“Best efforts” in a contract means what?

Have you ever signed a contract that imposed an obligation on you to make “best efforts” to achieve something (like obtain a landlord’s consent, or a regulatory approval)? This might seem to be an innocuous turn of phrase with a simple, common sense meaning, but as with so many things in contracts, the words “best efforts” have a particular legal meaning, and it’s surprising how many lawyers, not to mention their clients, have only a vague idea what that meaning is.

That’s not to say that the phrase fails to set off alarm bells with lawyers, amongst whom there is much gnashing of teeth as to the different standards that might be set by a requirement for “best efforts”, compared to merely “commercially reasonable” efforts (or confusing hybrids like “commercially reasonable best efforts”, and similar formulations such as “bona fide efforts”). Part of this stems from confusion, and part from some scary-sounding words in pronouncements of the courts over the years. According to the Common Law, this is what “best efforts” means:

  1. “Best efforts” imposes a higher obligation than a “reasonable effort”.

 

  1. “Best efforts” means taking, in good faith, all reasonable steps to achieve the objective, carrying the process to its logical conclusion and leaving no stone unturned.

 

  1. “Best efforts” includes doing everything known to be usual, necessary and proper for ensuring the success of the endeavour.

 

  1. The meaning of “best efforts” is, however, not boundless. It must be approached in the light of the particular contract, the parties to it and the contract’s overall purpose as reflected in its language.

 

  1. While “best efforts” of the defendant must be subject to such overriding obligations as honesty and fair dealing, it is not necessary for the plaintiff to prove that the defendant acted in bad faith.

 

  1. Evidence of “inevitable failure” is relevant to whether a failure to make best efforts actually caused any damage. The onus to show that failure was inevitable regardless of whether the defendant made “best efforts” rests on the defendant.

 

  1. Evidence that the defendant, had it acted diligently, could have satisfied the “best efforts” test is relevant evidence that the defendant did not use its best efforts.

 

It’s a sometimes dim memory of the phrase “leaving no stone unturned” that causes anxiety and drives lawyers to recommend to their clients that they assume only a duty to make “commercially reasonable” (or “reasonable commercial”) efforts. The fear is that turning over every stone amounts to a legal obligation to bankrupt yourself, if that’s what it takes, but does “best efforts” really mean a party has to go to commercially unreasonable lengths to get the thing done? Note paragraph 2 in the list above – “‘Best efforts’ means taking, in good faith, all reasonable steps…”.

This seems to mean that best efforts and reasonable efforts are one and the same, but it’s hard to take comfort in the “reasonable” language in paragraph 2, since, as set out in paragraph 1, the courts state flatly that “best efforts” imposes a higher obligation than “reasonable efforts”; and while that might seem to be contradicted by the notion of “reasonable” steps, note how, in paragraph 3, the law then equates “reasonable” with “no stone unturned” (no reasonable stone, perhaps?).

It’s to avoid the possibly onerous obligation to “leave no stone unturned” that lawyers recommend their clients assume only an obligation to make “reasonable efforts” instead, and even here, there is doubt, since it isn’t clear that “reasonable” means the same thing as “commercially reasonable” – there’s no guidance from the courts to make that clear. In fact, despite lawyers playing around with all sorts of formulations, such as “reasonable best efforts”, we really only have any degree of certainty about two phrases: “best efforts” and “reasonable commercial efforts”.

Here’s what the Ontario courts have said about “reasonable commercial efforts”:

 

Reasonable implies sound judgment, a sensible view, a view that is not absurd. Commercial means having profit or financial gain as opposed to loss as a primary aim or object. These words impose a standard of reasonable commercial efforts, not one of best efforts or bona fide efforts.

So there you have it. “Reasonable commercial efforts” means efforts that are reasonable in view of the overall objective of coming out ahead in the deal, and that’s different from “best”, from “bona fide”, and maybe from just plain “reasonable”, too, if we are to infer that the word “commercially” also influences the analysis (perhaps “reasonable” equates with “possible”, while “commercially reasonable” means “possible plus not too unprofitable”?). It can all seem like arcane hair-splitting, but as long as the courts are going to insist there’s a distinction, however illogical it might seem upon close reading of their reasons, it does seem prudent to prefer “reasonable commercial efforts” for your own obligations, and “best efforts” for the other side, if they can be persuaded. All other variations should be avoided, however similar they may seem from a practical perspective. We just can’t be sure what a court would do with them.