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Best or reasonable endeavours: Uncertainty in drafting

Introduction

In commercial contracts it is common to come across clauses which require a party to use "best endeavours", "reasonable endeavours" or "all reasonable endeavours". It is not always clear what the difference between these interchangeable terms are, and even with a substantial body of case law dealing with these clauses there remains a certain level of uncertainty around interpreting them. This note sets out the factors that should be considered when drafting or reviewing such clauses.

Types

The three most common types of these clauses are best endeavours, reasonable endeavours and all reasonable endeavours. The courts have taken the approach that they can be classified as follows:

  • Best endeavours: This has long been recognised as the most onerous obligation without making it an absolute condition. It is still therefore subject to reasonableness. The obligor must take all steps within their power to achieve the objective even if that would involve sustaining substantial losses (but probably not so as to ruin their business);
  • All reasonable endeavours: This is seen as the middle ground between best and reasonable endeavours. There is the least certainty over the precise meaning of the application of this type of clause. Whilst most often interpret it as the middle ground it has also been interpreted as closer to best endeavours in that all reasonable options must be taken. Whether or not the obligor is expected to sustain losses to achieve the objective under that particular clause depends on the nature and terms of the agreement, but subject to the obligor not having to prejudice its commercial interests; and
  • Reasonable endeavours: This type of clause is the least onerous and only places an obligation on the obligor to make at least one reasonable effort to meet the objective. The obligor can consider its own interests and whether a particular action could cause it a loss.

Recent case law

Even with the courts' attempt at ranking the clauses as above there remains a certain level of uncertainty around the requirements of an endeavours clause. In the recent case of Astor Management AG and another v Atlaya Mining plc and others ("Astor") where the requirements are unclear, the court may impose its own interpretation as to what is required. In most cases the courts will try to give legal effect to contractual provisions despite very-wide or open-ended language. An endeavours clause will only be deemed unenforceable if it, or part of it, is legally or practically impossible. This shows an increasing willingness to enforce contractual provisions where traditionally they may have been said to be void due to uncertainty.

Practical drafting tips

The level of contentious issues arising out of endeavours clauses means particular care should be taken to avoid uncertainty when drafting such clauses. Remember that whilst the three most commonly used endeavours clauses have acquired a certain prima facie meaning, it is important to note that each clause will be interpreted looking at the contract as a whole and the overall commercial context. If you can avoid uncertainty, aim to set out in the contract particular steps that the obligor is, or is not, expected to carry out to satisfy the particular endeavours obligation such as, whether an obligor must bear any costs or incur any expenditure in seeking to comply with the endeavours clause and, if so, how much.

 

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