Best or reasonable endeavours? What a difference a word makes
Once signed, a contract represents a formal record of the agreement made between you and your customer. The obligations under that agreement are often absolute, with any failure to satisfy them will be considered a breach of contract which could result in a dispute, and considerable expense.
With this in mind, there may well be circumstances in which you would not be comfortable agreeing to an absolute obligation to perform a certain task. For example:
- if you are a software supplier commissioned to create a bespoke piece of software for a customer, you would not want to enter into a contract requiring you absolutely to obtain all of the necessary licences to run that software. It may be that the customer had previously breached licence conditions, making obtaining a licence difficult through no fault of your own; or
- if you are an architect contracted by a developer to obtain planning permissions for a development, you would not want to sign up to an absolute obligation for you to obtain those planning permissions. If you were to do so and planning was refused for reasons beyond your control, you could be contractually liable for the losses of that developer.
In such circumstances, an ‘endeavours clause’ may be used to oblige you to ‘try’ to undertake a certain action, without that obligation being absolute.
Simon Walker, commercial law expert with Talbot Walker in Andover, Hampshire, says that ‘the use of endeavours clauses is an important tool in the negotiation of many commercial contracts. As there are three options, it is essential to ensure that the most appropriate form of clause is used in the circumstances of each case.’
There are subtle differences between the three types – ‘best’, ‘reasonable’ and ‘all reasonable’. A change of one word can have a substantial impact.
Best endeavours
The requirement to use ‘best endeavours’ is the most stringent of the three options.
It requires you to take all those steps in your power which are capable of producing the required results, provided that such steps are those which a reasonable, determined person would take.
Clearly, the best endeavours clause does not fall far short of an absolute obligation and you should take expert advice before such an agreement is entered into. However, such clauses do offer some flexibility in circumstances which make it unreasonable.
For example, if you are an architect who has entered into a contract to use ‘best endeavours’ to appeal a planning permission refusal then you may not be obliged to do so where such an appeal would have no prospect of success.
An example of this might be where the land subject to the planning application has since been earmarked for the construction of a government infrastructure project, such as HS2.
In situations such as this one, a ‘best endeavours’ clause, when used correctly, could spare you the expense and inconvenience of an entirely pointless planning appeal.
Reasonable endeavours
The requirement to use ‘reasonable endeavours’ is the least onerous of the three main clauses.
A clause of this type requires you to take any actions which a person acting reasonably and prudently would have taken, to satisfy the relevant contractual obligation.
Importantly, a clause of this type does not require you to act against your own commercial interests when seeking to achieve performance of the contract, giving a wide set of circumstances in which the obligation may be avoided.
Using the same example as above, if you are an architect contracting to use ‘reasonable endeavours’ to commence an appeal against a planning decision which has limited prospects of success, you may not be obliged to do so where the result is doubtful and as such would not be in the best commercial interests of your architectural practice.
Once again, this type of endeavours clause when used properly can assist in protecting your own business interests.
All reasonable endeavours
The third of the endeavours clauses is one which requires the use of ‘all reasonable endeavours’.
This obligation sits between the two options discussed above and is the most difficult clause of the three to pin down.
The consequences of a clause of this type depends very much on the circumstances of the case, in particular, whether or not you must proceed with an obligation which is against your own commercial interests will depend on the background of the contract and potentially the wider commercial relationship.
In some situations, ‘all reasonable endeavours’ may be interpreted to sit very close, or even equate to the ‘best endeavours’ clause. However in others, it may be closer to the ‘reasonable endeavours’ end of the scale.
Clearly, in circumstances where a proposed contract requires the use of ‘all reasonable endeavours’, the input of a specialist commercial lawyer is essential to ensure that the full extent of the obligations arising are understood.
The importance of instructing a lawyer
As specialists in commercial contract law, we can provide detailed advice to ensure that you are fully aware of your contractual obligations. We can also provide specialist assistance in the negotiation of new contracts in order to ensure that your business is fully protected
For advice on any of the above, please contact Simon Walker on +44 (0) 1264 721 705 or email simonw@talbotwalker.co.uk .