Contracts often contain clauses which require a party’s performance to be achieved on a “reasonable endeavours” or “best endeavours basis”. But what does this actually mean?
There is a wide range of endeavours clauses, such as “reasonable endeavours” or “best endeavours”, even “all endeavours”. An obligation to use reasonable endeavours is often considered by some to be more flexible, whereas some consider best endeavours clauses require a higher standard of performance. In truth there is little difference between reasonable endeavours and best endeavours clauses when interpreting their meaning. Differences will largely depend upon what the parties wish to achieve and what standard of performance is required to be met. A recent decision of the Victorian Supreme Court dealt with a reasonable endeavours clause and provided some helpful guidelines as to the use of such clauses.
In the Victorian Supreme Court decision of Lex Group Holding Pty Ltd & Ors v De Ren Xu  VSC 238, the Court was required to interpret a reasonable endeavours clause that had been used in a Deed of Settlement of a dispute. In this case the plaintiff alleged that the defendant, in failing to cooperate in the sale of a property which was required under the Deed, had breached his express obligation under the Deed “to do everything reasonably necessary to give effect to the Deed of Settlement”.
The Court held that the purpose of the reasonable endeavours clause is to make express the common law principle that the parties must cooperate in the performance of a Contract, and do all things reasonably necessary to bring about performance of the Contract. The Court found that:
- what amounts to “reasonable endeavours” is defined by the obligation that the reasonable endeavours clause supports; in this case, to sell the property;
- while there is at least some distinction between the reasonable endeavours clause and a “best endeavours” clause, the use of the term “reasonable” rather than “best” does not import some suggestion that the parties retain some residual discretion not to perform their obligations under the Deed. The steps required, however, must be essential to performance of the Contract;
- the steps required by the reasonable endeavours clause in this case are those steps necessary to give effect to the obligation to sell the property, noting that in order to give effect to the sale, the cooperation of both parties, as co-proprietors, was to engage a real estate agent, set a listing price and a reserve price, instruct a conveyancer, and, once the property was sold, to sign a transfer of land. No more or no less was required by the Deed;
- a reasonable endeavours clause does not impose any obligations independent of the obligations in the Contract; and
- the duty imposed by the reasonable endeavours clause carries with it the negative concomitant duty not to hamper the performance of the Contract.
In the Lex Group Holdings case the defendant’s conduct in refusing to sign a sale authority or to nominate an alternative agent was found to have breached the terms of the Deed.
The use of reasonable endeavours or best endeavours clauses are commonly used in construction and commercial documents and are often enforced. In order to have an effective “endeavours” clause, however, the draftsperson must be careful to specify with clarity and certainty the object of the endeavours and consider by what objective means the reasonableness of the endeavours and performance can be measured. Having a standard of performance specified gives greater certainty as to measuring the endeavours to be achieved, otherwise a Court will be left to make a value judgment.