and ‘reasonable’. In such case the effort required will be more than the minimal effort required by reasonable endeavours but less than the affirmative actions required by best endeavours. For example where there is more than one possible course of action more than one such course may need to be attempted but not all. However, where the line will be draw will likely depend on the relevant circumstances.
While it is always preferable to have absolute obligations in a contract it is not always possible or appropriate. In such circumstances the extent of the effort required by the party in question should be considered and if possible specifying the criteria required to discharge the obligation is useful. However, where that is not possible, best or reasonable will likely come down to the strength of the negotiating position of the relevant parties and the importance of the clause in question to the overall contract.
- For further information on this article, please contact Elaine McGrath at firstname.lastname@example.org.