Parties negotiating a contract will commonly seek to ‘water down’ absolute obligations so they are required only to ‘try’ to fulfil an obligation. A spectrum of endeavours clauses are widely used for this purpose. Despite such wide use, there is often uncertainty as to the level of effort required to meet the obligation in any given case. We have identified some commonly used endeavours clauses below and summarised some key characteristics which parties seeking to perform or enforce such obligations should consider.
General rule of construction
The meaning of an endeavours clause is determined by considering not just the obligation itself, but the other provisions of the agreement, the overall purpose of the agreement and the surrounding commercial circumstances. As a result, such clauses are highly fact and context sensitive and will not always require the same course or courses of action.
To fulfil a best endeavours obligation, a party must take all those steps in its power which are capable of producing the desired results, such steps being those which a prudent, determined and reasonable party would take when acting in their own interests and desiring to achieve that result. In short, the party owing the obligation must put itself in the position of the party to whom it owes the obligation. Although not an absolute obligation, this is clearly onerous and may include, for example, expenditure on behalf of the party subject to the obligation.
All reasonable endeavours
An obligation to use ‘all reasonable endeavours’ has been expressed by the courts as ‘probably a middle position’ somewhere between best and reasonable endeavours. In practice, it is commonly adopted as a compromise between the two. Generally, a party would be required to take all reasonable courses of action to fulfil the obligation, but will not always be required to sacrifice its commercial interests.
To fulfil a reasonable endeavours obligation, a party is required to do what a reasonable and prudent person acting properly in their own commercial interest and applying their mind to their contractual obligation would have done to try to achieve the objective. The party is not normally required to sacrifice its own commercial interests. There is case law to suggest that a party would be required to take one reasonable course of action rather than many, although it is not clear how this would work in practice. What is clear is that once a party can do nothing more in terms of reasonable steps to achieve the desired objective, it is no longer required to try.
To avoid uncertainty around key obligations, parties drafting and negotiating commercial contracts should consider setting out the practical steps to be taken to fulfil a particular obligation. For example, whether the party subject to the obligation must bear any costs, the period for which the party should pursue the stated objective and the extent to which the party is entitled to protect its own interests.