It is not uncommon in commercial contracts for a party to seek that its counterpart engages in “best”, “all reasonable” or “reasonable” endeavours in the performance of its obligations under the contract.
The recent case of CPC Group v. Qatari Diar Real Estate Investment, in the English High Court, whose decisions have persuasive authority in Ireland, has helped provide some guidance on how to distinguish these concepts.
While regard must be had to the facts of a case, the three key “endeavours” terms might be summarised as follows:
- Best Endeavours – Requires a party to take all steps they could possibly take to ensure that the relevant term of the contract can be performed – best endeavours are not “second best” endeavours according to the Courts. However such a term does allow for the party to have some regard to its own commercial interests. For example action would not be required if it would lead to the ruin of the company.
- All Reasonable Endeavours – The interpretation of such a clause has fluctuated over the years. However, the CPC case has recently reverted to a more traditional view of ‘all reasonable endeavours’, holding that a party to a contract might not need to sacrifice its commercial interests in order to satisfy the obligations set out by such a clause. The English Courts have arguably reverted to the view that such a clause falls in between best and reasonable endeavours.
- Reasonable Endeavours – Requires a party to do what is reasonable in the circumstances to fulfil its obligations under the relevant term of the contract. A company is permitted to give weight to its own commercial interests in order to determine whether the actions required by the terms of the contract must be fulfilled.
The type of endeavours clause used in a commercial contract is largely dependant on the outcome of negotiations between the parties at the drafting stage. Those involved in negotiating or drafting contracts should be aware of the significance of the words used to draft the endeavours clause and the consequences such clauses may have on the parties’ obligations to one another.