What Does "Best Efforts" Mean?
The term "best efforts" often appears in commercial contracts. For example, a company may agree to use its best efforts to complete a project by a certain date or to accomplish some other goal. Similar terms such as "commercial best efforts" or "reasonable best efforts" also find their way into contracts on a regular basis. However, these terms are rarely defined and the parties to the contract are uncertain as to the precise level of performance required in order to meet the obligation to use best efforts in the event that the particular goal is not achieved..
There is a spectrum of effort that can be applied to any given task, from "none at all" to "every conceivable action under the sun". Assuming that one party to a contract expects the other party to take some action to achieve an objective, the question remains "how much effort should have been expended?" if it turns out that the objective is not achieved or cannot be achieved. When faced with a "best efforts" clause, the courts in Canada have typically concluded that, while best efforts implies a very high level of effort, it is not necessary for a party to take every possible action - to "do or die". Rather, a common approach is for the court to ask: "Was no stone unturned?" in the attempt to meet the objective. It is not usually necessary for a party to spend itself into bankruptcy in an attempt to meet its obligations (unless, of course, it was already close to being insolvent). A party will need to take all reasonable steps to meet the objective, even though that may substantially increase the cost of meeting the contractual obligation.
Although it is not unanimous among reported court decisions, it appears that "commercial best efforts" or "reasonable best efforts" may imply a lesser obligation than "best efforts" and may be limited by the commercial or other circumstances. Courts have approached these terms by asking questions such as "Did the party act in good faith?" or "Did the party make a reasonable effort to see that the contract was fulfilled?" It is difficult, regardless of the expression used in the contract, to be able to define with any precision what efforts are expected of a party to a contract.
In any case, the best approach is to define what the parties intend when there exists the possibility that a party may not be able to achieve its end of the bargain. Simply stating that a party has to use its best efforts is a shortcut that can have serious shortcomings in the event of a contractual dispute later on. Addressing the potential consequences of failure is always a prudent consideration in drafting a contract and defining the level of effort, or excluding steps that need not be taken, in order to meet a contractual obligation can reduce the need for subsequent, and expensive, litigation.
The comments in this article are intended as general information only and are not to be relied on as legal advice or an opinion applicable to your particular situation. For further information, please contact Bruce Farrend at Farrend Law.