If an obligation is restricted or formulated by reference to reasonable efforts, exemplary efforts or wording of a similar nature, that means the efforts that a person seeking to achieve a result would make in similar circumstances to ensure that that result is achieved as quickly as possible. The Party subject to such an obligation shall explain, in writing, at the request of a Party, the measures it has taken to comply with that obligation, (b) any decision taken where two or more other approaches would have been reasonably appropriate; and (c) plausibly how external factors affected its performance and outcome. The party held responsible for “best efforts” has certain rights with respect to the actions it takes. For example, the performance of the obligations of all efforts would not require the party to put itself at a disadvantage under that obligation. This means that they would not be forced to spend resources on themselves at a loss. For example, an engineering firm could be hired to work on the development of a new office building, and the contract could include language that requires “every effort” to meet a deadline. If the engineering firm considers all of its options for meeting this deadline, it may find that one way to do so would be at the company`s expense. This may be due to the hours of work, fees and permits that the company would have to procure and that the company would not be compensated by the customer. If the company explores all the other options that do not come with excessive costs, it could be said that it has done its best to meet its obligations. Model clause.
When Willem Wiggers worked at Allen & Overy, he reformulated this principle of unidroit as a contractual clause. The clause was then used in the company`s joint venture agreement template. Many years after leaving the firm, in a completely different M&A context, he received a bonus for a share purchase agreement prepared by another renowned law firm. It contained the model article exactly as it was originally drafted. Over the years, experience shows that best-effort prevention must have teeth in order to determine effectiveness beyond an otherwise relatively weak concept. What needed to be improved was (a clarification) of the burden of proof as well as the clarification of the scope of a party`s obligation to declare and justify. To clarify what the best efforts entail, the author should formulate it as an obligation to achieve a result or link it to a contractual right to deal with breaches: however, if the outcome depends on the parties themselves, it is likely that it will be void for reasons of uncertainty. In London and Regional Investments v. TBI [2002], “The seller and buyer will make reasonable efforts to agree on the terms of a joint venture. given the principles set out in the agreed form (attached)” was too uncertain to be enforceable. As stated in Little v Courage [1995], “a commitment to make every effort to reach an agreement … is no different from a commitment to accept (which is).
uncertain and incapable of creating an enforceable obligation”. Traditionally, legal systems have distinguished between obligations to achieve a result and obligations to make reasonable efforts to achieve something (without necessarily achieving it). If a desired outcome is not entirely under the control of one party, the party may be willing to “do its best” but not guarantee the outcome. For a detailed analysis of the best effort provisions, see Drafting of international contracts by Marcel Fontaine and Filip De Ly.[1] Only a few highlights are mentioned here. While reasonable efforts are not as strict a commitment as best efforts, they are not without teeth and could certainly constitute a binding commitment that may not be easy to fulfill. The legal interpretation of an obligation to make best efforts is that it imposes on the party the obligation to make all reasonable efforts to achieve the desired objective. On the other hand, the obligation to make reasonable efforts may require the party to take no more than one action before deeming the task unenforceable. In a recent case of the Court of Appeal, it was considered whether an obligation to do its best could compel a party to act against its business interests in order to fulfil its contractual obligations. It concluded that, in the particular circumstances of the present case, it was necessary for the party to do so, but that the extent to which a party would be obliged to do so was in any event a question of fact. Best Endeavours is the most stressful alternative.
It does not impose a strict obligation to achieve the goal, but “it does not mean the second best effort”. It is an obligation to take all the steps that a prudent and determined person would take, acting in his own interest and wanting the result. The celebrity must do everything in his power to achieve the result, even if it means subordinating his own interests. It is not appropriate for a licensee to commit to an absolute obligation to develop and commercialize, as there may be a number of reasons why it does not make economic sense. As a result, licensees often qualify these obligations by resorting to “effort” obligations; The most common of these are “reasonable efforts” or “best efforts”, the latter being the strictest. Although widely used, the effect of using such conservative formulations is not widely known. When negotiating a contract, we strongly recommend that you do not include commitments from best or reasonable efforts if possible. Both are a potential recipe for problems. Above all, good contract design creates clear commitments and security, and best or reasonable efforts do not achieve these goals.
Although largely context-dependent, a debtor should generally push for an obligation of “reasonable effort” during contract negotiations, while the party benefiting from the obligation should try to agree on an obligation to the best of its ability, as it is in the interest of that party for the debtor to fulfil the obligation. Terrell v Mabie Todd & Co Ltd concerned a patent licence for fountain pens and ink bottles, with one party required to do everything possible to promote the sale of as many fountain pens as possible. It was decided that the obligation would not oblige the directors to continue production and attempt sale in the certain ruin of the company, but before this extreme position could be reached, the question would arise as to how much money should be spent on production and advertising. The company was required to do what it could reasonably do in the circumstances, and the standard was that of a reasonable and prudent board of directors that acted properly in the interest of its company and applied its thoughts to its contractual obligations to exploit the inventions. The obligation therefore requires a party to incur costs to meet its obligations, but may take into account its own financial situation. It is therefore likely that a court would consider that a company with greater resources should do more to fulfill an obligation to the best of its ability than a company with less. There will always be an element of uncertainty as to what is agreed upon when using the clauses. To mitigate this uncertainty, in some cases it may be possible to make it clear in the contractual steps that the debtor must take to meet its obligation, rather than simply invoking an effort clause.