What does it really mean when a contract requires you to use
"reasonable endeavours" or "best
Many commercial contracts include obligations for the parties to
use "reasonable endeavours" or "best
endeavours". Australian Courts have previously held that there
is no significant difference between these expressions.
However, what is meant by these expressions is subjective. This
means that parties will often have different understandings of what
has been agreed.
The High Court provided some insight into how it interprets
"reasonable endeavours", in a recent case, Woodside
Energy Ltd & Ors v Electricity Generation Corporation t/as
Verve Energy  HCA 7.
The contract here was a long-term agreement requiring several
sellers to provide a maximum daily quantity of gas to the
purchaser. The contract required the sellers to use
"reasonable endeavours" to make an additional maximum
daily amount of gas available to the purchaser, at a set price. It
also said the sellers could take into account all "relevant
commercial, economic and operational matters" when considering
whether they were able to supply the additional maximum daily
amount of gas to the purchaser.
After a reduction in supply of gas to the market, prices
increased and the sellers decided they were unable to supply the
purchaser with the additional maximum daily amount of gas at the
contract price. Instead they offered it at the market price, which
was higher than the contract price.
The Court decided that the sellers were within their rights to
decline to supply the additional maximum daily amount of gas at the
contract price, given the contract's stipulation that they
could take into account "relevant commercial, economic and
The decision provides useful guidelines on the meaning of
"reasonable endeavours" when the language of the contract
qualifies the obligation.
The obligation to use reasonable endeavours is not an absolute
or unconditional obligation.
The nature and extent of the obligation is qualified by what is
reasonable in the circumstances, which can include circumstances
affecting a party's own interests.
Contracts containing this kind of obligation can contain and
define their own standard of reasonableness.
The High Court said that it will interpret the terms of a
commercial contract according to what "a reasonable
businessperson would have understood those terms to mean."
This involves considering:
the language used by the parties
the circumstances known to the parties
the commercial purpose of the contract.
The case demonstrates the uncertainty caused by using subjective
language such as "reasonable endeavours" or "best
endeavours" and by qualifying the performance of the
obligation with more general language. It is preferable to avoid
general language when drafting a contract.
Nevertheless, "reasonable endeavours" and "best
endeavours" clauses are included in many agreements. They are
commonly used to resolve deadlocks in negotiations between a party
seeking a desired outcome in a particular future eventuality and
the performing party who does not want to be under a binding
obligation to achieve that outcome.
If a contract must include a "reasonable endeavours"
or "best endeavours" obligation, we encourage negotiators
to qualify it with specific and
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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We discuss whether certain clauses commonly found in ordinary commercial contracts could be considered to be penalties.
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