Type: Client Alerts
A guide to endeavours clauses: ‘best’, ‘reasonable’ and ‘all reasonable endeavours’ A frequent negotiating point in commercial contracts is the weight of an obligation. Lawyers often try to minimise the rigor of the obligation undertaken by their clients either by using the words ‘reasonable endeavours’ to ensure their party’s obligations are less onerous or, where their client is asking for an undertaking, asking for the other party’s ‘best endeavours’ or ‘all reasonable endeavours’.
While it is clear that both these expressions are less than an absolute obligation, there is still uncertainty about the exact parameters of these obligations.
Best endeavours In IBM United Kingdom Limited v Rockware Glass Limited CA  FSR 335, the Court of Appeal stated that best endeavours would require a party to “take all those steps in their power which are capable of producing the desired results”, as if the other party was carrying out the obligation themselves. This can require a party to act in a manner which goes against its own commercial interests, such as incurring a cost or even deciding to appeal against a court’s decision just to try and meet obligation. However, certain duties (such as director duties) can still override a ‘best endeavours’ obligation.
Reasonable endeavours ‘Reasonable endeavours’ require a more balanced approach where the party giving the undertaking can consider its contractual obligations against other commercial considerations relevant to their obligation, such as “relations with third parties, its reputation, and the cost of the course of the action” while still giving the obligation key importance.
In Rhodia International Holdings Limited v Huntsman International LLC ( EWHC 292), one of the obiter comments limited reasonable endeavours to a single course of action rather than all the available options. ‘Reasonable endeavours’ are also limited by the outcome of a particular action. For instance, a party may not be expected to litigate where the outcome is uncertain.
What is the difference between best and reasonable endeavours? The key factor is the perspective of the given obligation. Whereas reasonable endeavours allow a party to consider its own perspective and circumstances, best endeavours requires a party to seek to fulfil an obligation with the other party’s interests in mind.
All reasonable endeavours This is often seen as a compromise between ‘best endeavours’ and ‘reasonable endeavours’, though it seems to steer closer to a best endeavours clause. Case law indicates that the definition of this clause is highly fact sensitive and it may exhibit characteristics of both best and reasonable endeavours depending on the circumstances.
An important consideration for all these qualifications is that they are fact- and context-sensitive. The descriptions given are only an indication of how they may be interpreted in practice. For example, in the context of regulation, both parties are more likely to agree to use a best endeavours clause since the regulator is in a position to expect stringent compliance and there is no leeway to qualify this.
Conclusion Given the uncertainty inherent in these terms, a possible solution would be to set out the steps that a party should take to achieve a particular obligation. This can include factors such as costs, time period, notification obligations, the extent to which a party is entitled to protect its own interests, and specific steps which the obligor is or is not expected to carry out.
Client Alert 2016-010