Best Efforts vs Reasonable Efforts
Contracts require the performance of certain obligations. These obligations can be in the form of mandatory obligations which are referred to as covenants. Covenants are usually drafted with imperative language such as “shall” or “must”. There are also contingent obligations which arise upon certain events occurring. They are usually drafted with “If…then” clauses. There can also be obligations that are based on an objective standard. An example of those types of obligations in a contract would be if the contract stipulated a party to use its “best efforts”, “reasonable efforts” or “commercially reasonable efforts”.
One looking at a contract would not probably put much thought into the implications of the words “best efforts” and “reasonable efforts”. However, at law there is a legally significant difference between these standards.
In general, the case law has established that an obligation to use “best efforts” imposes a higher standard than some of the other common phrases found in contracts such as “reasonable efforts”. The leading case on the interpretation of “best efforts” is Atmospheric Diving Systems Inc. v. International Hard Suits Inc. (1994), 89 B.C.L.R. (2d) 356 (B.C. S.C.) [Atmospheric].
The court summarized the principles relating to “best efforts” as follows:
1. “Best efforts” imposes a higher obligation than a “reasonable effort”.
2. “Best efforts” means taking, in good faith, all reasonable steps to achieve the objective, carrying the process to its logical conclusion and leaving no stone unturned.
3. “Best efforts” includes doing everything known to be usual, necessary and proper for ensuring the success of the endeavour.
4. The meaning of “best efforts” is, however, not boundless. It must be approached in the light of the particular contract, the parties to it and the contract’s overall purpose as reflected in its language.
5. While “best efforts” of the defendant must be subject to such overriding obligations as honesty and fair dealing, it is not necessary for the plaintiff to prove that the defendant acted in bad faith.
6. Evidence of “inevitable failure” is relevant to the issue of causation of damage but not to the issue of liability. The onus to show that the failure is inevitable regardless of whether the defendant made “best efforts” rests on the defendant.
7. Evidence that the defendant, had it acted diligently, could have satisfied the “best efforts” test, is relevant evidence that the defendant did not use its “best efforts”.
“Best efforts” does not require a party to disadvantage themselves economically to the point of bankruptcy but it does require for the interests of the other party to be of high priority.
When a contract requires “reasonable efforts” or “commercially reasonable efforts” something less than “best efforts” is required but more than no effort at all. Generally, the courts have interpreted “reasonable efforts” to mean efforts that are reasonable in the circumstances all things considered.