20 FEBRUARY 2013
The obligation to use “reasonable endeavours” to achieve a contractual objective is often used in contracts where the objective is not within the absolute control of the party or the steps and costs required to achieve the objective are not clear at the time of entering the contract. While this obligation may be viewed as a so-called “soft obligation”, it is important that businesses understand the steps required to be taken to comply with this type of obligation as not achieving the contractual objective may in certain circumstances result in breaching the contract and exposure to a claim for damages.
There are a number of common variations in the wording of this type of obligation including “best endeavours” and “all reasonable endeavours”, but the current position of the Courts is that there is generally no practical difference between them. The general principle is that the party must do what is reasonable in the circumstances, having regard to the nature, capacity, qualifications and responsibilities of the party.
In a recent decision, the New South Wales Court of Appeal found that a Vendor was in breach of this type of obligation for failure to register a plan of subdivision where the Vendor was invited by the Council to seek changes to a development condition, the Council had previously demonstrated a willingness to consider changes and the Vendor did not apply for the necessary changes to achieve the contractual objective.
What is reasonable in the circumstances is likely to vary in individual cases. To reduce uncertainty about what is required to comply, it may be appropriate to outline your expectations upfront in the contract. For example, you may agree that the party under the obligation is not required to spend more than a certain amount to achieve the object of the obligation.
If you require advice in relation to your obligations under these types of clauses in specific agreements, we would be pleased to assist you.
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[contactsbox] [leftcolumn]Contact Partner: Francesca Petroccitto
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