What does using Best Endeavours or Reasonable Endeavours mean?

We aim to deliver Just, Redemptive Outcomes®

The High Court of Australia recently shed some light on the extent of a party‘s obligations to use best endeavours or reasonable endeavours in Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7.

Contracts

These types of obligations commonly occur in distribution agreements, intellectual property licenses, mining and resources agreements and construction contracts.

High Court’s Observations

The High Court confirmed that arguments usually proceed on the basis that the obligations that flow from the terms “reasonable endeavours” and “best endeavours” are substantially similar.

The High Court’s observations about a party’s obligation to use “reasonable endeavours” and “best endeavours may be summarised as follows.

Not Absolute or Unconditional

Firstly, the obligation to use “reasonable endeavours” or “best endeavours is not absolute or unconditional.

Role of Reasonableness

Secondly, the nature and extent of the obligations will necessarily depend on what is reasonable in the circumstances.  The circumstances that dictate what is reasonable may also include circumstances that affect the relevant party’s own business and as explained by His Honour Mason J in Hospital Products Ltd v United States Surgical Corporation[1984] HCA 64, the qualification of reasonableness is directed at situations where the business interests of the obligor would prevail over the interest of the other contractual party.

Defined in Contract

Thirdly, some contracts contain their own standard of what is reasonable “by some express reference relevant to the business interest of the obligor”.

Conclusion

While the obligations to use “reasonable endeavours” and “best endeavours” in Australia may be substantially the same, the extent of a party’s obligations in this regard is not absolute and will always be tempered with reasonableness and any specific parameters laid down in the contract under consideration.

For more information regarding best endeavours or reasonable endeavours

Please contact our Business Development Team or call us on (07) 3252 0011 to book an appointment with one of our Commercial Lawyers today.