Considering the best endeavors in contractual performance

ARTICLES

Considering the best endeavors in contractual performance

A contract is an agreement between two or more parties, commonly in writing, which sets forth terms and conditions of a deal. The significance of a written contract is undeniable, especially for high-value transactions, because it is considered to make a fair and concrete base for the performance for all parties named under the contract. Accordingly, a contract is always supposed to govern acts of parties in as many events that may happen as possible, and contractual wording is also in need of being precise and meaningful. This explains why some companies are willing to pay a significant amount to lawyers for drafting a contract.

However, it is all agreed that executing an agreement, in reality, is sometimes different from expectations of parties at the time they sign it. This is because the occurrence of objective events and changes in the capacity of parties in performing a contract are unable to certainly and completely set out. There are obligations which are quantifiable or of which the results can be explicitly determined so that parties may easily firmly request each other an exact performance. Meanwhile, there are some obligations, especially under force majeure events, of which consequences are barely possible to be measured. Thus, a demand for specific performance with fixed results for such obligations at the time entering into a contract is viewed as unreasonable. In such cases, a party may only require obliged parties to, within the best endeavours, seek solutions for their responsibilities. 

In practice, it is common to see a contract with provisions under which parties make a promise to perform their obligations within the best efforts. To a majority of people, this kind of term has nothing to be considered and negotiated. Perhaps, they do not feel it is necessary to be concerned, or it is just simply that the trust on their partners is strong enough to not be bothered about how best efforts should be assessed. In contrast, some people do take the words “best endeavors” or “best efforts” into serious consideration, especially to those who involve in a considerable value deal as well as highly risky. Even being aware of these words are qualitative, they still want to clarify criteria or scope to deem the performance of other parties under a contract truly reaches to the best efforts in reality.

From the linguistic perspective, the best effort can be understood in the way thatrequires a promisor to do everything in its power to accomplish the obligation, including spending unlimited amounts of money, time, and effort, all to the promisor’s detriment[1]. Yet, applying this way of understanding into legal practice is alike making a death wish. In terms of legal terminology, there is no specific definition or the most exact interpretation of  “best efforts” or “best endeavors”. In fact, it is impractical, if not to say impossible, to frame a defined benchmark to assess the best effort of contractual performance of parties.

It may be agreeable that measuring the best endeavors in contractual performance should be conducted on the ground of objective facts of, for instance, a company at the time its obligations which demand best endeavors occur. Specifically, to accurately measure the level of obligation performance, factors such as finance, human resource, experience and outstanding obligations to other entities are highly suggested to be taken into account. Of note, a company is usually obligated by numerous duties and responsibilities to many parties like State’s authorities (mostly tax agencies), employees, clients and commercial partners. Furthermore, under some circumstances, a company must fulfil its obligations in a priority arrangement prescribed by laws or custom which are widely recognized and implemented.

“Reasonable efforts” or “Best efforts”? 

In addition to the “best efforts”, the term “reasonable efforts” can usually be found in contracts. Linguistically speaking, the word “best” and “reasonable” are apparently different in meaning. As quoted above, the best-effort standard may bear the meaning of doing “everything in its power” and to the extent of allthe promisor’s detriment; while that of reasonable efforts may be interpreted as doing things with rational consideration of acceptable damages. So, basically, those words cannot be changeable in daily using.

In terms of a contract, the implementation of “best efforts” and “reasonable efforts”, however, remains controversial in some different jurisdictions. For years U.S. courts have used the phrases “reasonable efforts” and “best efforts” interchangeably within and between opinions. Where only one of the terms is used, the best-efforts obligation frequently appears indistinguishable from a reasonable-efforts obligation.[2]. In the U.K, approach to the expressions of “best efforts” and “reasonable efforts” has been considerably adapted after years of argument. The standards of best endeavours have been commonly assumed as a far more stringent obligation than that of reasonable endeavours, as the reasonable efforts has been widely considered to require contractual parties to fulfil their obligations with commercial factors taken into account of consideration. Though, it is now accepted that there seems to be very little to distinguish between the best- and reasonable-endeavours standards in the U.K.[3]. Canadian legal practitioners, in contrast, hold a significant differentiation between best efforts and reasonable efforts in their mindset. Justice Dorgan determined that the standard of “best efforts” was an onerous standard exemplified by the phrase “no stone unturned”, albeit within the overall context and purpose of the contract itself, and is more onerous than “reasonable efforts”.[4] Meanwhile, the standard of “reasonable endeavors” is normally viewed to obligate a party to perform its duties in a less burdensome manner. For instance, in Armstrong v. Langley (Township) case, the court’s finding states that Reasonable effort’ do not require … all possible steps … [but rather] reasonable steps. Reasonable efforts does not mean best efforts which import a higher obligation on persons to accomplish the required task.[5]

Conclusion: Considering the issue from the perspective of legal practice in Vietnam 

Generally, in Vietnam, terms which have promises to make the “best efforts” do not usually draw the attention of relevant parties in a contract. In fact, the parties do not commonly negotiate how efforts of a party shall be viewed as the best and, accordingly, obligations required to be done in best endeavors are measured by good faith. 

In Vietnam is there has not been any precedent established to be referred to in case of a contractual dispute regarding the implementation of the “best efforts”. Yet, the parties may constrain the possibility of disputes which may occur in regard to this matter by discussing specific standards of best efforts, or about a course of action which is expected to be performed. Otherwise, if there is no benchmark agreed by parties before the execution of a contract, best- or reasonable-effort standards should be considered on the ground of factual objective events for the sake of rationality and fairness.  

 

If you have any questions or require any additional information, please contact Apolat Legal – An International Law Firm in Viet Nam.

This article is for general information only and is not a substitute for legal advice.

[1] https://www.jonesday.com/en/insights/2007/07/best-efforts-and-endeavourscase-analysis-and-practical-guidance-under-us-and-uk-law

[2] See the first footnote

[3] See the first footnote

[4] https://www.lexology.com/library/detail.aspx?g=6a4c20dc-594d-4756-b710-7a2dc213e8c0

[5] See the fourth footnote.