Confused by best endeavours/reasonable endeavours/best efforts/good faith efforts/commercially reasonable efforts standards in your software licensing transaction?
In software licence transactions, licensees often seek to impose an obligation on the licensor to exercise its “best endeavours” or “reasonable endeavours” in performing the licensor’s obligations under the relevant agreement. “Best endeavours” and “reasonable endeavours” are predominantly found in Australian and UK agreements. Yet in transactions negotiated with a party in the United States, “endeavours and efforts clauses” may frequently be found pressed by a party seeking to negotiate the exercise of “good faith efforts”, “best efforts” and “commercially reasoanable efforts” clauses.
What really is the difference between all of this confusing jargon? Well it depends on where you are and who you ask.
In the US, unlike “good faith”, which has sometimes been found to impose an obligation to deal fairly with another party, “best efforts” has sometimes been interpreted as requiring the performance of a party’s obligations to a specific standard. US contracts sometimes also require the performance of “commercially reasonable efforts”, but like “good faith” and “best efforts”, these too can be ambiguous unless properly defined. For instance, the meaning of “best efforts” has been recognised by a number of US courts as ambiguous.
Most Australian software licensors entering into transactions with Australian licensees will not come across the US jargon when negotiating the performance of a party’s obligations to a particular standard. More often than not, an Australian agreement will require “best endeavours” or “reasonable endeavours”.
In Australia, the use of the terms “best endeavours” and “reasonable endeavours” are often used to identify a standard of obligation that the parties performing the contract owe one another. In English law, the UK courts place different interpretations on the meanings of “best endeavours” and “reasonable endeavours”. But in Australia, “best endeavours” and “reasonable endeavours” have been held in some cases to generally impose the same or a very similar standard.
It is important not to gloss over drafting which includes references to “best endeavours”, “reasonable endeavours”, “best efforts”, “commercially reasonable efforts” and other similar wording. Using one set of wording instead of another can make a significant difference to the amount of effort you are required to put into the performance of your obligations under a software licensing or services transaction with your customer. And remember, sometimes the courts will make up their own mind as to what they consider is fair and equitable in terms of a party’s performance requirements.
A better way of overcoming the ambiguities and uncertainties around a party’s requirement to perform under a software transaction is to use objective criteria to benchmark the performance of the party’s obligations.
Disclaimer: This blog is for general informational purposes only. It is not legal advice nor is it a substitute for legal advice. Readers should seek legal advice on their own particular circumstances. Alan Arnott is a technology & telecommunications lawyer with qualifications in computer science and law with Arnotts Lawyers Jones Bay Wharf in Sydney. For more information, please visit www.arnotts.net.au.