We all think of ourselves as reasonable. We also want others to think of us as reasonable. Hence, “reasonable efforts” are usually an easy ask when negotiating contracts. If something is a hard-and-fast requirement, changing it to “reasonable efforts” doesn’t seem inherently unreasonable. By the same token, asking the other side to make “reasonable efforts” to do something we want is usually not a heavy lift.
We should, however, proceed with caution on reasonable efforts clauses. The term is highly contextual and often ambiguous. While courts use objective standards, what seems reasonable to one party may not be reasonable to another party. This post breaks down the hidden danger of reasonable efforts clauses. We’ve covered the efforts/endeavours hierarchy before—we’ll use UK spelling throughout, as it reflects the standard usage in that context. This post will specifically get into what makes the middle reasonable efforts—the seeming Goldilocks of efforts standards—so tricky in practice.
1. What courts actually do with “efforts” clauses.
It may be somewhat obvious, but courts first and foremost look at efforts. Did the party try to achieve a particular outcome? If a party can establish that efforts were made, courts will then assess reasonableness against an objective standard—typically what a reasonable person in the same industry and circumstances would have done.
There are a few nuances worth mentioning. First, U.K. courts have a slightly more structured hierarchy. See Rhodia International Holdings v Huntsman. Second, courts’ assessment of reasonableness is situational. Assume a party may claim to have made reasonable efforts to secure regulatory approval, but only made one submission over an 18-month period. A court may conclude that the efforts weren’t reasonable enough. The TL;DR is that courts fill in ambiguity with their own judgment, meaning that you’re essentially delegating drafting to a judge or jury.
2. Why businesses like them.
Businesses like reasonable efforts clauses for a few key reasons:
- Show of progress. As we wrote yesterday, you’re fighting uphill if the other side offers the first draft. One of the easiest ways to show progress, however, is to pepper your redlines with the word “reasonable.” It is low-hanging fruit and shows that you are willing to negotiate. Unless the risk of ambiguity is high, the other side often accepts.
- Compromise. Negotiators hate signing up for hard obligations. Thus, reasonable efforts are often a second-best compromise. If there is a negotiating impasse, meeting in the middle on reasonable efforts creates forward momentum.
- Signaling intent. Reasonable efforts clauses may lack hard obligations. They make up for this in signaling goals and priorities. If a company asks a partner to make reasonable efforts to implement a recycling program, they are signaling an environmental priority.
- Risk allocation. Reasonable efforts clauses are often used to soften obligations where performance depends on third-party factors outside a party’s control (regulatory approval, market conditions, supplier behavior). Reasonable efforts clauses in effect say “we know the ball’s not in your court, but do what you can.”
3. When they create hidden risk.
Reasonable efforts clauses can be extremely ambiguous. While indications of effort are easy enough to ascertain, whether they were reasonable is a different matter. What would a reasonable person do under similar circumstances? What is the standard in a particular industry? Could a party have effected a different outcome?
These are not just theoretical questions. The ambiguity posed by reasonable efforts clauses creates a few tangible risks for contracting parties:
- Evidentiary burden. Proving reasonableness in litigation requires contemporaneous documentation. If a contract is litigated, you could spend considerable money on expert witnesses and document production to indicate that your efforts were—or the other party’s efforts weren’t—reasonable.
- Industry standard problem. What counts as reasonable varies by sector and shifts over time. A reasonable effort to comply with data privacy norms in 2018 may look unreasonable in 2024. What counted as a reasonable response time a decade ago looks sluggish today.
- Effort vs. outcomes. Reasonable efforts clauses say nothing about results. A party can make extensive, well-documented efforts and still fail to deliver without liability. There is often little incentive to go the extra mile—minimal efforts may suffice.
- Asymmetric risk. Reasonable efforts clauses can create an uneven playing field. The party with deeper pockets can often both more easily comply with an efforts clause and prove this if the clause is litigated. They can also more credibly threaten litigation over the other party’s failed efforts.
4. Drafting alternatives
If reasonable efforts clauses aren’t the answer, what is? A few alternatives can work:
- Clear KPIs. Specify what success looks like. These could be hard delivery dates, targets, penalties or response times. For example, you can say “Partner shall respond within 48 hours,” rather than “Partner shall use reasonable efforts to respond without undue delay.”
- Best efforts. Often the next best alternative to a clear requirement. In most jurisdictions, this is a higher standard than reasonable efforts. While this standard can be ambiguous in some jurisdictions, it generally requires a party to do everything in their power to effect a particular outcome.
- Endeavouring toward a defined objective. On the surface, this may seem like reasonable endeavours. The difference is that a goal is clearly specified. Rather than saying “goods should be of reasonable quality,” you can say that the parties “shall endeavour to achieve a failure rate of under 2%.” This is often the sweet spot.
- Qualified reasonable efforts. Sometimes, a particular outcome can’t be guaranteed. In such cases, it makes sense to define the desired outcome and define concrete steps toward achieving that outcome. You can require reasonable efforts toward a defined goal (say, removing all software viruses) with a hard obligation (a monthly code review). For difficult outcomes, qualified reasonable efforts can be the Goldilocks solution.
Reasonable efforts clauses carry many hidden risks. Most insidiously, their seeming reasonableness is precisely what makes them dangerous. Contracting parties assume that they and their business partners will behave reasonably. The word “reasonable” feels like a handshake. In litigation, it can become a question—and an expensive one.
Disclaimer: This blog is for informational purposes only and does not constitute legal advice. Reading or interacting with this content does not create an attorney–client relationship. You should consult a qualified attorney for advice regarding your specific situation. Mehaffy, PLLC disclaims all liability for actions taken or not taken based on this blog.