The NSW Court of Appeal recently considered the meaning of the common contractual term 'all reasonable endeavours' in its decision in Waters Lane and Anor v Sweeney and Ors. This case is significant in its discussion of the difference between 'all reasonable endeavours' and 'best endeavours'.
The Sweeneys (respondents) were the owners of a large rural property near Campbelltown in Sydney, which Waters Lane (appellant) wanted to rezone and develop for residential purposes, including the construction of a retirement village. The parties had entered a Heads of Agreement which included a clause that required Waters Lane to use 'all reasonable endeavours' to satisfy certain conditions by a Sunset Date of 9 March 2006. Waters Lane had the unilateral right to extend the Sunset Date on notice, but never exercised this right.
Waters Lane adopted a 'softly, softly' approach in its dealings with the Council by not actively seeking to obtain the necessary Council approvals. They claimed this was done to protect their investments and to ensure the success of the project, given the political sensitivity of the matter. However, by mid-December 2005 the respondents considered it highly unlikely that Waters Lane would meet the conditions by the Sunset Date and threatened to terminate the agreement on the grounds of 11 related breaches.
Waters Lane brought proceedings in Supreme Court of NSW seeking declarations that they were not in breach and an order to restrain the respondents from terminating the agreement. The court found in favour of the Sweeneys and held that the agreement had been validly terminated.
In dismissing the appeal, the Court of Appeal upheld that Waters Lane's 'softly, softly' approach, which in other circumstances would have been reasonable, was inconsistent with their obligation to use 'all reasonable endeavours' to satisfy the conditions by the Sunset Date.
The court used the test previously applied in the 1984 decision of Hospital Products Ltd v United States Surgical Corps, that 'an obligation to use best endeavours does not require the person who undertakes the obligation to go beyond the bounds of reason; he is required to do all he reasonably can in the circumstances to achieve the contractual object, but no more'. This test was considered applicable, despite the difference in terminology between 'best endeavours' and 'all reasonable endeavours'. This ruling may effectively negate any substantive difference between the expressions 'best endeavours' and 'all reasonable endeavours' but the court made no conclusive statement on the matter.
The impact of this decision is that, at least in NSW, while each case must be considered in the context of its particular facts and circumstances, there may well be little or no difference between the obligation to use 'best endeavours' and 'all reasonable endeavours'.
The obligation on the appellant to use 'all reasonable endeavours' to satisfy the conditions went to the root of the Heads of Agreement, so the respondents' termination of the agreement was valid.
The content of this article is intended to provide a general guide
to the subject matter. Specialist advice should be sought about your
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
We discuss whether certain clauses commonly found in ordinary commercial contracts could be considered to be penalties.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).