Posted on May 24, 2012 by Megan Hawley
Best reasonable endeavours
On 4 May 2012 the Court of Appeal delivered judgment in the case of Foster v Hall  NSWCA 122.
The central issue was the interpretation of a clause in a contract for sale of land, which required the vendor to use its ‘best reasonable endeavours’ to register a proposed plan of subdivision within 12 months.
The Court stated that ‘best reasonable endeavours’ imposed a higher standard than ‘reasonable endeavours’. However, the Court did not consider there to be a material difference between ‘best reasonable endeavours’ and ‘best endeavours’.
The Court affirmed previous case law interpreting the phrase ‘best endeavours’, to the effect that such an obligation ‘does not require the person …to go beyond the bounds of reason; he is required to do all he reasonably can in the circumstances to achieve the contractual object, but no more’. (Hospital Products Ltd v United States Surgical Corporation  HCA 64)
The Court also considered that a party subject to the obligation is bound to take ‘steps which a prudent, determined and reasonable [party], acting in his own interests and desiring to achieve [the results specified in the contract] would take.’
In this case, the plan of subdivision could not be registered, due to the inability of the vendor to satisfy a condition of development consent which needed to be satisfied before the plan could be registered. The purchaser argued that the vendor was required to seek to have the condition of consent modified in order to remove the impediment to registration of the plan.
The Court found that ‘best reasonable endeavours does not always require a party to seek amendment of a development consent where the relevant contract is directly or indirectly conditional on compliance with the consent and there is a problem with compliance…whether failure to seek amendment represents a breach of the obligation to use “best endeavours” will depend on the circumstances of the case.’
In this case, the Court found that, on the evidence, there were good prospects that the condition of consent could be modified, and concluded that ‘best reasonable endeavours’ in the circumstances required the vendors to seek a modification of the consent.
The scope of an obligation to use best or reasonable endeavours will always depend on the circumstances, and may not be known by parties at the time of entry into the contract.
There is nothing to prevent the parties to a contract including a definition of ‘best endeavours’ in the contract to attempt to define the scope of the obligation.
Also, if there are known potential impediments to an obligation being met, the prudent approach is to specify in the contract, what needs to be done in respect of such impediments. For example, if a party is to use best endeavours to obtain development consent for a project, does that party need to appeal to the Land & Environment Court against a refusal of consent? If conditions may impede an obligation being met (such as in this case), do modification applications need to be lodged?
The additional time taken to negotiate these matters when the contract is being drafted has the potential to avoid expensive litigation at a later date.