Commercial contracts often contain obligations for which the standard of performance is not absolute but instead requires one party to use its ‘reasonable endeavours’ or ‘best endeavours’ to attempt to achieve the desired outcome. The obligations imposed by these phrases are similar if not identical. In each case the extent of the obligation is governed by what is reasonable in the circumstances.
The key criterion of what is ‘reasonable in the circumstances’ means that little assistance can be gained from decided cases. It is, however, clear that the circumstances that may affect an obligor’s business can relevantly be taken into account in determining what is reasonable in the circumstances. In Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640;  HCA 7 (Woodside), the majority held that:
- an obligation to use reasonable endeavours would not oblige the achievement of a contractual object to the certain ruin of the obligor or to the utter disregard of the interests of its shareholders; and
- an obligor’s freedom to act in its own business interests, in matters to which the agreement relates, is not necessarily foreclosed, or to be sacrificed, by an obligation to use reasonable endeavours to achieve a contractual object.
Some variations on the standard of ‘best endeavours’ are also not uncommon. These include ‘reasonable endeavours,’ ‘best reasonable endeavours,’ ‘reasonable efforts’, ‘all reasonable endeavours’ and ‘all reasonable commercial endeavours’.
Whether the standard chosen is ‘reasonable’ or ‘best’ endeavours, the High Court of Australia has consistently proceeded on the basis that the obligations imposed by these phrases are similar if not identical. In particular, whatever words are used, in each case the extent of the obligation is governed by what is reasonable in the circumstances.
Despite this, some recent Australian decisions have drawn distinctions between ‘mere’ reasonable/best endeavours clauses and clauses that use slightly different wording. These include findings that:
- ‘reasonable endeavours’ does not impart an obligation that is as onerous as one to use “best endeavours” or “all reasonable endeavours” (Stepping Stones Child Care Centre (ACT) Pty Ltd v Early Learning Services Ltd  ACTSC 173); and
- the addition of the word ‘best’ to the expression ‘reasonable endeavours’ may raise the required standard to a level somewhat higher than that imposed by a simple ‘reasonable endeavours’ obligation (Foster v Hall  NSWCA 122).
In practice, these differences may rarely be distinctions of substance. The critical factor will ordinarily be whether the party which is obliged to perform has met the standard of reasonableness.
Reasonable endeavours clauses were most recently considered by the High Court in Woodside, where the Court made three general observations about reasonable endeavours clauses, namely:
- an obligation to use reasonable endeavours is not an absolute or unconditional obligation;
- the nature and extent of such an obligation imposed in such terms is necessarily conditioned by what is reasonable in the circumstances, which can include circumstances that may affect an obligor’s business; and
- some contracts containing an obligation to use or make reasonable endeavours to achieve a contractual object contain their own internal standard of what is reasonable, by some express reference relevant to the business interests of an obligor.
When drafting a reasonable or best endeavours clause, the following matters should be considered:
- if you wish to bind a party to do (and only do) what is reasonable, then use the phrase ‘reasonable endeavours.’ On current authorities, it would appear that ‘best endeavours’ will impose similar obligations but it is better to avoid any doubt about what is intended; and
- if what is intended is something different than reasonable endeavours, then it is better to specify what is intended. Similarly, the use of ‘internal standards of reasonableness’ (for example by providing that certain actions will or will not be encompassed by the obligation) should be considered.