“Best Efforts” Under Canadian Law: Once More, With Feeling

If you want to do business in the marketplace of ideas, you have to be prepared to repeat yourself, and you should be willing to engage in good-natured debate. So here goes:

I noticed that a recent newsletter issued by the Canadian law firm Fraser Milner Casgrain contains an article on that favorite topic, the meaning of various efforts standards. (Click here for a PDF copy.) The article is by two construction lawyers based in FMC’s Calgary office, Jane Sidnell and Christopher Knight. (I had an agreeable dinner with Jane and others last year while in Calgary. Yo, Jane!)

Because the FMC article offers an analysis that is inconsistent with my writings and what I tell participants in my Canadian seminars, I thought I should reiterate my views on the subject.

The FMC article considers Canadian caselaw construing best efforts, reasonable efforts, and commercially reasonable efforts. The following is from the summary:

Performing an obligation with one’s “best efforts” is likely the most onerous standard of the three discussed in this article. If a party promises “best efforts”, everything that can be done should be done, but not to the point of that party bankrupting itself. Although the “best efforts” qualifier must be set against the context and purpose of the contract in which it is found, the phrase “no stone unturned” exemplifies the “best efforts” standard.

By contrast, “reasonable efforts” implies that what can be done should be done, in the context and purpose of the contract, but without requiring a party to leave “no stone unturned”. “Reasonable efforts” is a less onerous standard than “best efforts”.

In saying that a best efforts obligation is more onerous than a reasonable efforts obligation, the FMC article cites an opinion of the British Columbia Supreme Court, Atmospheric Diving Systems Inc. v. International Hard Suits Inc. (1994), 89 B.C.L.R. (2d) 356 (S.C.). I wrote about that case in this March 2009 blog post.

Atmospheric Diving Systems is best know for the proposition that complying with a best efforts obligation means “leaving no stone unturned.” Canadian lawyers dutifully trot out that phrase, but I’m not sure how it helps—it just replaces one vague standard with another equally vague standard.

But I have a bigger problem with Atmospheric Diving Systems. Here are the first two points of its seven-point digest of the relevant caselaw:

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.

So best efforts imposes a higher obligation than does reasonable efforts. But wait! Best efforts represents … a good-faith standard! No, wait! It’s a … reasonableness standard! So a best efforts obligation represents a more exacting standard than does reasonable efforts, but to comply with that obligation, all that’s required is that you behave reasonably!

So the logic of Atmospheric Diving Systems collapses in upon itself. It brings to mind demolition footage, with grand structures slowly imploding. I don’t care how many courts approvingly cite the case. For my purposes, game over, case closed.

And this comes as no surprise. As I explain in MSCD and in my March 2009 blog post, as a matter of semantics and contract logic, it’s untenable to think that best efforts represents a more exacting standard than does reasonable efforts. That’s why U.S. courts have declined to buy into that notion, even though it seems most practitioners have. And having courts attempt to square the circle by arguing otherwise simply aggravates the confusion. (I have in mind in particular the aggressively wrongheaded English caselaw; see this February 2008 blog post and this March 2007 blog post.)

The FMC newsletter goes on to discuss caselaw regarding reasonable efforts, but that’s a subject I have little interest in. Reasonable means what’s reasonable in the circumstances. Determining whether a given action was reasonable depends so much on the circumstances that it doesn’t do the contract drafter much good to parse the caselaw. (I’ll note in passing that the FMC article quotes a court as saying that reasonable efforts “does not mean ‘every effort'”—a very questionable proposition.) 

As regards commercially reasonable efforts, the FMC article says the following:

Finally, “commercially reasonable efforts” is a standard that has received little judicial consideration and ought to be treated with caution. One possible interpretation is that the market dictates the objective measure of value so as to determine how far the obligation must be taken. However, “commercially reasonable efforts” is ambiguous and ought to be expressly defined if used in contracts.

I suggest that commercially adds nothing, because the circumstances of a business contract are necessary commercial. But there’s always a chance that a court could stoop to magic-wordery and dream up some alternative meaning. Because it’s at best pointless and at worst mischievous, you should drop commercially.

So any attempt to create a coherent distinction between various efforts standards is doomed to failure. I thought it telling that the FMC article says that best efforts is “likely” the most onerous standard. If you take that at face value, which might be unfair, it’s saying that the odds of having someone accept that best efforts represents a more demanding standard than reasonable efforts is greater than 50%. The idea of rolling the dice like that makes me hyperventilate. Contract language is akin to software code, so I don’t want to deal in probabilities. Instead, I’ll employ a given usage only if I’m sure of the meaning that a rational native-English-speaking reader would attribute to it.

That’s why I could never recommend that you use best efforts to make an obligation more demanding than one subject to a reasonable efforts standard, and why I instead recommend that you stick with reasonable efforts.

Postscript: Allow me to repeat something I said in this September 2009 blog post:

The only way to improve any body of knowledge is through the marketplace of ideas. Two commentators differ on a given issue? Have them thrash it out—may the best idea win! It does no good to tiptoe around a competing idea for fear of offending anyone. That’s the spirit behind this and a number of other recent posts. I do my best to be respectful; if I fall short, let me know.