by Darrell Gold

“Reasonable Efforts”, “Commercially Reasonable Efforts”, “Best Efforts” – Choose Your Words Wisely 

Typically, commercial agreements include conditions that must be satisfied for a binding un-conditional agreement to arise. Those conditions tend to contain expressions requiring a party to expend “reasonable efforts”, “commercially reasonable efforts”, “best efforts” etc. in attempting to satisfy the condition. The intent of adding an “efforts” standard is to clarify the parties’ expectations as to what a party needs to do in attempting to satisfy a condition under an agreement, before that party is in a position to then terminate the agreement if the condition was not satisfied.

“Reasonable efforts”, “commercially reasonable efforts”, “best efforts” and similar phrases differ in terms of what is required of the party with the performing duty. The law in Ontario provides as follows:

Minimum Standard –The minimum standard is to act reasonably in carrying out rights and obligations. It is an objective test that assesses what other reasonable persons would have done in the same circumstances.

“Reasonable Efforts” – Means: “using sound judgment – exercising a logical, fair and sensible view”. An objective test that assesses what other reasonable persons would have done in the same circumstances. It does not mean “every effort”

“Commercially Reasonable Efforts” – What is reasonable or not, is dependant upon the commercial realities in the situation in question which may also include a subjective element. It seems to me that “commercially reasonable efforts” is a qualified “reasonable efforts” and thus less onerous.

“Best Efforts” – “Best efforts” imposes a higher level of obligation than “reasonable efforts” or “commercially reasonable efforts”. It means taking in good faith, all reasonable steps to achieve the objective, carrying the process to its logical conclusion and “ There is conflicting case law on whether or not “best efforts” means you need to sacrifice your own economic interests in carrying out your obligations.

The Lessons:  When drafting agreements give careful consideration as to what the expectations are for the efforts to be expended in order to try and satisfy a condition, and be wary of the obligation to use “best efforts”. If you don’t choose any standard, you run the risk on the courts implying one and that can include the “best efforts” standard.

Disclaimer: This article is for general information purposes only and not intended as or to be relied upon for legal advice. Consult with a lawyer for your unique situation.