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The "Best efforts" clauses

2022-10-21 12:18

Maria Songül Akin

commercial contracts, commercial contracts, best efforts, best endeavours, reasonable efforts, reasonable endeavours, all reasonable endeavours, commercial efforts, clauses, contractual clauses, legal consultant, consultancy,

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In this article, we will talk briefly about the "best efforts" clauses and offer a number of practical tips on this topic.

Often, typical clauses of common law systems are found in commercial contracts, such as best efforts or best endeavours, which typically respond to the need to cope with situations of uncertainty regarding the fulfillment of the obligations of one or both parties.

Sometimes the meaning, scope and operation of these clauses are not fully known and this can lead to unexpected and, sometimes, unwanted results.

The company management, often convinced that the provision of best efforts clauses does not involve a real commitment but simply a "we will do our best", underestimates the implications of such clauses during the execution of the contract.

However, we will see in this article that these clauses should not be ignored or underestimated at all. On the contrary, they must be adjusted in a way that is responsive to the commercial interests of the parties.


What does "best efforts/endeavours" mean?


The terms "best efforts" (typically used in the USA) and "best endeavours" (typically used in the UK) are used when the obligation assumed by one of the parties implies a more limited commitment and therefore the party only undertakes to make every effort to do what is reasonably possible to fulfill. This type of obligations is what in Italy we define "obligation of means". The obligations of result (or undertakings), on the contrary, provide an obligation assumed by one of the parties in relation to a given result that is subject to liability for non-fulfillment.


A useful example of a "best efforts" clause is the following, extracted from a software license agreement:

"Licensor shall use its best efforts to develop, improve, enhance and commercialize the System through its dealings with Subsidiaries, Licensees, and Technology Development Partners."


How are they distinguished?


In common law systems we find several "best efforts / endeavors" clauses that reflect different degrees of commitment.

We have summarized below in a useful table the main clauses, divided according to the common law system to which they refer.

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1. Best endeavours

The "best endeavours" clause requires the contracting party the highest level of commitment to "endeavour" in order to achieve the required result.

The following clause is a typical "best endeavours" example, extracted from a franchise agreement:

"The Franchisee shall use its best endeavours to sell and offer for sale a minimum range and stock of the Products as specified in the Manual, plan its re-ordering of the Products adequately in advance and procure the greatest volume of turnover for the Business consistent with good service to the public. "

The leading cases regarding such clause (i.e. IBM United Kingdom Limited vs. Rockware Glass Limited regarding the obligation of a contractor to put in place best efforts in order to obtain a building permit) have developed two important principles.

Firstly, where there is a best efforts clause, the debtor party is forced to take not one but all the measures that are potentially necessary to fulfill its obligation.

Second, the adequacy of the necessary measures must be assessed through the lens of the creditor party rather than the debtor. Therefore, the best efforts will be adequate if, taking as a reference an ideal party acting in its own interest and without a legal obligation towards anyone, this ideal party would have implemented the same measures, initiatives and efforts as the debtor party in the specific case.

However, what is important to remember, even in the presence of the above principles, is that the obligation of means subject to the best efforts clause cannot in any way be transformed into an obligation of result as the level of effort required of the debtor party must always be based on the principle of reasonableness to be evaluated objectively.

2. Reasonable endeavours

Compared to the best endeavours clauses, the reasonable endeavors clauses provide the least onerous effort of the debtor party.

The following clause is a typical "reasonable endeavours" example:

"The Seller shall use reasonable endeavors to retain the services of each of the Transferring Employees to the intent that their respective contracts of employment shall be continued until the Transfer Date and then, save as in so far as such contracts relate to any occupational pension scheme, be transferred to the Buyers by virtue of the Regulations."

On this matter, the English Courts have specified that it is required to adopt a single measure, initiative or effort, among all those abstractly available (a diligent debtor party, however, should put in place not one but some measures among all those available).

Furthermore, the fulfillment of the obligation must take place without the debtor party being required to sacrifice its interests by acting in an uneconomic manner.

Finally, the assessment in terms of reasonableness of the measures put in place by the debtor party should be evaluated from the point of view of the latter. In choosing which reasonable endeavour to adopt, the debtor party will be able to justify the choice of a particular measure in regards to all the economic and commercial considerations of the case, such as the cost of the measure, the reputation of the debtor, the possibilities of obtaining the result or the relationship of the debtor with third parties.

3. All reasonable endeavours

This is a relatively recent concept, with few court rulings on this point and with very uncertain contents.

The content of the "all reasonable endeavours" clauses does not differ much from the clauses analyzed above. What changes is that, in this case, the debtor party is required to make all reasonable efforts to achieve a certain result.

Typical example of such a clause is the following:

"The Party affected by a Force Majeure Event shall use all reasonable endeavors to bring it to a close or to find a solution by which this Agreement may be performed despite the continuance of the Force Majeure Event."

The few court decisions on this point have established that, in terms of intensity of efforts, these clauses are placed halfway between the best endeavours and reasonable endeavours clauses.

In regards to the reasonable endeavours clauses (where we have seen that only one or some of the feasible measures are required), the all reasonable endeavours clauses imply the need to pursue all the reasonably possible ways in the specific case.

It is worth noting  that the court rulings on this point do not adopt a firm position but, at times they equate the reasonable endeavours with the best endeavours clause, at times they consider that the use of such a clause does not always require the debtor to sacrifice its commercial interests.

Tips for drafting best efforts clauses
When drafting a best efforts clause, given the uncertainty (albeit with different intensity) that revolves around these clauses, some precautions should be followed.
First of all, if the fulfillment of an obligation does not depend on third parties or it is not an obligation of means, you should avoid using these types of clauses.

Where this is not possible, to avoid future disputes, it is advisable to explicitly indicate the measures to be adopted in order to achieve the result identified by the clause.
Finally, it is advisable to indicate a period of time within which the debtor party will have to fulfill the obligation and specify whether the debtor party  must inform (possibly at certain periods of time) the creditor party about the progress achieved and the measures already taken.
To fully grasp the differences and the opportunities to insert an appropriate clause with the above suggestions, here's an useful example:

[Party X]’s Responsibility for Registration. During the term of the Agreement, [Party X] shall use its Best Efforts [ * ] in [ * ] and [ * ] in [ * ], from the date of this Agreement, and shall create and maintain competent and appropriate number of staff in divisions of regulatory affairs, production, R&D organization for this purpose.
In this context, “Best Efforts” means the same level of effort as
[Party X] would make to promote any major vaccine originated or sold by [Party X], with competent and appropriate number of staff in the divisions. [Party X] shall keep [Party Y]  advised of general market, economic, and regulatory development that may affect the development and sale of the Vaccine.”

The information provided on this website does not, and is not intended to, constitute legal advice. For further information on the subject, click here to contact us.