Addisons Contractual Interpretation Series - 'Best Endeavours'

This is one of a series of articles in which we review the judicial interpretation of some words and phrases that are commonly used in contracts. In this article we look at the meaning of the phrase "best endeavours".

Context

The obligation to use "best endeavours", "reasonable endeavours" or "all reasonable endeavours" is often used in contracts where a party's obligation is not absolute. This may be because the objective is not totally within the party's control, the required actions are not known at the time of the agreement, the party is not prepared to make an absolute commitment or definitive measurement of the objective is not possible. For example, in a distribution agreement, the distributor often undertakes to use "best endeavours" or "reasonable endeavours" to promote sales.

So, what does each of "best endeavours", "reasonable endeavours" and "all reasonable endeavours" mean? Do they give rise to meaningful obligations and do they have different meanings?

There is some variance between the English and Australia legal interpretations of these phrases and the distinction between them.

The Australian Position

Australian courts have not identified any substantive distinction between the terms "best endeavours", "reasonable endeavours" and "all reasonable endeavours".

Transfield Pty Ltd v Arlo International Ltd1

The High Court in Transfield considered a "best endeavours" provision in a licence agreement. Under the agreement, Transfield covenanted "to use its best endeavours" to sell Arlo's poles. Transfield subsequently carried out construction work for the NSW Electricity Commission using its own poles rather than Arlo's poles.

One of the issues the High Court had to consider was whether the "best endeavours" obligation meant that Transfield could not use competing poles. Mason J considered that the obligation "prescribed a standard of endeavour which is measured by what is reasonable in the circumstances, having regard to the nature, capacity, qualifications and responsibilities of the licensee viewed in the light of the particular contract". Applied to this context, his Honour held that Transfield was required to use all its efforts and skills towards the selling of Arlo's poles to the extent that it was reasonable to do so in the circumstances, but that there was no adequate basis for importing into this positive obligation a negative implication that Transfield must not use or sell a pole that competed with Arlo's poles.

A...