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What's the Difference?

Often in commercial contracts, parties agree that they will use their "best endeavours", their "reasonable endeavours" or their "all reasonable endeavours" to perform certain actions or to achieve a certain outcome.  But what do these terms mean in reality?  While there are no set definitions and much is dependent on the particular circumstances, we are able to make some practical comments about the requirements of each of these terms so you have a clear idea of what you are agreeing to.

"Reasonable Endeavours"
If a party promises to use or take "reasonable endeavours" to achieve a certain outcome, this means that a party is generally not required to take actions that might prejudice them unless they have specifically contracted to do so.  Rather than requiring a party to take every possible action, "reasonable endeavours" requires that party to take actions a reasonable person would do in the same circumstances. While a party can be expected to have an "honest try" at achieving the desired outcome, they would not usually be expected to perform tasks that may be to their detriment.

''Best Endeavours''
An obligation to use your "best endeavours" is much more onerous than to use your "reasonable endeavours".  While this is not an absolute requirement to do absolutely everything possible, it has been found that such an obligation is quite burdensome and may mean that the party contracting to use best endeavours may have to undertake everything practicably possible to fulfil its obligations even if this involves taking steps which incur financial loss (even significant loss) on their part.  However, it is important to keep in mind that the difference between incurring financial loss and having no regard for your own financial interest is quite pronounced.  

In the recent UK decision of Jet2.Com Limited ¹, it was held that an airport which had a general obligation under an agreement with Jet2 – a low cost airline – to use its "best endeavours" to promote Jet2's airline gave rise to an additional obligation to allow Jet2's planes to arrive and depart outside the airport's normal operating hours, even though this would be at a financial cost to the airport.  Here the commercial circumstances are important because at the time of entering into the contract, the airport knew that Jet2 would be required to enter or to fly outside the standard times to make a profit but still agreed to use their "best endeavours" to promote Jet2's airline.  

"All Reasonable Endeavours"
It has been asserted in the past that the phrase "all reasonable endeavours" is somewhat of a middle ground between "best endeavours" and "reasonable endeavours".  However, while what is required will depend on the factual circumstances of each situation, many now consider that "all reasonable endeavours" imposes very similar potentially burdensome obligations upon that party as an obligation to use one's "best endeavours".  The addition of the word "all" has quite a substantial impact on the obligations that one party is required to perform, and therefore when conducting contractual negotiations, parties need to be aware that such a seemingly minor amendment could have dramatic implications beyond parties' control or may result in the sacrifice of that parties' financial interests.  

How to Avoid Problems
One way to avoid problems of interpretation is to make it quite clear what each party is required to do to meet their obligation by providing clear guidelines or boundaries around what is expected.  We are able to assist here, but these may include:

• The time by which an obligation must be completed by;
• Examples of what could be considered to be ''best'' or ''all reasonable'' endeavours;
• Certain machinery or procedural requirements that the parties must follow; or
• Whether the party performing the obligation is required to incur substantial financial obligation and, if so, up to a certain limit.

In all circumstances, if the intention is that a party is absolutely required to perform that obligation, then the wording should outline that they "must" do that action.  Alternatively, where some of the actions required are outside of the contracting party's control, or they may have to undergo considerable time, expense and effort to obtain that goal, then we are able to assist to ensure that the language used is toned down sufficiently so that such provision is not unjustly burdensome and reflects your understanding of the steps you will be required to undertake to complete your obligations.

Please kindly direct any enquiries to:

Andrew Knight on (09) 306 6730 (aknight@mcveaghfleming.co.nz) or
Harry Forsythe on (09) 306 6727 (hforsythe@mcveaghfleming.co.nz)

© McVeagh Fleming 2017

This article is published for general information purposes only.  Legal content in this article is necessarily of a general nature and should not be relied upon as legal advice.  If you require specific legal advice in respect of any legal issue, you should always engage a lawyer to provide that advice.