In this, the ninth of a series of articles which looks at some of the most common perils of contracts and how to avoid those perils, we look at the perils of agreeing to use your “endeavours” to perform your contractual obligations.
Usually a contract says what you “must” do; for example, you “will” do such and such. Other times, it will say what you “may” do; for example, you “may” at your option do such and such.
Sometimes, the contractual obligations will fall in between the mandatory, what you “will” do, and the permissive, what you may do. This is where the clause says that you will use your “endeavours” to do something.
There are two common types of endeavours, “best endeavours” and “reasonable endeavours”. Other formulations may also be used, such as “all reasonable endeavours” or “ultimate endeavours”.
It is, of course, better to have to use your endeavours to do something, rather than to have an absolute obligation to do it. If you don’t do something that you must do, you will be in breach of contract. If you fail to do something that you have to use your reasonable endeavours to do, then you will not be in breach provided that you have used “reasonable endeavours” to do it.
The problem is, knowing what is required to show that you have used the required level of “endeavours”.
Let’s consider the perils of using endeavours clauses:
The problems that with endeavours clauses will vary, but they include:
- Knowing what “best endeavours” means and whether it is different from “reasonable endeavours” and, if so, how?
- Knowing when you have done enough to have fulfilled your obligations
- Knowing what you have to do to satisfy the obligation:
- Do you have to sacrifice your own commercial interests?
- Are you obliged to issue legal proceedings if that would help?
- Knowing whether you have to pursue more than one course of action to fulfil your obligation.
- Having an obligation that is too uncertain to be enforced.
Some of these problems may sound more like exam questions for the lawyers than practical issues for you. The reality is that you do need to know what you are required to do to fulfil the obligation, because failure to do it is likely to put you in breach of contract.
If your endeavours pay off easily and you achieve whatever it is that you have agreed to use your endeavours to achieve, there will be no issue. The problem arises, if your endeavours don’t pay off. The question of whether you have tried hard enough arises. In order to try to answer that question, you need to know what you are required to do satisfy the obligation to use your endeavours.
Now let’s consider how to avoid these perils:
- You could try to avoid agreeing to use your endeavours, best or otherwise, to achieve anything. There will be times when you can’t avoid it. In any event, it is better to have a qualified obligation to do something (using your endeavours) than to have an absolute obligation.
- If you have to enter into an obligation to use your endeavours, you should be aware of the hierarchy and what each means:
- “Best endeavours” is the most onerous:
- It requires:
- You to take all reasonable courses of action
- It may require you to a sacrifice your own commercial interests
- It may require you to litigate or appeal a decision.
- “All reasonable endeavours” is next most onerous:
- It probably requires:
- You to explore all avenues reasonably open to you, including where this involves expenditure
- You can probably have more regard to your own commercial interests (than when using best endeavours), but you may have to sacrifice your commercial interests to some extent.
- “Reasonable endeavours” is least onerous:
- It is probable that you only have to take 1 course of action
- You can have primary regard to your own commercial interests
- You are not required to sacrifice your own commercial interests, although you may be required to incur some expenditure.
- Ensure that the obligation is sufficiently clear to be enforceable. (An obligation to use all reasonable endeavours to provide a cost base to facilitate low cost pricing would be too uncertain.)
The meaning of every “endeavours” clause will depend on its wording and its context in the contract as a whole. Unless there is detailed drafting to clarify the obligation it is unlikely to be entirely clear what is required to satisfy the obligation, but an understanding of broadly what each type of “endeavours” clause means will be invaluable.