Plain English

Plain English

Contracts often include clauses which require a party to use “best endeavours” or “reasonable endeavours” to perform the terms of the contract or achieve an objective. Known as “endeavours clauses”, they are used where a party’s obligation is not absolute. This may be for various reasons, including because the objective is not totally within the party’s control, for example where a third party’s action or decision is required.

 

What standard is required?

So, what is required of the parties where these “endeavours” provisions are used?  The first point to perhaps note is that in Australia there does not appear to be any substantive practical difference between “best” and “reasonable” endeavours (this contrasts with the UK where a “best” endeavours provision is considered to connote a “higher” standard than one which requires “reasonable” endeavours).  Whether an endeavours clause uses the terminology of “best” or “reasonable”, the prevailing standard required is one of reasonableness in the circumstances.  This may mean, for instance, that a party may take into account its own commercial interests and third party interests, where it is not reasonable to give priority to the other’s interests. This, of course, would include avoiding any actions that would result in a breach of contract, or the general law.

 

Practical implications

In practice, the application of this “reasonableness” test results in a degree of uncertainty as to what is required of a party under such an obligation.   Does an endeavours clause to promote the sale of a client’s product prevent that party from using or selling a competing product?  Does an obligation on a counterparty to use “all reasonable endeavours” to obtain project consents and approvals include the payment by that party of large third party/government fees?

In both cases, much will depend on the facts and other contractual obligations but it’s clear that in order to avoid uncertainty, express provisions should be included to avoid any false expectations as to the parties’ respective contractual rights and obligations.  Certainly, parties should avoid using “best” and “reasonable” (or other derivatives) interchangeably – doing so may invite a court to consider whether there is in fact a difference.

A preferable approach when negotiating or drafting is to set out what efforts are expected (and not expected) of the party subject to the obligation. The description of such efforts may include:

  • specific kinds of expenses (and limits on those expenses) that may or may not be incurred;
  • whether a party may be required to take legal or administrative action;
  • objective criteria such as industry standards or benchmarks;
  • a limit on the time period in which efforts should be made.

As always, the better approach is to be as clear as possible.

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