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“Commercially reasonable efforts”: Two Delaware court decisions raise the stakes for contract drafters

Contract drafters often use the term commercially reasonable efforts in lieu of stating more-precise standards of performance.  Two recent Delaware state court opinions suggest that contract drafters might want to specifically define that term, to reduce the risk that their clients will be caught unawares by a far-stronger commitment than they had intended.

In an opinion late last month, the Delaware supreme court defined com­mer­ci­al­ly reasonable efforts as “plac[ing] an affirmative oblig­a­tion on the parties to take all reasonable steps”  to achieve the stated objective.   Williams Cos. v. Energy Transfer Equity, L.P., No. 330 [2016], slip op. at 17-18 (Del. Mar. 23, 2017) (affirming chancery-court decision) (emphasis added).  A dissent by Chief Just­ice Strine opined that commercially reasonable efforts is “a com­par­a­tive­ly strong” commitment, one that is only “slightly more limited” than best efforts. Id., slip op. at 25 & n.45 (citation omitted).

Likewise, in the decision below, the chancery court had all but equated the term commercially reasonable efforts with reasonable best efforts: The lower court held that a party that had made such a commitment had “bound itself to do those things objectively rea­son­able to produce the desired [result].” Williams Cos. v. Energy Transfer Equity, L.P., No. 12168 (Del. Ch. June 24, 2016) (emphasis added).

Business people might well be taken aback by this strict, “all reasonable efforts” standard. My guess is that, if pressed, many business people would rank “efforts” commitments in roughly the following ascending order:

  • Reasonable efforts: One or more reasonable actions reasonably cal­cu­l­a­ted to achieve a stated objective, but with no one ex­pect­ing that all pos­sib­i­l­i­ties will be exhausted.  Colloquially, this could perhaps be phrased as, I’ll give it a rea­son­able shot.  (See the Common Draft definition & annotations.)
  • Commercially reasonable efforts: Those reasonable efforts that rea­son­able business people would expect to be made, but again not necessarily all such efforts. Or, again colloquially:  I’ll  do what professionals would do. (See the Common Draft definition & annotations.)
  • Best efforts: All reasonable efforts — as a Canadian court said, “leaving no stone unturned in seeking to achieve the stated objective.” Atmospheric Diving Systems Inc. v. International Hard Suits Inc., 89 B.C.L.R. (2d) 356 (1994). This is often defined in terms of diligence, or it could be stated in sports terms:  I’ll bring my “A” game. (See the Common Draft definition & annotations.)
  • Hell or high water:  Just get it done, no matter the cost, and whether or not a particular effort would be regarded as un­reas­on­able. See Hexion Spec. Chemicals, Inc. v. Huntsman Corp., 965 A.2d 715, 756 (Del. Ch. 2008). (It’s unclear how this differs from an absolute commitment, as opposed to an “efforts” commitment.)

Let’s consider a hypothetical example. On major U.S. highways, the speed-limit signs often include both maximum and minimum speeds of (say) 70 mph and 45 mph. Those two speeds establish the upper- and lower bounds of reasonableness. Now, suppose that a trucking company were to agree that its driver would use a certain level of effort to drive a shipment of goods from Point A to Point B on such a highway, where drivers must drive between 45 mph and 70 mph. In good weather with light traffic, the following might apply:

35 mph 45 mph 60 mph 65 mph 70 mph
Reasonable efforts? No Yes Yes Yes Yes
Commercially rsnbl. efforts? No No Yes Yes Yes
Best efforts? No No No No Yes

 

Under the Delaware courts’ Williams Cos. holdings, though, it might be argued that the commercially reasonable efforts standard could be met only by driving, say, 68 mph or higher.

These holdings drive home the importance of a maxim that I stress to my stu­dents: W.I.D.D.: When In Doubt, Define.  Drafters who want a less-strict stand­ard than that defined in Williams Cos. can consider the Common Draft definitions linked above.

For additional commentary and citations, see Ken Adams’s post on the Wil­liams Cos. opinion. (Ken holds what I regard as unsound views about “efforts” standards generally.)

EDIT:  In a follow-up post, Ken admits: “There’s support in English caselaw for the distinction [between different “efforts” requirements], but that caselaw is a travesty. … There’s support in Canadian caselaw for the distinction, but it’s unintentionally hilarious.” (Links omitted.)  He also announces that, “You might find my views on efforts dismissed out of hand, without detailed criticism. It was always thus with traditionalists: ignore my methodical arguments and offer instead propositions that are too flimsy to be worth attacking. That’s why in effect I have the field to myself.”  In a com­ment, he says of his effort, “Game over, case closed.”

Comments on this entry are closed.

  • Brian Rogers 2017-04-03, 9:41 pm

    D.C. I haven’t researched the issue extensively, but I suspect that you’d be wise to define the efforts term if you want to require a party to put the interests of the other party before its own.

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