Those who regularly enter into commercial contracts may be used to seeing phrases such as ‘best endeavours’, ‘reasonable endeavours’ and ‘all reasonable endeavours’, but what do these phrases mean and why does your businesses need to be aware them?
In this note on ‘endeavours clauses’ we’ll explain what they are, where you may come across them, and whether there is anything you can do about them.
This is a complex area of law. If you’d like to discuss the inclusion or negotiation of any endeavours clauses in your contracts or those you have been asked to sign, then - please don’t hesitate to contact us.
This is a complex area of law. For expert advice on the inclusion or negotiation of any endeavours clauses in your contracts or those you have been asked to sign, speak to our commercial solicitors. We’re on hand to help businesses achieve their goals, maximise opportunities, and navigate legal risks.
What is an endeavours clause?
These clauses are best illustrated with an example:
‘You will use best/reasonable/all reasonable endeavours to do X’ (eg. arrange financing/obtain planning permission/the landlord’s written consent…)’.
They fall halfway between an absolute obligation - ‘You shall...’ and an optional act - ‘You may...’
They’re used to qualify an absolute obligation under a contract to achieve an aim, often when the parties cannot foresee precisely what action may be required or are dependent on a third party (eg.the obtaining of local authority planning permission).
The most common forms include:
‘Best endeavours’ - the most onerous obligation.
‘Reasonable endeavours’ - the least onerous.
‘All reasonable endeavours’ - something in-between.
Common variations include ‘commercially reasonable’, ‘commercially justifiable’ or ‘commercially prudent’.
What does an endeavours clause mean?
While they may initially seem appealing, endeavours clauses should not be viewed as the next best thing to a guarantee of performance or an easy way out of having to do something.
There is no one agreed definition and the courts interpret their meaning based on:
- the parties’ intentions
- what the phrase actually says
- the other provisions of the agreement
- the overall purpose and commercial context.
This is all totally subjective and leads to uncertainty of definition but case law to date suggests the following:
‘Best endeavours’ can include:
- the sacrifice of the obligor’s commercial interests in favour the other party.
- the incurring of expenditure
- the conduct of litigation or the appeal of a court’s decision at the obligor’s expense.
- taking all reasonable courses of action to achieve the objective.
In short, anything the obligee (recipient) would do in the circumstances to achieve the same result.
‘Reasonable endeavours’ can include considering your own commercial interests as well as those of the other party.
‘All reasonable endeavours’ - the least certain in terms of meaning. Some case law has suggested it is similar to ‘best endeavours’.
Where are endeavours clauses used?
Endeavours clauses can be found in all types of commercial contract, from share sale and purchase agreements, franchise agreements, distributor agreements and development contracts.
They particularly appear in those contracts in which one party is reliant on a third party or there is no other way of phrasing the obligation or where one party is only prepared to try to fulfil an obligation rather than to commit absolutely.
For example, in a supply chain contract - an endeavour clause can be included to use best or reasonable endeavours to have goods arriving at the delivery destination within a prescribed timeframe. An absolute obligation may not be appropriate where the supplier is reliant on third parties to ship items by air or sea freight or needs customs clearance.
Not to be confused with an endeavour clause is a condition precedent. This is a condition that must be met before a contract can be enforced. For more information, see our article explaining what are conditions precedent in a contract.
What do I need to know?
Caution - proceed with care!
- A ‘best endeavours’ clause can result in a business having to act in a way that is far beyond their understanding of ‘trying’ or ‘endeavouring’.
- ‘All reasonable endeavours’ or variations such as ‘commercially justifiable/reasonable/prudent’ can be as onerous as ‘best endeavours’.
- You must be clear on the likelihood of achieving the desired result before you take on the responsibility; discuss in pre-contract negotiations.
- Whether or not you accept (or require) an ‘endeavours’ obligation will depend on your negotiating position and your perception of the value of the contract.
- Take legal advice on the implications of agreeing to any endeavours clause. If the desired object has not been achieved, there will be dispute about what constitutes adequate ‘endeavours’ and the outcome of such litigation is by no means certain.
What can I do about an endeavours clause?
If an endeavours clause is to be used, clarity is everything. It is essential that the need for an endeavours clause is properly discussed in negotiations. You need to cover:
- the minimum level of action required (in order to bring as much certainty as possible as to what is to be done).
- what are the actual steps involved?
- how much should meeting the obligation cost?
- is there a duty to keep the recipient informed of progress being made?
- when does the obligation expire - is there a time limit?
- who is to conduct litigation, if that becomes necessary to meet the obligation?
- what happens if all steps are followed but the aim isn’t achieved? Or it’s achieved but is very expensive (eg.conditions on a planning consent?).
- what are the penalties for failing to achieve the aim?
All this needs to clearly set out in the contract so there is less scope for dispute about whether such action that has been taken was enough to satisfy the ‘endeavours’ clause.
Points to note
- Keep comprehensive notes and records of steps taken and details of all communications with the other party. Usually the dispute is over whether any (or adequate) endeavours have been made rather than an argument about the differences between the types of clause.
- Breach of an endeavours clause by failing to meet the obligations may also be a breach of contract which could have serious financial consequences for the party at fault.