When entering into a contract, it is important to be able to distinguish between clauses which impose absolute obligations, and endeavour obligations, on a contracting party. Absolute obligations require an obligor to actually carry out the objective e.g. to pay a price, or to register a hypothec, where it is the result which is of interest to the obligee. An obligor who does not carry out the objective of an absolute obligation is considered to be in breach of contract.
On the other hand, endeavour obligations require an obligor to use his/her “best” or “reasonable” endeavours in attempting to perform an obligation. Endeavour obligations are often used when the obligor depends upon matters outside his/her control to perform e.g. to obtain a necessary approval or authorisation, or to resolve a dispute amicably. An obligor who does not carry out the objective of an endeavours obligation, is not considered to be in breach of contract if he/she has complied with the required endeavours standard. But, what is the difference between a “best” and “reasonable” endeavour?
The “best” endeavours obligation is more onerous than the “reasonable” endeavours obligation. A best endeavours obligation requires an obligor to take all practicable steps in their power to perform the obligation. A reasonable endeavours obligation requires an obligor to take only reasonable steps in their power to perform the obligation, the reasonability of which may depend on the impact such steps may have on the obligor. By way of example, where an obligor is under a best endeavours obligation to carry out an objective, and is faced with a monetary expense in order to perform such obligation, he/she may be obliged to burden the monetary expense. On the other hand, where an obligor is under a reasonable endeavours obligation to carry out an objective, and is faced with a monetary expense in order to perform such obligation, he/she may be able to avoid payment where these expenses are deemed unreasonable in the circumstances of the case.
Considering the uncertainty which emanates from the terms “best” and “reasonable”, it is almost certain that lawyers will pick up on these words during contractual negotiations and question their meanings. While their meanings can be left to be determined in the circumstances of the case when a dispute arises, it may also be an option for the contracting parties to set out, using explicit terms in the contract, the steps which an obligor must take in order to satisfy either of these standards e.g. by capping the expenses expected to be undertaken; or qualifying the time period within which the obligor must seek to perform.
In concluding a contract, it is always prudent for an obligor to push for a reasonable endeavours obligation, in order to avoid risking a breach of contract. On the other hand, it is prudent for an obligee to impose either an absolute obligation or, where this is not possible, a best endeavours obligation on an obligor, as it is in the obligee’s interest that the obligor performs its obligation. Nevertheless, the choice of which type of obligation, and which standard to impose, should be seen in context. This is because, where the obligation in question is not of particular importance in the contract, it may be in everyone’s interest to compromise on a reasonable endeavour obligation and move onto more pressing items.