The use of endeavours clauses has hit the headlines this week as the dispute between the European Commission and AstraZeneca over the production and delivery of COVID-19 vaccines intensifies.
The CEO of AstraZeneca has highlighted a part of the contract which obliges the company to use its ‘best reasonable efforts’ to meet the Commission’s demand.
We thought now would be a good time to have a look at endeavours clauses, their purpose and what they mean.
A bit of background
In most situations contractual obligations are absolute and therefore a failure to meet an obligation under a contract will likely be a breach of that agreement. Endeavours clauses are used when a party is only prepared to try to fulfil an obligation, rather than commit to it absolutely.
Most people who have dealt with contracts will have come across clauses which require a party to use their reasonable endeavours, their best endeavours or commercially reasonable endeavours.
Despite the fact they are widely used, there is some uncertainty as to what efforts each different endeavours clause requires in practice.
Understanding the meaning
The meaning of an endeavours clause is determined using the normal rules of contractual interpretation. This means assessing the clause at the time the contract is formed by reference to its terms, the other provisions of the agreement, the overall purpose of the agreement and the surrounding commercial context.
This creates uncertainty over the meaning of a particular endeavours clause. However, case law does identify some key characteristics of the more commonly used endeavours clauses which we have looked at briefly below.
Common Endeavours Clauses
Best Endeavours
The term best endeavours has received the greatest amount of consideration by the courts and the starting point is that the phrase “means what the words say; they do not mean second-best endeavours”
Whilst not an absolute obligation, it would include steps which a prudent, determined and reasonable person desiring to reach the result would take. It may well also require significant expenditure, although not to the extent that it would ruin the person under the obligation.
All Reasonable Endeavours
This is possibly the most difficult to define. All reasonable endeavours is often seen as a compromise between best and reasonable endeavours but what it actually means will depend on the context.
An all reasonable endeavours clause is likely to have characteristics of both best and reasonable endeavours obligations. It may require expenditure, but perhaps to a lesser extent than best endeavours. It’s unlikely that such a clause would require the person under the obligation to sacrifice their own commercial interests.
Reasonable Endeavours
Generally speaking, reasonable endeavours are less of a burden. One way this has been assessed over time is by balancing the weight of the contractual obligation against relevant commercial considerations. This might include the party’s reputation or the cost of fulfilling the obligation.
As with above, the party under the obligation isn’t likely to be required to sacrifice their own commercial interests.
Health warning
As we are seeing with the AstraZeneca / EU contract, endeavours clauses can be a tricky area. They are, without doubt, extremely fact- and context sensitive. Whilst we have offered some general guidance above, you should always take advice in relation to any specific matter.