Best Efforts And Endeavours—Case Analysis And Practical Guidance Under U.S. And U.K. Law

Contract lawyers around the world spend hours negotiating seemingly slight changes in contract language. Often these slight changes have significant legal consequences. For example, most lawyers representing a promisor will fight hard to remove a best-efforts standard from a contract in favor of the more palatable reasonable-efforts standard.1 The conventional wisdom among contract lawyers is that the best-efforts standard is the most onerous of the efforts standards.2 Some believe that a simple best-efforts clause requires a promisor to do everything in its power to accomplish the obligation, including spending unlimited amounts of money, time, and effort, all to the promisor's detriment. Under United States and United Kingdom case law, this overly burdensome view of the best-efforts standard is unjustified.

Comparing "best" versus "reasonable" seems like a straightforward linguistic analysis. "Reasonable efforts" is a lower standard than "best efforts." In everyday language, "reasonable" does not mean "best." Under contract law, all language should be meaningful, and these standards appear unique. However, this simple understanding seems to break down upon an analysis of U.S. case law and commentaries on the subject of best versus reasonable efforts under U.S. law.3 In fact, many U.S. courts have found no meaningful distinction between the various efforts standards, unless the parties specify otherwise or both standards are used in the same contract.4 Similarly, in a recent U.K. decision interpreting various endeavours standards,5 the High Court stated that "an obligation to use all reasonable endeavours equates with using best endeavours."6 However, that same court confirmed that there is a distinction between best endeavours and reasonable endeavours under U.K. law, although it is unclear what efforts will be required under each of the standards if the parties do not specifically set these out in the contract.

Due to the substantial doubt surrounding whether, and how, courts may attach different consequences to the use of different formulations of obligations to use efforts or endeavours, the draftsman should proceed with caution in this area. A minority of courts at least purport to recognize distinctions based upon the particular language employed, and contract parties may well behave differently under differently articulated standards, regardless of how such standards might be construed by a court. In any event, the specific terminology should be selected carefully and used consistently (except where a distinction is in fact intended), and consideration should be given to defining with specificity or illustrating through examples the scope and nature of the efforts required.

U.S. Case Law

Every obligation in a contract has a judicially implied covenant of good faith and fair dealing. Treatises draw a distinction between best efforts and this implied covenant of good faith. The standard of good faith, according to Farnsworth on Contracts, "is a standard that has honesty and fairness at its core and that is imposed on every party to a contract," while the best-efforts standard "has diligence as its essence and is more exacting than the usual contractual duty of good faith."7 Corbin on Contracts describes the best-efforts standard as "a more rigorous standard than good faith."8

So what is the obligation imposed by the phrase "best efforts"? The leading U.S. case interpreting the obligation is Bloor v. Falstaff Brewing Corp.9 In this case, Falstaff had purchased Ballantine Ale from Bloor and had agreed to pay Bloor a percentage of the profits from sales of Ballantine Ale. Falstaff agreed to use its best efforts to maintain a high sales volume and maximize the payout to Bloor, but when sales slipped, Falstaff did little to stop the slide. Bloor sued and won in both the district court and on appeal in the Second Circuit, but it is the court's wrangling with the term "best efforts" that provides one of the case's more interesting points of law. The Second Circuit, upon examining the term "best efforts" in the contract, declared, "The requirement that a party use its best efforts necessarily does not prevent the party from giving reasonable consideration to its own interests."10 However, the court did impose an obligation on Falstaff to act "in good faith and to the extent of its own total capabilities" or at least perform "as well as the average prudent" comparable performer.11

The question of whether a party used its best efforts is a subjective factual issue, and courts will consider a party's experience, expertise, financial status, and other abilities when determining whether that party exercised its best efforts in a dispute.12 However, as discussed later, the parties may (and should) define in the contract what their expectations are for "best efforts" or include a benchmark against which a party's performance should be measured.13

For years U.S. courts have used the phrases "reasonable efforts" and "best efforts" interchangeably within and between opinions. Where only one of the terms is used, the best-efforts obligation frequently appears indistinguishable from a reasonable-efforts obligation. Some recent cases have gone so far as to equate best efforts and reasonable efforts. The Federal District Court for the Western District of Wisconsin said, "The duty to use best efforts requires [a party] to use reasonable efforts and due diligence."14 The Federal District Court of Kansas examined a recent contract that called for best efforts and said, "Best efforts does not mean perfection and expectations are only justifiable if they are reasonable."15 The Federal District Court for the Southern District of New York has gone a step further, declaring, "New York courts use the term 'reasonable efforts' interchangeably with 'best efforts.' "16 The Federal District Court for the District of New Jersey may have summed up the nondistinction best. In a 1997 case, the defendant wanted the court to apply a best-efforts standard to a breach-of-contract counterclaim, while the plaintiffs sought a reasonable-efforts standard. The...