3.3 ‘Best efforts’ or ‘reasonable endeavours’ in contract provisions

There is one vague term that is inherent to the nature of the underlying obligation. Traditionally, legal systems distinguish between obligations to achieve a result and obligations to endeavour to achieve something (without necessarily accomplishing it). If a desired result is not entirely within a contracting party’s control, that party is probably willing to ‘do its best’ but not to guarantee the result.

Best efforts varied. Other than best efforts, drafters also use phrases such as reasonable endeavours, commercially reasonable efforts and good faith efforts. By implication, an obligation to achieve a result is more onerous than any of its best efforts variants. Some lawyers believe that among these variants, best efforts is the most onerous one – in this interpretation, the promisor would be required to do everything in its power to accomplish the goal, even if this leads to its insolvency – while other efforts standards are less onerous. Making that distinction implies that a party obliged to make best efforts should do not only everything that may reasonably be expected from it, but also things that cannot reasonably be expected. Such an interpretation is probably not within the scope of either concept. A larger group would probably reject such a contrast of meanings and may even consider that the practical difference between the variants is negligible. One thing is for sure, however:  best efforts certainly does not mean second-best efforts.

Sufficient efforts? Best efforts and its variants imply standards of ‘subsidiarity’ and ‘proportionality’ in what may or must be expected from the party concerned. Occasionally, a party may be obliged to make efforts disproportionate to the benefits under the contract. Determining whether a party has made sufficient efforts depends on all facts and circumstances. The minimum standard would probably be that the party has made a good faith effort to achieve the anticipated result.

Legal framework. The Unidroit Principles provide a guideline:

Article 5.1.4 (…Duty of best efforts)

  1. To the extent that an obligation of a party involves a duty of best efforts in the performance of an activity, that party is bound to make such efforts as would be made by a reasonable person of the same kind in the same circumstances.

Article 5.1.5 (Determination of kind of duty involved)

In determining the extent to which an obligation of a party involves a duty of best efforts in the performance of an activity or a duty to achieve a specific result, regard shall be had, among other factors, to:

(a)      the way in which the obligation is expressed in the contract;

(b)      the contractual price and other terms of the contract;

(c)      the degree of risk normally involved in achieving the expected result;

(d)      the ability of the other party to influence the performance of the obligation.

Model clause. This Unidroit principle can be used in formulating a contractual clause that is stronger (or at least more specific) than the phrase ‘shall make reasonable efforts’. Experience shows that a best efforts provision must have teeth in order to ensure effectiveness and go beyond what is otherwise a relatively weak concept. Improving the clause requires clarifying the burden of proof and making more explicit the scope of a party’s duty to explain and justify.

To clarify what best efforts entail, the drafter may attempt to rephrase the clause as an obligation to achieve a certain result or to link it to a contractual remedy to manage failure:

Where any obligation is qualified or phrased by reference to use reasonable endeavours, best efforts or wording of a similar nature, it means the efforts that a person desirous of achieving a result would use in similar circumstances to ensure that such result is achieved as expeditious as possible. The Party under such an obligation shall, if a result aimed at is not achieved or achieved after delay, upon the request of a Party explain in writing (a) the actions taken by it in order to fulfil this obligation, (b) any choices made where two or more alternative courses of action would have been reasonably appropriate, and (c) plausibly how any external factors influenced its performance and the achieved result.