Fulfillment of Contractual Terms: Exactly how much effort is required?
3/11/2011

An important term to a commercial contract which is often overlooked is the term relating to the level of effort required from a party in fulfilling its obligations under the contract. While good faith will always be implied in commercial contracts, the issue of whether sufficient “effort” was made by a party to fulfill an obligation arises when such party has failed to fulfill the obligation in question. The question is usually: how much effort was required? “best effort”? “reasonable effort”? “commercially reasonable effort”? “best endeavour”?, etc. Unless the relevant level of effort required is adequately defined in the relevant contract, it is usually difficult, under South African law, to ascertain with certainty what the parties intended.

This matter, while not extensively explored under our South African case law, has been a case law subject in some foreign jurisdictions such as Canadian, US and UK jurisdictions. In Canada for example, the supreme court of British Columbia held, in the case of Atmospheric Diving Systems Inc v International Hard Suits Inc , that there was indeed a difference between “best effort” and “reasonable effort”. “Best effort” was deemed a more onerous requirement than “reasonable effort”. It entails, it was held, taking all reasonable steps to achieve the end objectives; carrying the process to its logical conclusion and leaving no stones unturned. This interpretation incorporates reasonableness into the standard of “best effort”. “Leaving no stones unturned” was initially interpreted as including the possibility of subordinating one’s own commercial interest in order to fulfill the relevant obligation. However, in later Canadian case law, it was established that “best effort” does not include doing everything, thereby prejudicing oneself financially. It instead implies prioritising the interest of the person to whom the obligation is owed. Further, it has been said in Atmospheric Diving, that “best effort” included the duty to choose from multiple possibilities and reasonable courses of action, the action which has the greatest chance of achieving the contracted results. Thus, everything possible that could reasonably have been done must be seen to have been done to achieve the end goal .

“Reasonable effort” on the other hand entails doing what was reasonable under the circumstances. In other words it is subject to the objective test of reasonableness, which includes having to ascertain what the reasonable person in the same position would have done given the same circumstances . It does not require leaving no stone unturned, but perhaps embraces reasonably leaving certain stones unturned. A party is required to make a sound decision which can be construed as reasonable effort to fulfill the obligation. What is reasonable would therefore depend on the facts of each transaction.

There are instances however, where it would seem that “best effort” and “reasonable effort” have been used interchangeably. This is generally the case in the US, where best effort is judged on the basis of what constitutes due diligence and good faith. The distinction between “best effort” and “reasonable effort” is thus viewed as a matter of semantics, as the conduct required is that which is reasonable given the circumstances. Therefore, the standard for “best effort” would not include bankrupting oneself or using a standard that surpasses gain under a particular contract as “best effort” does not include doing everything to achieve the end result. In having regard to this therefore, there is disparity between the perceived differing levels of obligation and what is articulated under the case law in the US .

In respect of US law, there is suggestion from some states that in order to enforce a “best effort” clause it is necessary to state clearly the type of standard or expected conduct required of the party in order to enable the court to ascertain whether indeed “best effort” was made .

UK law on the other hand generally has regard to “best endeavours” and “reasonable endeavours”. While the terms are different, the distinction is minimal in that both forms of efforts have regard to what is reasonable under the circumstances. In the case of “best endeavours”, it appears one is to exhaust all possible reasonable acts to fulfill the condition as is the case under Canadian law. In respect of “reasonable endeavour”, one is to do what is reasonable in the circumstances to achieve the result. In both instances however, there does not appear to be a requirement to sacrifice one’s own commercial interest .

Having regard to the above jurisdictions, “reasonable commercial effort” or “commercially reasonable effort” is the least interrogated standard of effort and thus the most ambiguous. What can be derived however is that “reasonable commercial effort” is on par with “reasonable effort”. This means that in terms of Canadian and UK jurisdictions, the effort is less onerous than ”best effort” or “best endeavours”, but that in terms of US jurisdiction, the effort required may be the same as “best effort”. The point of common convergence however, is that all the above jurisdictions require that regard must be had to commercial notions of reasonableness including accepted business and industry practices. This is to say the standard of effort must be juxtaposed against the commercial practices expected in a particular field . The standard would thus exempt a party from conduct which is seemingly commercially unfeasible.

As a means of curbing ambiguity, it is always best to clarify and define the efforts required in fulfillment of certain obligations. This may also be done by “carve-outs”, that is, setting out the conduct which is excluded from the effort requirement. This would necessarily require of the carve-outs provisions to be specific so as to assist with any ambiguity which arises as a result of the effort provisions . It is therefore fair to suggest that what cures the ambiguity in respect of the standard required to be fulfilled, is for the drafter to define clearly what standard is required to be observed. This will in turn set the benchmark against which the action taken by a party to meet the requirements of the contract may be judged. In this way ascertaining the level of the obligation is not left to the effort term itself but rather to the obligations which are expressly said to attach to such term.

In conclusion therefore, it appears that even where it is accepted that the standard for “best effort” is more onerous than that of “reasonable effort” or “commercially reasonable effort”, a party is not required to compromise its commercial interest to the extent of bankruptcy and/or financial loss which exceeds the gains under the contract. It would also appear that the main difference between the onerous nature of “best effort” in comparison to “reasonable effort”, is that in respect of “best effort”, all reasonable courses of action must have been explored whereas if only “reasonable effort” was required, the party need only pursue one course of action, provided it was a reasonable course under the circumstances, having regard to the facts at hand.