04 Oct Best Endeavours Clause Definition

The courts have stated that the phrase “best efforts” requires the obligated party to “take all measures within its power capable of achieving the desired results.” The steps that a prudent, determined and reasonable [creditor] acting in his or her own interest and who wants to achieve that result would take. (IBM United Kingdom Ltd v. Rockware Glass Ltd [1980] FSR 335). In other words, the debtor must put himself in the place of the reasonable creditor and take all economically feasible measures (taking into account the cost and the level of difficulty). Here we look at these issues, the range of commitments and provide practical advice to those who draft these clauses. Despite the existence of some obligations known in English law, it may be uncertain what they actually mean and what is necessary to comply with them, as they are contextual concepts and may require difficult legal and factual assessments. The parties may attempt to reduce their risk of dispute resolution by indicating, to the extent possible, what they agree that a particular obligation should include in their contracts. A question often raised in Endeavours` clause breach claims is whether the obligation was enforceable. This has been argued in Astor Management.

In this case, the defendants had acquired the plaintiffs` shares in a dormant mining project. Most of the payments to be made were deferred and would not become due until the defendants had obtained the necessary permits to resume mining and received financing for the resumption of mining activities through a priority credit facility. Since reasonable efforts are more likely to be considered from the debtor`s point of view, they generally do not require a party to sacrifice its own economic interests unless expressly stated in the contract. A good example of this is the case of Phillips Petroleum Co UK Ltd -v- Enron Europe Ltd. In this case, the parties were required to make reasonable efforts to agree on a delivery date for natural gas. In the absence of such an agreement, the contract provided for another date. Due to lower gasoline prices, Phillips declined to agree on a date prior to the decline date. Enron argued that they had breached their duty to make reasonable efforts to make an appointment earlier. The Court of Appeal disagreed. In the absence of an express provision to that effect, the obligation to make reasonable efforts did not impose such a restriction. The parties were entitled to take into account their own financial situation and to act in the manner that was most advantageous to them. Looking at the other end of the spectrum, a commitment to make reasonable efforts is clearly “less strict” than a commitment to make the best efforts.

Rhodia International J. v. Huntsman summed it up well when he explained that a commitment to make reasonable efforts probably requires only one party to follow a reasonable path, not all, while a commitment to make every effort is likely to require a party to follow all appropriate avenues it can. 2. If you do not want to sacrifice your business interests in the performance of the obligation, you expressly provide for this. For example, a party that is required to make “all reasonable but economically prudent efforts” is allowed to consider its own business interests alongside those of the other party. The case law provides some support in the interpretation of these clauses, and this can be summarised as follows. Another factor to consider is the likelihood of achieving the desired outcome.

The more doubtful the result, the less likely it is that action will have to be taken. For example, if you have agreed to make reasonable efforts to obtain a building permit, consent has been withheld for reasonable reasons, and the chances of success on appeal are questionable, it is likely that no further action is required. Best Endeavors is a term that is often found in commercial contracts and obliges the identified party to make every effort to fulfill the conditions set. A Best Endeavors policy places a party under a stricter obligation than a reasonable obligation. It is synonymous with best effort, a term widely used in securities markets and preferred in most trade agreements signed in the United States. This is a point raised in Astor Management. The Court noted: “However, if the parties have introduced a `reasonableness` test, it seems to me that they are deliberately asking the court to make a value judgment that limits their freedom of action.” The judge recognized that it may be difficult to prove a breach of duty in circumstances where a court is required to question a commercial party on matters of commercial judgment. Examples cited include evidence that a party should reasonably have continued a negotiation with a particular lender or accepted a particular offer or offered a lower interest rate. However, the difficulty of establishing an offence does not mean that the clause itself is unenforceable. This claim was therefore rejected.

A complete transformation of an obligation into a mere contractual or discretionary power would reduce the burden of effort, since the main limitation of these conditions (which may or may not apply depending on the contract) is only the requirement that the party act rationally with power or discretion. However, discretionary obligations are unlikely to be more acceptable to both parties when it comes to uncertainties that are generally considered appropriate for Endeavours` obligations, particularly those at the heart of a contract, such as the creation of the object. The term “best efforts” has been the most judicially examined and is therefore the most tangible of the “efforts” formulations. Traditionally, it has been considered a rather onerous obligation, but it is now judged according to adequacy standards that require an obligated party to take all reasonable steps or measures in its power that a prudent and determined man acting in his own interest and striving to achieve what is necessary would have taken (IBM United Kingdom Ltd v Rockware Glass Ltd). However, if the outcome depends on the parties themselves, it is likely to be void for reasons of uncertainty. In London and Regional Investments v. TBI [2002], “The seller and buyer will make reasonable efforts to agree on the terms of a joint venture. given the principles set out in the agreed form (attached)” was too uncertain to be enforceable. As stated in Little v Courage [1995], “a commitment to make every effort to reach an agreement … is no different from a commitment to accept (which is). uncertain and incapable of creating an enforceable obligation”.

The most commonly used Endeavors clauses are Best Effort, Reasonable Endeavours and all reasonable efforts. However, there are no fixed definitions for each term. As its Honorary Judge Mackie said in Jet2.Com, Petromec Inc and Others v. Petroleo Brasileiro SA, a case mentioned in Astor Management, is a good example. There was a dispute over a project to sell and upgrade a semi-submersible oil production platform. After the agreements were concluded, the parties agreed to carry out additional upgrade work on the platform. Brasoil has agreed to pay the reasonable additional costs for the upgrade and the additional contract, provided that “Brasoil agrees to negotiate in good faith” the additional costs associated with it. Concluding that, in certain circumstances, an obligation to negotiate in good faith will have legal effects, the Court of Appeal commented: “It would be strong to declare unenforceable a clause that the parties have intentionally and expressly entered into.