"Best Efforts" v "Commercially Reasonable Efforts"

by Corrine Fiesel

The term “best efforts” is widely used in contracts, including the areas of corporate/commercial, finance, real estate, employment, and construction law. A body of case law has developed around “best efforts” in recent years and depending upon your client’s position in the business deal – that is, whether they are receiving the promise or giving the promise to use best efforts – you may wish to consider some of the more onerous implications of this term.

In 1994, the Supreme Court of BC in Atmospheric Diving Systems Inc. v. International Hard Suits Inc. (89 B.C.L.R. (2d) 356) considered the meaning of the term “best efforts” in English and Canadian jurisprudence. Summarizing the principles from several cases, Justice Dorgan stated that: “’Best efforts’ imposes a higher obligation than a ‘reasonable effort’; ‘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; ‘Best efforts’ includes doing everything known to be usual, necessary and proper for ensuring the success of the endeavour... “ Moreover, the court concluded that where the parties include a “best efforts” contract clause, they must intend that more than “reasonable efforts” be used.

The notion of “leaving no stone unturned” is a most onerous one and should give any lawyer representing a client in a contract on a “best efforts” basis a moment of sober second thought. An alternative term appearing in contracts is “commercially reasonable efforts.”

The concept of commercial reasonableness has had a history in American jurisprudence and is conceivably an adjunct of the common-law concept that U.S. courts have implied into contracts generally – an obligation of “good faith and fair dealing.” No similar common-law obligation has been applied in Canadian jurisprudence. However, in the personal property securities legislation of BC, Alberta and Saskatchewan, rights and duties are to be performed both in “good faith” and a “commercially reasonable” manner. McLaren in Commercial Transactions (Toronto: Carswell, 1989) suggests that “commercially reasonable” establishes an objective standard established by business practices.

The concept of commercial reasonableness can be best described as the actions of the reasonably prudent business person in similar circumstances. It is both an objective and pragmatic standard of conduct, conditioned by the established practices of the business community. The concept is not fixed and rigid but rather is shaped by changing circumstances.

An American case Mallicoat v. Volunteer Finance ((1966) 3 U.C.C. reporting service 1035 (Tennessee C.A.)) described the standard of commercial reasonableness in a case where property was disposed of as, “… the requirement … that the disposition shall be made in keeping with prevailing trade practices among reputable and responsible business and commercial enterprises engaged in the same or a similar business.” For the most part, discussion regarding the meaning of the words "commercially reasonable" or a test for this concept is lacking in Canadian jurisprudence.

In drafting contracts, lawyers should put their mind to the standard by which the performance of the contractual obligations should be judged. In some cases, where good faith and the intention of the parties are vitally important – such as contracts for personal services – "best efforts" may be the more desired standard. In commercial transactions, however, the parties may prefer to agree to a standard of commercial reasonableness in accordance with the practices of their particular industry. Canadian lawyers should exercise caution, however, recognising that the standard of commercial reasonableness is still open to judicial interpretation.

Corrine Fiesel is an associate lawyer at Miller Thomson LLP and a member of the CBABC Solicitors' Issues Committee.

This article was published in the April 2002 issue of BarTalk. © 2002 The Canadian Bar Association. All rights reserved.