Why you must be aware of the different terms used
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by Gemma Brown
Commercial contracts often impose an obligation on one or more
of the parties to use either their "reasonable," "all reasonable"
or "best" endeavours to achieve a specific outcome at a later
date.
Even though these terms are widely used, there is still
uncertainty as to the obligations imposed by each of them and this
has led to a vast amount of case-law containing various
interpretations by the courts.
As non-performance could be a breach of contract leading to a
potential claim for damages against the party concerned, it is
extremely important that you are aware of the difference between
these terms so you know what commitments are going to be imposed on
you before you enter into a contract.
The courts have held that a "reasonable" endeavours obligation
is less onerous than a "best" endeavours commitment.
"Best" endeavours will require the party concerned to take all
reasonable courses of action it can, which could also require it to
act against its own commercial interests. "Reasonable" endeavours
only require the party concerned to take one reasonable course of
action, not all reasonable courses of action, and it would not be
required to act against its own commercial interests.
A provision to use "all reasonable" endeavours imposes
obligations that sit between the two. This is the least
well-developed clause and has not been considered as much by the
courts.
If you are required to agree to an endeavours obligation it is
important that your legal adviser explains what obligations could
be required of you and that you record the steps you have taken to
comply with the obligation in detail in order to ensure you can
show that you have done what you can to meet the obligation.
The courts will interpret the degree of endeavours required
through looking at the circumstances of the individual case and
other terms contained within the contract.
Therefore the parties will need to ensure they are aware of the
measure of effort which is intended to be imposed and that the
wording in the contract is drafted appropriately.
- Gemma Brown is a solicitor in the corporate department at
Vertex Law LLP and can be contacted at gemma.brown@vertexlaw.co.uk
or on 01732 224000.
Wednesday, September 07 2011
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