Reasonable efforts: what is the standard?

//Reasonable efforts: what is the standard?

We often get asked what the difference is between “reasonable efforts” and “best efforts“.  Sometimes they are referred to as “reasonable endeavours” or “best endeavours“.  It is often a sticking point in the negotiation of agreements and sometimes causes disputes.  “Best efforts” and “reasonable efforts” are vague and not easy to interpret.  There are also many variants – like “commercially reasonable efforts“.

There is a lot of confusion about the distinction between the meanings of the various “efforts” standards.  “Good faith” is generally required in the performance of every contractual obligation – “best efforts” could represent a greater obligation.  “Best efforts” could mean:

  • spending money disproportionate to the importance of performing the obligation; or
  • a greater effort than “reasonable efforts” in terms of doing what is within the party’s power to accomplish the task regardless of the financial obligations this may entail.

What do the courts say?

Most lawyers believe that “best efforts” is a higher standard than “reasonable efforts” and the most onerous of the “efforts” standards.  But the distinction has not been addressed by the South African courts and in fact in Simon v DCU Holdings (Pty) Ltd and others

[2000] JOL 6269 (T) the court said that the term “best efforts” was “general and imprecise“.  It is not clear how a South African court will interpret these standards or even if there is a distinction.

A possible solution

One way to avoid potential legal problems, difficulties, or disputes with the meaning of these standards is to define the standard in the agreement (specify the sort of efforts to be made) and not leave its interpretation to a third party.  Rather than “best efforts“, “reasonable best efforts” or “commercially reasonable efforts” we prefer the term “reasonable efforts“.  Here is an example:

An example of a definition

“Reasonable Efforts means, with respect to a given goal, the efforts that a reasonable person in the position of the promisor would use so as to achieve that goal as expeditiously as possible, but does not include:

  • incurring any expenses not expressly contemplated by this Agreement including
    1. out-of-pocket costs incurred in gathering information and making filings with any governmental authority
    2. fees and expenses of advisors and consultants
    3. taxes, fees, and penalties charged by any governmental authority
    4. fees and penalties charged by any other person, and
    5. extraordinary employee costs;
  • taking any actions that would, individually or in the aggregate, cause the promisor to incur costs, or suffer any other detriment, out of reasonable proportion to the benefits to the promisor under this Agreement;
  • taking any actions that would, individually or in the aggregate, cause a material adverse change in the promisor;
  • incurring any liabilities;
  • changing the promisor’s business strategy;
  • disposing of any significant assets of the promisor;
  • taking any action that would violate any law or order to which the promisor is subject;
  • taking any action that would imperil the promisor’s existence or solvency; or
  • initiating any litigation or arbitration.”

The exclusions can be deleted depending on whether it is you or the other party making the effort.

By defining the standard, at least there is certainty on what has been agreed and what has to be done.

By |2019-08-20T12:19:08+02:00September 5th, 2012|Categories: Contracts|Tags: , |