Reasonable Efforts vs. Best Efforts – Why The Fuss?

Last fall, we featured a blog post that offered a Canadian perspective on the interpretation and use of benchmarking in efforts clauses. Some of the commentary that ensued suggests that Canadian courts were "doomed to incoherence" by distinguishing between best efforts and reasonable efforts.1

Yet this distinction between efforts clauses has existed for some time in Canadian jurisprudence2 and Canadian courts have continued to render coherent decisions with very little difficulty in applying the standards of performance to efforts clauses.3 This leads to the reasonable conclusion that, in fact, there is no crisis and no reason to be overly concerned.

We all agree that in order for parties to understand their contractual obligations, contracts must clearly identify the standard that must be met by the party discharging its duties. Vaguely drafted standards of performance are undoubtedly a source of confusion for the parties and the courts tasked with interpretation. To facilitate this, Canadian case law has established three distinct standards of performance:

a simple covenant, which results in strict liability for breach, regardless of the promisor's reason for non-performance; a best efforts obligation, which relieves the promisor of liability if performance cannot be achieved in light of the particular contract, but the promisor must take, "in good faith, all reasonable steps to achieve the objective, carrying the process to its logical conclusion and leaving no stone unturned"4 – the duty to use best efforts "does not require the party to sacrifice itself totally to the economic interests of the party to whom the duty is owed, but the interests of the other party must predominate;"5 and a commercially reasonable efforts obligation, which allows the promisor to exercise business judgment and consider its own financial interests and does not require the promisor to exhaust all possible means of fulfilling its obligation nor to undertake steps which are expensive or time consuming – it describes the effort that a "reasonable person, committed to achieving the objective, would have undertaken."6 While some of our esteemed blog readers have called the distinction illogical and head-spinning, the structure is commercially sensible and quite tenable. We know of no Canadian case that shares the view that the distinction is incoherent. For example, in Diamond Robinson, the promisor saw no point in pursuing regulatory approvals any further and the...