We often see the terms ‘reasonable endeavours’, ‘best endeavours’ and ‘all reasonable endeavours’ in contracts. They are used to soften the need for absolute compliance with a provision whilst still ensuring that the relevant party at least tries to do whatever is required. Whilst the terms may sound similar, the legal distinction and how hard the party has to ‘try’ is less evident without delving deeper.
The courts will generally interpret an ‘endeavours’ clause in the context of the particular contract. As a result, there are no clear-cut rules when considering what amounts to ‘reasonable’, ‘all reasonable’ or ‘best’ endeavours. However, we can get some insight from the approach taken by the courts.
A reasonable endeavours clause is probably the least strict of the three. A person doesn’t need to take every possible reasonable course of action. They can balance the duty to use reasonable endeavours against relevant commercial considerations including the costs, uncertainties and practicalities relating to compliance with the undertaking. Whilst a person wouldn’t be expected to sacrifice their own interests, they can expect that some cost might be incurred in fulfilling the obligation.
This is viewed as being at the opposite end of the spectrum to ‘reasonable endeavours’ – a more onerous obligation. The party needs to take all steps in their power to satisfy the obligation (including incurring costs, which may be significant) but there is a level of common sense allowed. They wouldn’t be expected to completely undermine the commercial and reputational need of the business nor to incur costs so great they would lead to financial ruin.
All reasonable endeavours
Newest to the bunch, ‘all reasonable endeavours’ clauses add more uncertainty to the mix as there hasn’t been as much analysis of them in court. For years they have been viewed as a middle ground between reasonable and best endeavours. However, they have at times been viewed as almost indistinguishable from best endeavours. The current position seems to be that all reasonable endeavours requires all courses of action to be exhausted and possibly but not necessarily sacrificing commercial interests.
In the hands of the court
Last month the court of appeal upheld a decision that an obligation to use all reasonable endeavours to obtain senior debt was enforceable. In that case one of the parties was required to use all reasonable endeavours to secure a secure debt facility. They didn’t manage to do so by a given deadline but did raise funds by another method. With excellent turn of phrase, the original judge in the case , (Leggatt J) disagreed with previous case law that suggested certainty and clear criteria were required in order for a reasonable endeavours obligation to be enforceable:
“The role of the court in a commercial dispute is to give legal effect to what the parties have agreed, not to throw its hands in the air and refuse to do so because the parties have not made its task easy.”
This is the crux of the problem with endeavour clauses: each clause requires interpretation by the courts of the particular facts in order to assess what would be reasonable in that case. So there will always be uncertainty unless the contract spells out the exact steps that need to be taken to satisfy the obligation or, at the very least, gives some guidance of what may and may not be required.
This blog post was written by trainee solicitor Catherine Everington. For further information, please contact:
Joanna Belmonte, legal director and PSL, Banking & Finance
T: 0161 836 7809