Reasonable endeavours

Reasonable endeavours

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This precedent has been authored by Dr. Gordon Hughes, Principal, Davies Collison Cave Law.

Introductory note

Commercial contracts often contain boilerplate provisions requiring the parties to take reasonable steps in the performance of one or more of its terms. This is generally where a precise obligation cannot be defined by the parties, or where they do not wish to commit themselves to a specified course of action. This is particularly the case where the facts and circumstances in which performance is to take place are not fully known at the time of contract formation. Examples could include:

• an obligation to obtain finance; and

• an obligation to obtain development consent. The most common boilerplate expressions are that the parties are to use their “best endeavours” or “reasonable endeavours” in pursuit of the contractual goal. However, alternative forms of this provision include “all reasonable endeavours”, “utmost endeavours”, “reasonably commercial endeavours” or “commercially reasonable endeavours”.

Those drafting contracts sometimes, by design or ignorance, hide a failure to agree or an unwillingness to be bound behind vague performance standards like “reasonable”.

Meaning of “best endeavours” and “reasonable endeavours”

Where a contract includes a term that requires one party to use their “best endeavours” or its “reasonable endeavours”, it will generally be held that:

• there is little difference between the two expressions;

• the party is required to do only what is commercially reasonable in the circumstances; • the measure of reasonableness will be determined according to an objective standard; and

• the party is under no obligation to act against its own commercial interests. It has been held that a “best endeavours” clause requires a party to do all it “reasonably can in the circumstances to achieve the contractual object, but no more”. (See Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; [1984] HCA 64; BC8400480; Waters Lane Pty Ltd v Sweeney (2008) Aust Contract R ¶90-287; [2007] NSWCA 200; BC200706641.)

Clauses such as these, which require parties to use a certain level of endeavour in the performance of an obligation, require “a standard of endeavour which is measured by what is reasonable in the circumstances, having regard to the nature, capacity, qualifications and responsibilities of the obligated party viewed in the light of the particular contract.” (See Transfield Pty Ltd v Arlo International Ltd (1980) 144 CLR 83; 30 ALR 201; 54 ALJR 323; BC8000079.)

Sometimes a generic clause may be included to clarify and emphasise the interpretation of “best endeavours” terminology in the contract.