Entering into a mutually beneficially commercial contract with like-minded partners is a great goal to aim for during business transactions. And we all know that a well-written commercial contract is the key success factor here.
Show me the money!
When anyone encounters a commercial contract, naturally they will first follow the money -- looking for where there is the potential to make, or lose, money. Then, of course, comes the assessing of party responsibility. This is where you'll find a little clause, probably in section 5 or 6, stating something like “you will use best endeavours to carry out your services”.
But what does 'best endeavours' actually mean?
It isn’t a phrase you might use every day:
“Yes darling, I will use best endeavours to pick up milk from Sainsbury’s.”
These are called endeavour clauses. Businesses tend to use them in contracts when they have a clear objective in mind, but don’t know how it will be achieved from the get-go. That is, the commitment is to “try” to fulfil the obligation and not to commit to it absolutely.
“Yes darling, I will “try” and pick up milk from Sainsbury’s”.
But understanding how much effort these endeavour clauses require of you is the key to success here. Before embarking on any optimistic adventure, it's vital to get a concise overview of what obligations you are sailing into and plan how to navigate unforeseen obstacles that could scupper your plans.
Navigating endeavours clauses
To help you steer your course we have provided a bird’s eye view of the 4 endeavour clauses you may meet along the way, and how they may impact your business.
1. Best endeavours = Avoid at all costs
The most onerous clause of the bunch, a best endeavour situation means a service provider is obligated to complete all the steps available to try to achieve the objective. This means you must do everything in your power, even if this costs more than you will earn or goes against your own interests. It doesn’t mean the objective has to be achieved, but that every single reasonable avenue must be followed to try to reach that outcome – up to and including financial outlay or a redirection of resources.
2. Reasonable Endeavours = Your friend
This clause is the most widely used in commercial contracts as it requires the service provider to take a reasonable course of action to achieve the objective, even if there are other options available. These are not expected to be measures that could be detrimental to the company’s commercial activities, they simply must be doing all that a reasonable person could reasonably do in the circumstances.
Both clauses sound similar – so how do you know what is required of you?
In simple terms the difference between best endeavours and reasonable endeavours is the amount of options available to the service provider to achieve the objective. To prove requirements have been met for reasonable endeavour, a party needs to show one reasonable approach had been carried out to its fullest extent. A best endeavour requirement demands that you take all possible actions, until exhausted, to attempt to meet the objective. This may include some financial outlay but not to the extent that would be damaging to your business.
3. All reasonable endeavours = a compromise solution (or is it?)
Sitting happily between the previous two clauses, all reasonable endeavours put itself forward as a compromise clause. It is difficult to define precisely, given that the endeavours required in any contract to achieve an outcome will always be unique to the case itself. Due to this uncertainty, three questions are raised:
- In my contract would it mean best endeavours?
- In my contract, would the service provider be expected to use all commercial interests to achieve objective?
- Will this be applied to the specific circumstances available for my contract?
There are two available answers that come to us from the courts:
- All reasonable endeavours do naturally mean best endeavours. This thinking is basically the idea that a service provider, using ALL the courses of action available to meet an objective, is the same as a service providing using best endeavours; OR
- A middle position somewhere between the two, implying something more than reasonable endeavours but less than best endeavours.
As you can see there is a lot of uncertainty about this clause. And uncertainty makes good economic sense - Not!
4. Commercially reasonable endeavours = Your bestie
A Law 365 favourite; this is a lesser-known clause but proves itself very useful where the service provider is able to consider their own commercial interests balanced against the endeavour clauses agreed on in working towards the contract obligations. It softens the blow from a best endeavour, while providing more professional flair than reasonable endeavours. We always negotiate our clients to work to this standard.
All endeavours are better than absolute obligation
It is important to remember that all endeavours – no matter what form they may take – are still less than an absolute obligation to perform the contractual requirements, but that doesn’t mean they are not important!
To ensure smooth sailing, and reduce the likelihood of disputes, is to carefully consider which steps are right for you, and how you want these to be made clear and simple in your legal documents. We can help you to plan each step of your journey, giving you complete control over whatever may arise along the way.
At Law 365 we are confident that as commercial contract experts our guidance can point you firmly in the right direction. Whatever your horizon maybe.
Get in touch!