EU LEGAL ACTION AGAINST ASTRAZENECA

Commercial agreements typically specify specific standards in describing the degree of effort that a party is expected to undertake in order to carry out certain contractual obligations. For example, in many contracts, reference is made to one or the other party to the contract undertaking its "best efforts," "reasonable efforts" or "commercially reasonable efforts." Often, much time and attention is devoted to negotiating which of these standards will apply. Nevertheless, ambiguities remain as to the precise meaning of each of such standards. These standards are inconsistently interpreted by courts and are often subjectively applied. That said, practitioners generally understand that "best efforts" is considered the highest of these standards requiring a party to undertake every action, short of bankruptcy, to accomplish the stated objective. On the other hand, "reasonable efforts" is perceived to be a less stringent standard, allowing a party to use its discretion "within its good faith business judgment" to fulfill a particular contractual obligation. "Commercially reasonable efforts" is generally interpreted as requiring a party to undertake some conscious effort to accomplish the agreed-upon goal; however, the standard is understood to limit the amount of effort a party is required to expend.

"Best Efforts" Standard

Case law interpreting the "best efforts" standard is somewhat inconsistent, with some courts using "best efforts" and "reasonable efforts" interchangeably, thereby blurring the distinction between these two standards. In practice, the question of whether a party used its "best efforts" is a factual one. Generally, "best efforts" requires, at the very least, a good faith effort to be undertaken by a party in light of its capabilities, including its sophistication, expertise and financial position. However, like "reasonable efforts" and "commercially reasonable efforts," a party may consider its own interests when selecting a course of action to achieve a contractual obligation. Further, similar to "commercially reasonable efforts," courts have used external benchmarks, such as promises made by the party during negotiations, industry practice and other criteria, in order to assess whether a party has complied with a "best efforts" standard.

Some courts have held that the "best efforts" standard imposes a duty on a party to act in good faith in light of its own capabilities.As an alternative to the good faith standard, other courts have used a "reasonable efforts" standard to measure whether a party has used its "best efforts," thereby equating the standards. In contrast, some courts have used objective criteria to measure whether a party has used its best efforts where the meaning of the term "best efforts" was ambiguous and the contract did not specify a set of criteria by reference to which the parties' efforts would be measured. Previously, courts required parties to include a clear set of guidelines in the contract that the court could use to determine whether a party had used "best efforts." This requirement became unworkable as the phrase appeared so frequently in contractual disputes that courts were hesitant to invalidate them even in the absence of a clear set of expressed guidelines.

New York law for example does not require that "best efforts" criteria be defined in the contract if objective external standards provide the court with a reasonable degree of certainty regarding the meaning of the phrase under the circumstances.

"Reasonable Efforts" Standard

While practitioners have understood "reasonable efforts" to be an "indisputably less stringent" standard than "best efforts," courts have been inconsistent in defining the types of conduct that constitute "reasonable efforts" without using an objective commercial standard. For a plaintiff to show that the defendant failed to use reasonable efforts, the plaintiff "must demonstrate that [the defendant's] actions were inconsistent with good faith business judgments." In most cases, judges tend to assess whether a party has exercised "reasonable effort" as a question of fact and place the burden of proof on the party seeking to enforce the requirement. In assessing whether a party undertook "reasonable efforts," courts have considered such factors as whether the promising party used the level of effort that a reasonable entity would have used, the economic feasibility and profitability of a particular course of action and a party's financial resources and business acumen.

"Commercially Reasonable Efforts" Standard

While the "commercially reasonable efforts" standard has received limited interpretation, courts have suggested that the standard at the very least requires "some conscious exertion to accomplish the agreed goal, but something less than a degree of efforts that jeopardize one's business interests." While parties are not required to "jeopardize" their business interests, some courts have refused to excuse parties' performance even when completing the obligation would put the business at risk of significant financial harm. Additionally, by agreeing to use "commercially reasonable efforts" as the standard, the contracting party "binds itself to do those things objectively reasonable" to achieve the desired outcome. Finally, when "commercially reasonable efforts" is not defined in the contract, the party seeking to enforce the efforts clause must establish the standard that the breaching party's efforts are to be measured against, in the context of the particular industry. 

Considerations

• Were the expectations of the EU and Astrazeneca reflected in the contract itself as the courts will first look to the language of the contract in order to determine the parties' intent and expectations regarding the meaning of the ‘best reasonable efforts standard’?
• Did the EU and AstraZeneca specify the level of efforts that they expected by specifying examples of actions they are obligated to take in order to achieve desired outcomes and outline timetables for such actions in the agreement or in development plans ?
• Were the ‘best reasonable efforts’ clearly articulated in the agreement. courts of such clauses ?
• Were they any promises or assumptions made in connection with the negotiation of  the ‘best reasonable efforts clause’ as a court may consider such promises and assumptions as evidence of objective criteria when asked to determine the meaning of ‘best reasonable efforts?
• Was an objective industry benchmark used to measure performance under the agreement, and was this benchmark set forth or referenced in the agreement?