Choose Your Words Wisely

Typically, commercial agreements include conditions precedent to the agreement (i.e. conditions that must be satisfied for a binding un-conditional agreement to arise). Those conditions tend to contain expressions requiring a party to expend “reasonable  efforts”, “commercially reasonable efforts”, “best efforts” etc. in attempting to satisfy the condition. An example would be a buyer’s proposed property use being conditional on the buyer getting municipal approvals. The intent of adding an “efforts” standard is to clarify the parties’ expectations as to what a party needs to do in attempting to satisfy a condition under an agreement, before that party is in a position to then terminate the agreement if the condition was not satisfied.

The “efforts” phrases are intended to create a standard clarifying or exceeding the minimum otherwise applicable at common law on a party. If the party with the duty cannot show that it used the requisite efforts implied or provided for, then any purported termination may be an anticipatory breach of the agreement leading to a damages claim.

The point to understand is that “reasonable efforts”, “commercially reasonable efforts”, “best efforts” and similar phrases differ in terms of what is required of the party with the performing duty. This has ramifications should that party want to terminate the agreement if it believes it made the efforts but was unable to achieve what it needed to. So, what does the law in Ontario provide regarding efforts to be expended? Below is a summary for some guidance.

Minimum Standard – A party who decides it wants out of a conditional agreement cannot sit-back and do nothing, allow the condition to expire without satisfaction and then successfully terminate the agreement for non-satisfaction, absent express language to the contrary (and who would accept that?). Absent express ”efforts” language in an agreement, our courts have held that the minimum standard is to act reasonably in carrying out rights and obligations. It is an objective test that assesses what other reasonable persons would have done in the same circumstances.

“Reasonable Efforts” – This phrase is often added to conditions in agreements for clarification. Our courts have held that it means: “using sound judgment - exercising a logical, fair and sensible view”. Again, an objective test that assesses what other reasonable persons would have done in the same circumstances. However, “It does not mean “efforts to the point of undue hardship”. It does not mean “every effort”. What it means is efforts that are reasonable in the circumstances all things considered. What is reasonable in the circumstances will, obviously, depend on the facts of particular cases.”

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