Parlee McLaws LLP

Best Efforts, Reasonable Efforts, Commercially Reasonable Efforts, Reasonable Best

Efforts, and Other Crystal Clear Concepts
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The Scale from most onerous to least onerous: Best EffortsÆ Reasonable Best EffortsÆ
Reasonable EffortsÆ Commercially Reasonable Efforts

I. INTRODUCTION

Those who have participated in lease negotiations will undoubtedly have come across the terms
best efforts, reasonable efforts, commercially reasonable efforts, and other “efforts” variants.
These variants are often used to set out significant legal obligations; however, their meaning is
not always fully appreciated. This may result in unrealistic expectations relating to the level of
performance required under a particular “efforts” obligation. While the Canadian jurisprudence
is neither fully developed nor entirely consistent, some general principles can be extracted. This
article will assess the existing Canadian jurisprudence to assist the reader in developing a more
complete understanding of both the meaning of, and the differences among, the various efforts
gradations that are often seen in lease agreements.

II. “BEST EFFORTS” – What does it mean?

A. Judicial Interpretation
As one would expect, our courts have found that best efforts impose a higher level of obligation
on a promissor than either reasonable efforts or reasonable commercial efforts. Subject to some
limitations, as discussed below, the term best efforts has become synonymous with the onerous
standard of “leaving no stone unturned.”

While compliance with the best efforts standard will turn largely on the facts of each case, the
Supreme Court of British Columbia has assisted in elucidating the general meaning of the term
in the case of Atmospheric Diving Systems Inc. v. International Hard Suits Inc.1

The case of Atmospheric Diving Systems involved an action for damages for breach of contract
in relation to the purchase of deep-sea diving suits. In short, the parties had entered into an
agreement whereby the defendant seller was to manufacture and deliver two diving suits to the
plaintiff at a cost of $300,000 per suit. The agreement required that after one year from the date
of delivery of the first suit, the defendant was (at the request of the plaintiff), required to use its
best efforts to re-sell the plaintiff’s suits, on behalf of the plaintiff, at the full purchase price (less
normal wear and tear) to a third party purchaser.

As required under the agreement, after the anniversary of the date of delivery of the first suit to
the plaintiff, at the request of the plaintiff, the defendant proceeded to put forward several offers

1
[1994] B.C.J. No. 493 (B.C.S.C.)

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in order to re-sell the plaintiff’s suits to one of the defendant’s overseas customer. The defendant
also put forward offers to sell its own deep-sea diving suits to the same over-seas customer.

The evidence showed that the defendant’s financial interests were likely to be significantly
impacted if the plaintiff’s suits were sold in lieu of the defendant’s suits, making the defendant
highly motivated to sell its own suits to its over-seas customer. Ultimately, and perhaps
predictably, the plaintiff’s suits were not re-sold by the defendant. The plaintiff claimed that the
defendant failed to live up to its obligation to use its best efforts to re-sell the suits.

The Court found that the offers made by the defendant on behalf of the plaintiff were not, on the
whole, as attractive as the defendant’s offers to sell its own suits to its over seas customer. The
defendant simply proposed perfunctory offers, without consulting with the plaintiff in order to
verify what type of offers would be satisfactory to propose, and without determining the needs of
the prospective customer when making offers on behalf of the plaintiff. In totality, the evidence
indicated that the defendant made only half-hearted efforts to re-sell the plaintiff’s suits and,
accordingly, the Court determined that the defendant fell far short of using its best efforts to re-
sell same.

In canvassing a number of cases interpreting the term best efforts, the Court provided a useful
summary of best efforts as follows:
1. "Best efforts" imposes a higher obligation than a "reasonable effort".

2. "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.

3. "Best efforts" includes doing everything known to be usual, necessary and proper for ensuring the success
of the endeavour.

4. The meaning of "best efforts" is, however, not boundless. It must be approached in the light of the
particular contract, the parties to it and the contract's overall purpose as reflected in its language.

5. While "best efforts" of the defendant must be subject to such overriding obligations as honesty and fair
dealing, it is not necessary for the plaintiff to prove that the defendant acted in bad faith.

6. Evidence of "inevitable failure" is relevant to the issue of causation of damage but not to the issue of
liability. The onus to show that failure was inevitable regardless of whether the defendant made "best
efforts" rests on the defendant.

7. Evidence that the defendant, had it acted diligently, could have satisfied the "best efforts" test, is relevant
evidence that the defendant did not use its best efforts.

The Court also noted that best efforts has also been defined as "the duty to choose, from among
the possible and reasonable courses of action, that one which had the greatest chance of
achieving the contracted result."

From the Atmospheric Diving case, one may appreciate that the obligation to use best efforts
imposes an onerous standard, which may sometimes entail a curtailing of one’s ability to act in
one’s own commercial self-interest. As such, a prudent lease negotiator should be cautious when
considering whether to accept best efforts obligations, and should generally avoid doing so.

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B. Implied Best Efforts

Courts have readily implied “a promise on the part of each party to do all that is necessary to
secure performance of the contract.”2 As such, courts have been inclined to apply best efforts
obligations on parties fulfilling conditions under agreements, even in the absence of express best
efforts language. This is often the case, for example, with respect to conditions requiring the
approval of an independent third party. Thus, where one party is required to obtain financing,3
or obtain building permits,4 the best efforts standard has been “read in” to the condition.5

The lesson here for the careful drafter is to be aware of this when negotiating a lease, and to
ensure that the obligation imposed is what the parties intend and expect. As such, in drafting
conditions, one may wish to expressly state what efforts’ standard the parties will be subject to.

In a more general sense, for both the implied and express efforts’ standards, it would be prudent
to incorporate a clear set of guidelines against which to measure performance of the party under
an efforts obligation. At the same time, a party under an efforts obligation will want to introduce
various express “carve outs” to what actions will be required.

C. Limitations On “Best Efforts”

1. Economic Considerations: While best efforts clearly imposes onerous obligations, in the
case of Atmospheric Diving, the court reiterated the established principle that best efforts is not
boundless and that "it must be approached in light of the particular contract, the parties to it and
the contract's overall purpose." As such, the promissor may not be expected to do everything in
its power to accomplish a given goal, notwithstanding the detriment it may suffer as a result.
The problem here is that there are two ostensibly contradictory lines of cases in this area.

One line of cases suggests that a party subject to a best efforts obligation may give reasonable
consideration to its own economic interests.6 Some cases here have gone as far as to state the
very broad proposition that while best efforts require “first class efforts”, they do not require the
party making them to sacrifice its own economic interest.7

On the other hand, there is a line of case law that suggests that financial disadvantage does not
excuse performance under a best efforts standard. Take, for example, the facts in the
Atmospheric Diving case, as set out above. Recall that in that case, the defendant seller stood to
be adversely affected (economically) if its overseas customer accepted an offer to buy the

2
Ibid.
3
Griffin v. Martens [1988], 27 B.C.L.R. (2d) 152 (BCCA)
4
Thompson v. Sellyn [2000] B.C.J. No. 327 (B.C.S.C.)
5
See Wu et al. v. Gordic 1999 BCCA 754; K.W. Wall & Associates Ltd. v. Labourer’s Pension Plan of British
Columbia [1990] B.C.J. No. 1892 (B.C.S.C.); and Dynamic Transport Ltd. v. O.K Detailing Ltd. [1978] 2 SCR 1072
(note the inconsistent use of the terms “reasonable efforts” and “best efforts” however).
6
Sheffield District Railway Company v. Great Central Railway Company (1911), 27 T.L.R. 451. Best Efforts “does
not mean that the limits of reason must be overstepped with regard to the cost of the services.” In Marleau v.
Savage [2000] OJ No. 2399, 2000 Carswell Ont. 2226 (Ont. SCJ), the defendant was “entitled to consider her own
economic interests.” See also Barg v. Boyd (1992) RPR (2d) 157 (Ont. Gen. Div.) and Aquafinance Inc. v.
Ultramar Canada Inc. [1994] O.J. No 2591 (Ont. Ct. of Justice, Gen Div.).
7
See, for example, Campobello Fisheries Ltd. v. Jackson Bros. Ltd. [1992] NBJ No. 676.

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plaintiff’s diving suits, instead of buying the defendant’s suits. As a result, the defendant goes
through all the motions of putting forward offers to sell the plaintiff’s suits, but the defendant
falls short of putting forward an attractive offer on behalf of the plaintiff, precisely because the
defendant was economically motivated to sell its own diving suits (that is, it would have suffered
a serious financial disadvantage if it did not do so). On the facts of the case, the case,
Atmospheric Diving suggests that unprofitability or financial disadvantage would not excuse
performance under a best efforts standard.

A reasonable middle ground position was articulated by the Federal Court, Trial Division in
C.A.E. Industries Ltd.8, where Collier J. stated: “I qualify that duty as not requiring the party to
sacrifice itself totally to the economic interests of the party to whom the duty is owed, although
the interests of the other party must predominate.” [emphasis mine] This proposition fits nicely
into reconciling what may otherwise be perceived as an inherent inconsistency in the established
case law.

2. Government bodies: Another limitation which we will deal with only briefly in this
article is with respect to the potential dilution of the best efforts standard when dealing with
governmental bodies. In a nut shell, the courts have implied a degree of flexibility in the best
efforts standard imposed on a governmental body’s obligation in order to allow public policy
concerns to supersede.9

II. COMMERCIALLY REASONABLE EFFORTS/REASONABLE COMMERCIAL

EFFORTS

The leading case in respect of the interpretation of reasonable commercial efforts is the case of
364511 Ontario Ltd. v. Darena Holdings Ltd.,10 which ultimately went to the Ontario Court of
Appeal.

The action in this case was by the plaintiff, 364511 Ontario Ltd., who was suing for the return of
its deposit under an offer to lease where the plaintiff offered to lease an arena from the
defendant, for the purpose of operating a bingo hall. The offer was conditional upon the
plaintiff’s ability to obtain the necessary approvals and licenses from the municipality and the
province for the operation of the bingo hall. The agreement required that reasonable commercial
efforts be used to satisfy the condition.

On application to the municipality and the province, it became clear that the local councilor, the
community and certain other parties were strongly opposed to the operation of a bingo hall in the
arena. Indeed, the municipality had already previously decided not to approve additional bingo
halls at that time.
Nevertheless, the plaintiff took steps to make the arena ready for the proposed business,
including obtaining required permits. Ultimately, however, in light of the strong opposition, the

8
.C.A.E. Industries Ltd. v. The Queen [1983] 2 FC 616 (T.D.), as cited in Place Concorde East Ltd. Partnership v.
Shelter Corp. of Canada 16 RPR (4th) 63, 43 BLR (3rd) 54, and in Gateway Realty Ltd. v. Arton Holdings Ltd.
(1991) Carswel lNS 320.
9
In Wentworth Developments Inc. v. Calgary (City) [1998] A.J. No. 252 (Alta. Q.B.)
10
[1998] O.J. No. 603 (Ont. C.J. Gen. Div.), appealed and affirmed in [1999] O.J. No. 1784 (Ont. C.A.)

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plaintiff decided not to bring the application before the municipal council. Instead, the plaintiff
met privately with some of the opponents to the bingo hall, which resulted in the plaintiff
agreeing to find an alternative location for its business.
The defendant refused to return the plaintiff’s deposit on the basis that the plaintiff had not used
reasonable commercial efforts in its attempts to obtain approval. The defendant argued that the
plaintiff ought to have pursued the application until a definitive response was received either
approving or refusing the application.
In the trial decision, Webber J., in finding for the plaintiff, emphasized that reasonable
commercial efforts do not impose a standard of "best efforts", which might require the plaintiff to
take the application through to refusal despite the extremely strong opposition and remote
prospects of success. Instead, reasonable commercial efforts involved making a business
judgment and the particular correctness of the judgment was not relevant to whether the standard
had been met. On the facts of the case, Webber J. held that the plaintiff had made a genuine
effort and did exercise a standard of reasonable commercial efforts to obtain the necessary
approvals and licenses.
On appeal by the defendant to the Ontario Court of Appeal, it was affirmed that there was a
distinction between the term reasonable commercial efforts and the term best efforts. The Court
of Appeal stated that a simple doubt about the success of the application would not be sufficient
under the reasonable commercial efforts standard. However, the Court of Appeal found that in
this case, there was “uncertainty that made it commercially unreasonable to proceed”, and
therefore, the plaintiff had fulfilled its obligation to use reasonable commercial efforts. Thus,
where the approval of the application is very remote and a reasonable business person could see
that pursuing the application would almost certainly be unsuccessful, the party does not have to
take the application through to refusal under the standard of “commercially reasonable efforts”.

Subsequent decisions have likewise indicated that there is no obligation to take the necessary
applications through to refusal under a commercially reasonable efforts standard if to do so
would be commercially irresponsible.11

III. REASONABLE EFFORTS

A. Defining “Reasonable”: In the trial decision of Darena Holdings, Webber J. found that
the term “reasonable” meant using sound judgment - exercising a sensible view. The test of
reasonableness is an objective test that will assess what other reasonable persons would have
done in the same circumstances.12

On the basis of the existing Canadian case law, it is clear that reasonable efforts would be a less
onerous standard than best efforts.13 However, while the existing jurisprudence is less clear about
the differences between “commercially reasonable efforts” and “reasonable efforts”, it is

11
See G.C. Parking Ltd. v. New West Ventures Ltd. [2004] B.C.J. No. 1106.
12
See BEM Enterprises Ltd. v. Campeau (1980) 24 BCLR 244 (SC) at 258; Thompson v. Sellyn (2000) BCSC 283.
13
See, for example, Armstrong v. Langley (Township) [1997] BCJ No. 1531 (BCSC) at 34. See also Atmospheric
Diving, above.

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arguable that the latter standard would not necessarily be qualified or conditioned by established
business and industry practices. As such, “reasonable efforts” may not take into account
commercial practicalities to the same extent as the “commercially reasonable efforts” standard.

B. Implied “Reasonable Efforts”: Just as the best efforts standard can be implied into a
contract, the standard of reasonable efforts may also be implied. It is important that where the
standard of reasonable efforts (or commercially reasonable efforts) is intended, that such
standard is explicitly expressed in the agreement, so as to prevent a court from applying the
higher best effort standard.

IV. REASONABLE BEST EFFORTS and BEST REASONABLE EFFORTS

A. Does this Standard Exist? While this term and its variants do occasionally appear in
the Canadian jurisprudence, the courts have, unfortunately, not addressed whether they would
have reached the same conclusion in the absence of the word “reasonable.” The question is
whether the addition of the word “reasonable” has any semantic impact on the best efforts
obligation. On the one hand, recall that in the case of Atmospheric Diving, the Court stated that
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”[emphasis mine]. Thus,
arguably, best efforts already incorporates an element of “reasonableness” by definition.

On the other hand, there has, for example, been judicial suggestion with respect to applications
for third party approval, that a best efforts obligation on its own, could require the party under
such obligation to take all necessary applications through to refusal despite the remote prospects
of success.14 Arguably, a reasonable best efforts standard in this context could allow such party
to assess the application on an on-going basis and if the prospects of approval are exceptionally
remote, the applicant could use its “sound judgment” to determine at some point in the process,
to stop its efforts.15 From the perspective of a promissor under a best efforts obligation, the
express inclusion of the word “reasonable” certainly cannot hurt, and while arguably
semantically redundant, such an express qualification could be interpreted as evidencing an
intention to attenuate the full force of the otherwise exceptionally onerous best efforts standard.

The difficulty is that there is no clear guidance here. Like all the efforts gradations mentioned in
this article, determining whether a party has made sufficient efforts under a particular efforts
standard will not always be a certain process and will often be fact dependent. To avoid
uncertainty, one may wish to specify expressly what sort of efforts must be made by a party
under an efforts obligation is to make in order to accomplish a particular contractual goal.

14
See Darena Holdings, for example, above.
15
See D.D.W. Lamont in Meaning of the Terms –“Best Efforts”, “Reasonable Best Efforts”, “Reasonable Efforts”,
and “Commercially Reasonable Efforts” in The Six Minute Real Estate Lawyer 2005, p. 607, The Law Society
of Upper Canada.

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V. DRAFTING POINTS: CHOOSING YOUR WORDS CAREFULLY

There is still both uncertainty as well as inconsistency reflected in the case law as to the
differences among, and application of, the various “efforts” standards. As such, the prudent
drafter will address his/her mind to the standard by which the performance of obligations should
be judged. As suggested, it may be useful to set out clear guidelines against which to measure
performance, and (if you are the party under an “efforts” obligation) to introduce carve outs and
exceptions to the applicable “efforts” standard.

Ultimately, the prudent drafter will choose his/her words carefully to ensure that the obligations
imposed are what the parties intend and expect.

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