When a party to an agreement for sale and purchase doesn’t want to be under an absolute obligation to have to do something, it is usual to add a clause which requires a party to use “best endeavours” or “reasonable endeavours” to do that thing. But what do those phrases mean?
While there is no set definition, based on the cases, the legal position can be summarised as follows:
Reasonable Endeavours
- In deciding whether a party has used reasonable endeavours to do whatever he or she promised to do, the Court will consider what an ordinary competent person would do in the same circumstances.
- The party making the promise does not have to take any action which would prejudice the interest of that party, unless the agreement specifically says he or she must take that action.
- The person must take reasonable action, but does not have to try every possible action - one Court said the person must make “an honest try” to do it
Best Endeavours
- This is not an absolute requirement to do something, but is more onerous than a “reasonable endeavours” obligation.
- The person who agrees to use “best endeavours” to do something must do everything he or she can reasonably do in the circumstances to do that thing, even if that person has to spend money in trying and take a risk, as long as there is a reasonable chance of success by doing so. However, the person doesn’t have to spend an unreasonable amount of money
All Reasonable Endeavours or All Due Diligence
Previously, these terms were seen as being a middle ground between “reasonable endeavours” and “best endeavours” undertakings. Recent cases suggest that there is no real difference between this wording and a “best endeavours” undertaking.
Summary
If it is absolutely essential to one party to the agreement that the other party does something by a certain date, then the relevant clause should say that the party “must” do that thing by a certain date. The clause should also say that this requirement is an essential term of contract. This will give the other party a right to cancel the agreement if the thing is not done by that date.
If an absolute requirement to do something is not necessary, but the parties agree that every effort should be made to do the thing, even if it may involve cost, then a “best endeavours” obligation should be used.
If a party is only required to use reasonable efforts, but is not required to spend money in trying,, then a “reasonable endeavours” obligation should be used.
To avoid argument, any clause should include details such as:
·The time by which it must be done.
·Whether the person has to spend money, and the maximum amount the party must spend.
·Include examples of what should be done to try to comply with the requirement. For example,
if someone is required to try to get a resource consent or some other consent, whether that person has to appeal any decision
This information is designed as a general guide and should not replace specific legal advice on a particular issue
