Introduction

Commercial contracts governed by English law often include clauses that require parties to exert a certain level of effort to achieve a particular objective. These are commonly referred to as “endeavour clauses.” However, the interpretation and enforceability of such clauses can vary, depending on the specific wording and the legal jurisdiction involved. This article will delve into the nuances of endeavour clauses under English law, explore their purpose and types, and examine their applicability and enforceability in the context of Vietnamese law.

Defining Endeavour Clauses

Endeavour clauses are contractual provisions that express a promise or undertaking on the part of one or both parties to exert effort to fulfill a contractual obligation or achieve a specific outcome. These clauses use terms such as “best endeavours,” “reasonable endeavours,” “all reasonable endeavours,” and variations like “commercially reasonable endeavours” or “commercially reasonable best endeavours.” However, the precise meaning and level of commitment required by these terms are not clearly defined under English statutes or case law.

The Purpose of Endeavour Clauses

The introduction of an endeavour clause is often a compromise approach when it is not possible for the obligor (the party promising to perform) to guarantee a specific result. In such cases, the obligor agrees to use their efforts to achieve the desired objectives, but the failure to do so does not necessarily constitute a breach of contract. This approach provides the obligee (the party receiving the promise) with some level of assurance, while the obligor retains a certain degree of flexibility in how they fulfill their obligations.

Types of Endeavour Clauses

Best Endeavours

“Best endeavours” is considered the highest standard of effort under English law. When a party undertakes to use “best endeavours”, they are generally expected to do everything that a reasonable and prudent person would do in similar circumstances to achieve the desired result. This often requires a party to take all reasonable courses of action, even if it involves considerable expenditure or sacrifice.

Reasonable Endeavours

“Reasonable endeavours” is a less onerous commitment, requiring a party to take steps that are reasonable in the circumstances to fulfill their contractual obligations. This does not obligate a party to sacrifice its own commercial interests and provides more leeway compared to “best endeavours”. The applicable criteria to determine what will constitute “reasonable” will be discussed below. 

All Reasonable Endeavours

The concept of “all reasonable endeavours” serves as an intermediate standard between “reasonable endeavours” and “best endeavours.” This clause requires a party to exhaust all rational and sensible courses of action to achieve the contractual objective, representing a commitment to go beyond minimal efforts without reaching the exhaustive threshold of “best endeavours,” which might require overriding commercial interests or incurring significant expenses. Under certain circumstances, “all reasonable endeavours” may be interpreted to be equivalent to “best endeavours”.

Variations

Variations of endeavour clauses, such as “commercially reasonable endeavours” and “commercially reasonable best endeavours,” have also emerged in commercial contracts. However, the application and interpretation of these terms have proven to be more uncertain than the conventional endeavour clauses, as there is less case law addressing them.

The Reasonableness Test

English law has introduced a “test of reasonableness” that may be applicable to different contexts such as “reasonable costs” for the purpose of a claim for damages, “reasonable notice”, “reasonable bargaining power” in the context of consumer contracts. This test aims to determine whether the steps taken by the promisor (the party making the promise) were reasonable in the circumstances. However, there are no definitive thresholds to determine what would constitute “reasonableness” specifically when interpreting endeavour clauses, and the assessment is often left to the discretion of the courts.

Enforceability of Endeavour Clauses in Vietnam

The concept of endeavours is increasingly used in commercial and investment transactions in Vietnam, although the legal framework surrounding it is less developed than in English law.

Sale of Goods or Services Contracts

Under the Vietnam Law on Commerce 2005, the most relevant law for sale of goods or services contracts, the law explicitly recognizes the obligation to use the highest efforts and capacity by a service provider to fulfill its obligations when such services inherently require standards of highest efforts to be performed. However, there is no concept of “reasonableness” or any applicable test of reasonableness adopted by Vietnamese law. Therefore, the standards of “highest effort” should be interpreted as the service provider being obligated to exhaust all available paths and measures to achieve the desired outcomes, even if it requires sacrificing their own economic interests.

If the parties are incorporated in countries that are signatories to the United Nations Convention on Contracts for the International Sale of Goods (CISG), they may agree to have the contract governed by the provisions of the CISG. In such instances, the CISG provides guidance on the interpretation of “reasonableness” that are substantially similar to those found in English law.

Investment Contracts

Contracts for investment purposes, such as share purchase agreements, share subscription agreements, shareholders’ agreements, and joint venture agreements, are primarily governed by the Vietnam Civil Code 2015 and the Investment Law 2020. These laws do not explicitly recognize the concepts of endeavour clauses or the reasonableness test. As a result, the enforceability of such clauses in the context of such investment agreements in Vietnam may be uncertain, although there is a high likelihood that their validity may not be challenged due to the principle of freedom of contract.

Conclusion

Endeavour clauses play a crucial role in English law-governed contracts by defining the level of effort required to achieve contractual objectives. By understanding the nuances of these clauses and their enforceability in different legal jurisdictions, parties can manage their obligations and risks more effectively, and avoid potential disputes over performance. As the use of endeavour clauses continues to grow in the global business landscape, it is essential for both legal practitioners and commercial entities to stay informed and adapt their contractual strategies accordingly.