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Use the right word, not its second cousin. - Mark Twain
In short, words matter. Where legal contracts are concerned, this is brought to the fore when we examine the language preceding the concept of ‘endeavours’.
In commercial contracts, parties often agree that they will use “best endeavours", "reasonable endeavours" or even "all reasonable endeavours" to perform certain obligations under a contract. However, we see a lot of examples of people agreeing a higher standard than they intended due to not taking appropriate advice or not understanding what the difference is between these terms. Courts in New Zealand (and worldwide) have given legal meaning to these terms that give guidance on which term you should use to fulfil your intentions.
Since they need to be read in context, none of the meanings are entirely set in stone. However, it is clear that “reasonable endeavours” is the lowest standard, followed by “all reasonable endeavours” and then “best endeavours”. “Best Endeavours” is a very high standard – usually beyond what a party would expect to agree to.
We have summarised some general comments about each of these three terms below.
"Reasonable Endeavours"
A contractual term requiring you to use or take "reasonable endeavours" to achieve a certain outcome means that you are generally not required to take actions that might prejudice you unless you have specifically contracted to do so. "Reasonable endeavours" requires you to take actions a reasonable person would take in the same circumstances without having to act to your own commercial detriment. In other words, you will honestly try to fulfil an obligation without having to prejudice your own commercial position or do things that might be to your detriment.
''Best Endeavours''
An obligation to use your "best endeavours" is a far more onerous requirement than to use your "reasonable endeavours". While this is not an absolute requirement to take all possible actions, it has been found that such an obligation requires you to undertake everything practicably possible to fulfil your obligations, even if this means taking steps that cause you financial loss, even if that loss is significant. While Courts have indicated this falls short of being required to have no regard to your own financial interest, this is an uncertain test, so put simply you should not agree to use your best endeavours if the context is unclear.
The United Kingdom takes a similar approach to New Zealand Courts in determining “best endeavours”. The case Jet2.Com Ltd v Blackpool Airport Ltd [2012] EWCA Civ 417 is a helpful example. The case concerned an airport which had entered into a contract with a low-cost airline called Jet2 Com Ltd (Jet2). The contract contained a general obligation for the airport to use its "best endeavours" to promote Jet2's airline. The Court held this 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. This case demonstrates that the commercial context is also important to the interpretation, because at the time of entering into the contract, it was found that 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 its "best endeavours" to promote Jet2's airline.
"All Reasonable Endeavours"
In the past it was thought that the phrase "all reasonable endeavours" was somewhat of a middle ground between "best endeavours" and "reasonable endeavours". This has become less certain over time. Like the other terms, the phrase needs to be interpreted in context, however most cases have implied that "all reasonable endeavours" is likely to impose an obligation to incur cost or prejudice your own position to some extent to fulfil the obligation. “All reasonable endeavours” is now seen as an obligation that is much closer to “best endeavours” than reasonable endeavours. The addition of the word "all" has been held in a number of cases to have a substantial impact on the obligations that one party is required to perform. This means to some extent this is the most uncertain of the terms – but it is clear that adding the word “all” to the words “reasonable endeavours” will increase obligations substantially.
How to manage issues with using “endeavours”
You should avoid using these terms where you can, with some thought and effort. Instead make it clear what each party is required to do to meet their obligation. If you can give enough context to your lawyer, a good drafter can avoid less clear “reasonable endeavours” obligations by providing clear requirements. These could be some or a combination of things such as:
- adding in timeframes or limits to an obligation;
- providing examples of what could be considered to be ''best'' or ''all reasonable'' endeavours and what goes beyond what the party is expected to do;
- adding procedural requirements that the parties must follow; or
- confirming whether the party performing the obligation is required to incur substantial financial obligation and potentially setting cost limits – including potentially on a monthly or annual basis.
In all circumstances, if the intention is that a party should absolutely be required to perform that obligation, then the wording should outline that they "must" do that action.
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 fulfil those obligations, then careful wording is required. This is so that a provision is not unjustly burdensome and reflects your understanding of the steps you will be required to undertake to complete your obligations.
Lastly, if some things are simply beyond what either party would anticipate, then a force majeure clause is something the parties should consider, which is the subject of a different article.
Haigh Lyon has widespread experience negotiating commercial contracts and providing expert advice on all aspects of business activity. If you need assistance please don't hesitate to contact Anthony Kuran on 09 306 0611 or @email or Andrew Knight on 09 985 2531 or @email