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Are you relying on best endeavours clauses?

Corporate and Commercial / 29 January 2021

The rolling out of AstraZeneca’s COVID-19 vaccine continues to suggest a way out of Britain’s national lockdown. However, the manufacture and distribution of the vaccine is being stretched, and the manufacturer faces constant pressure and criticism as the EU escalates the row about the broken promises made for the supply of vaccines to it.

The EU, which is now encouraging AstraZeneca to publish the advance purchase agreement that it signed with the bloc concerning the supply of the vaccination, was based on a “best-effort clause” (otherwise known as a best endeavours clause) and contained no specific delivery dates.

Since signing that contract, AstraZeneca has advised the EU that it is cutting its supplies of the vaccination in the first quarter due to issues with the vaccine production in its Belgian factory.

This issue has shone a spotlight on the frequently overused but misunderstood concept of “best endeavours”.

It is worth noting that the EU official has commented that “Best effort is a completely standard clause when you are signing a contract with a company for a product that does not yet exist”. “Obviously you cannot put a completely legal obligation” under these conditions. The EU official also said that the best effort meant that the company had to show an “overall” effort to develop and deliver vaccines. This statement still leaves the interpretation of “best endeavours” wide open.

An obvious way to avoid these types of misunderstandings and disputes is to be clear and concise in the wording of the contract. Where possible, parties should specify exact figures, dates and other details which would mitigate ambiguity or unrealistic expectations of any of the parties to the contract.

However, as with the particulars of the case in hand, the subject of the contract is not always certain. In such circumstances, a party can only try to achieve the fulfilment of an obligation.

The manufacturing company will not want to commit itself to onerous obligations which expose it to falling foul of its contractual obligations, whilst the customer party will want to include maximum certainty and oblige the manufacture and distributor to do all that it reasonably can to manufacture and deliver the products as soon as is practicable. Parties will typically introduce endeavour clauses to address this, but these inevitably present uncertainties within the agreement.

To understand the meaning of a best endeavours clause Courts have regard to general construction rules including assessing the clause at the time the contract is formed by reference to its terms, the other provisions of the contract, the overall purpose of the contract and the surrounding commercial context.

Case law relating to the use of a best endeavour clauses is vast, and the judgements in each case emphasise the different results that such clauses can produce. For example, case law tells us that a commitment by a party to use best endeavours could be interpreted so widely as to oblige a party to act against its own commercial interests, or to enter into litigation or appeal a decision. Such obligations could leave a party exposed to significant costs and losses.

Given their ambiguous nature, it is essential that parties expressly detail what the objective of the endeavours clause is to avoid it failing due to ambiguity, or otherwise resulting in long and expensive litigation around its interpretation.

Another practical solution is for the contract to specifically identify the steps that a party must take to fulfil its obligation, such as how much time and expense should be committed, and any specific actions that are not required to be carried out.

 

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This update is for general purposes and guidance only and does not constitute legal or professional advice. You should seek legal advice before relying on its content. For advice, get in touch with your usual Greenwoods GRM contact or scroll down to complete our enquiry form.

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