Reasonable endeavours in contracts

Reasonable endeavours clauses When negotiating an important commercial contract, either or both parties will generally and rightly use solicitors. Remember however, that unless there are other 3rd party interests such as finance providers to satisfy, the solicitors are there as agents of the client. The client should remain in control. There are often aspects of

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Reasonable endeavours clauses

When negotiating an important commercial contract, either or both parties will generally and rightly use solicitors. Remember however, that unless there are other 3rd party interests such as finance providers to satisfy, the solicitors are there as agents of the client. The client should remain in control.

There are often aspects of contracts which create difficulties – foremost amongst these tend to be forward commitments by either or both parties to do something, procure something to happen or to ensure something doesn’t happen.

The role of solicitors is to protect clients and in the above scenario, the solicitor representing the party who wants or needs something done, procured or avoided will normally push hard for a clause committing the other party. The solicitor for the other party will try to resist any commitment. Hence the problem and sometimes clients will have to step in and instruct their solicitors how to break the impasse.

The compromise in the above scenario is commonly to agree a reasonable endeavours clause. Where the committing party is not fully in control of whether he, she or it can give the full commitment they will perhaps agree to use “reasonable endeavours” to try and comply. This is, on the face of it, a sensible compromise approach, except that there is no clear legal definition (only guidelines and cases which tend to explore the difference between reasonable endeavours, all reasonable endeavours and best endeavours !) of reasonable endeavours which can apply to the facts in every situation and unfortunately, inserting such words can often just store up the problem for a later date and potentially litigation.

Clients often get frustrated by impasses in commercial contract negotiations. They want the contract concluded and to get on and make money. Totally understandable – but the very same clients will often blame the lawyers later, if and when things go wrong, and there is a dispute based on a reasonable endeavours clause.

Frankly, as you will have picked up already, I generally  don’t recommend these clauses except as a last resort. It is far better to go the extra mile to try and be very clear about what each party can and can’t do and to specify it clearly in a contract. If there is a vital forward looking commitment needed which creates risk, all other alternatives should be explored, whether involving some kind of financial retention pending the other party performing, perhaps insurance if available or other possibilities.

The worst situation for all parties is a dispute over whether reasonable endeavours have happened. Litigation is inherently expensive and uncertain, and in very few cases, save where it is manifestly clear that the party who agreed to use reasonable endeavours has doing very little or nothing to perform, can any litigation solicitor confidently predict the outcome of a dispute based on this form of contract wording.

If you need help or advice on business contracts, I would be delighted to speak or meet with you.

 

commercial law • Debbie Serota

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