Monday, June 06, 2005

Contracts concern rights and obligations and the precise definition and drafting of these rights and obligations should be of paramount importance to the contracting parties. Too often parties to a contract undertake to use their "best endeavours" or their "reasonable endeavours" to fulfill their obligations in terms of a contract without knowing exactly what will be expected of them if called upon to do so. These commonly used terms have not been interpreted by the South African courts and there is no easy way to measure their performance.

A contractual provision containing an absolute obligation or a guarantee, often denoted by the use of the word "shall", remains first prize. Failure by a contracting party to carry out an absolute obligation or guarantee will result in a breach of contract and give rise to the normal remedies for breach of contract such as cancellation or a claim for damages. An undertaking to use one’s best endeavours should not be regarded as the next best thing to an absolute obligation or guarantee as the party seeking to enforce such an obligation will not be allowed to go beyond the realm of the objective test for reasonableness in arguing their case.

In the English case of Sheffield District Railway v Great Central Railway 1911 it was held that best endeavours did not mean "second-best endeavours" and that an obliged party should "broadly speaking, leave no stone unturned" in fulfilling their obligation in terms of the contract. The later English case of IBM United Kingdom Ltd v Rockware Glass Ltd 1980 diluted the earlier interpretation of best endeavours somewhat and held that an obliged party should take "all those steps in their power…which a prudent, determined and reasonable owner, acting in his own interests and desiring to achieve that result would take" to dispense with the obligation.

There is much less English case law on the meaning of reasonable endeavours and again, South African case law is silent on this often used phrase. It can be seen from English case law that an undertaking to use reasonable endeavours is appreciably less onerous than an undertaking to use best endeavours.

A third term that is often used is "all reasonable endeavours" which some lawyers view as an obligation that is midway between best endeavours and reasonable endeavours but it is likely that the addition of the word "all" adds little to the meaning of reasonable endeavours.

Simple and comprehensive definitions of the terms best endeavours and reasonable endeavours have not been handed down by the courts in South Africa. English case law may provide much guidance as to the possible interpretations but the parties to any dispute over the interpretation of these often used terms would have to look at the particular facts and circumstances of the dispute to establish what would satisfy performance of the obligation in question. It is submitted that an obligation to use one’s reasonable endeavours would permit an obliged party to weigh up the commercial considerations and practicalities of performance against the likelihood of success in dispensing with the obligation whereas an obligation to use one’s best endeavours would potentially have to be dispensed with to the commercial disadvantage of the obliged party, if necessary.