You frequently see the word "endeavours" in legal contracts. The differences between the most common forms (best endeavours, reasonable endeavours and all reasonable endeavours) have been much debated. But what are the essentials you need to know?
- "Best" does mean best and is the most onerous obligation, requiring all prudent steps to be taken.
- "Reasonable endeavours" is a reduced obligation requiring pursuit of at least one reasonable course of action, but you can consider your own commercial interests.
- "All reasonable endeavours" is generally a middle ground, but in some contexts the actual steps required may be the same as best endeavours or reasonable endeavours.
In a recent case, Astor Management v Atalaya (March 2017), €44m of deferred consideration was to be triggered when the defendant secured senior debt finance for a sum sufficient to restart its mining operations.
The sale agreement required the defendant to use all reasonable endeavours to obtain the senior debt facility by 31 December 2010. The defendant ultimately did not obtain the facility, but instead received a parent company loan to restart mining. This led to a dispute about whether the additional €44m had become payable.
In concluding that the defendant had used all reasonable endeavours, the court dealt with some interesting points.
The court said the date by which the defendant needed to get funding was a target date only. Failure to achieve the objective by a specific date does not automatically release a party from the endeavours.
A contract does not need to include objective criteria to evaluate the endeavours in order for it to be enforceable, although that would be helpful. If the contract is silent, the court will have to make its own judgement.
This case reiterates that a court will not intervene to deal with poor drafting or a bad bargain. It also confirmed that a court has discretion to determine what endeavours mean in each situation.
To reduce the chances of having to litigate in the first place, contracts should spell out what actions will or will not be necessary to satisfy the endeavours obligation:
- What steps must be taken?
- What is the maximum expenditure?
- What is the time frame? (Although this may now have to be treated with caution.)
- Do you have to go to court if necessary to achieve the desired objective?
A good faith duty?
Where a contract contains a reasonable endeavours obligation, the court found there is no need, or scope, to imply a duty to act in good faith. In short, if a party purposely tried to frustrate an obligation, it's very unlikely to satisfy the standard of using reasonable endeavours to begin with.