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Businesses that agree to carry out their contractual obligations using “best efforts” may wonder what standard that phrase imposes on them.  The words have a lengthy judicial history, and the issue recently arose again in the Superior Court of Justice decision of 2271047 Ontario Ltd. v. Window City Industries Inc.

In 2010, Window City Industries Inc. (“Window City”) sued a numbered company (“Ontario Choice”) as well as three individual defendants.  The claim concerned $216,339.15, allegedly owing to Window City for windows and doors that had been ordered from them.  Window City obtained a default judgment against Ontario Choice and two individual defendants.  

Parties Entered Into Minutes of Settlement That Included An Obligation to “Undertake Best Efforts”

During the trial, the third individual defendant, Ginzburg, Window City, and Ginzburg, entered into Minutes of Settlement.  Under those Minutes, it was agreed, among other things, that Ginzburg would pay $75,000 to Window City in exchange for a release.  Further, Window City agreed it would “undertake best efforts in its collection efforts” against the other defendants.  Ginzburg would also be entitled to 1/3 of the collection proceeds up to a maximum of $75,000 after payment of legal fees and related amounts.

The following month, revised Minutes of Settlement were signed, indicating that Window City threatened to add 2271047 Ontario Ltd. (the plaintiff in this case) to the proceeding.  The Revised Minutes further stated that 2271047 was to pay the $75,000, and Ginzburg was permitted to direct how his share of the collection proceeds would be distributed.  A mutual release was also signed at the time.

Defendant Paused Collection Efforts Based Assessment of Limited Information Possession

Following this, Ginzburg’s lawyer provided information about the possible assets of the two defendants.  Window City advised Ginzburg’s lawyer that it had undertaken real estate searches and that its lawyer had spoken with one of the individual defendants, who had “agreed to be served with a notice of examination.” In 2018, the CEO of Window City advised that it had been “unable to locate any assets or verified sources of income” for one of the individual defendants and that the other, likewise having no assets or verified sources of income, had filed for bankruptcy.  The CEO further indicated that Window City would not be continuing its collection efforts “until additional assets/income information became available.”

Plaintiff Sued and Argued That the Defendant Had Breached Its Obligation to Undertake Collection Using “Best Efforts”

In 2019, 2271047 sued Window City, claiming damages for breach of the Revised Minutes of Settlement of $75,000.  Among other things, 2271047 alleged that Window City had “failed to undertake best efforts in the collection efforts,” specifically by failing to seek to set aside the stay in bankruptcy against the bankrupt defendant and by failing to undertake examinations in aid of execution against the individual defendants.

The decision in 2271047 was issued in relation to a motion for summary judgment brought by that company.  As such, the primary issue before the Court was whether a genuine issue required trial or could be resolved entirely based on the documentary record.

The Court focused on whether the defendant, Window City, had met its obligation under the Revised Minutes of Settlement to “undertake best efforts in its collection efforts.”  To that end, the Court reviewed the law as it had developed in relation to that phrase.

Party Commits To Using “Best Efforts” Must “Leave No Reasonable Stone Unturned”

The Court cited an earlier Ontario decision in Eastwalsh Homes Ltd. v. Anatal Developments Ltd. in which the judge had said that the phrase “best efforts” required “the requisite party to leave no reasonable stone unturned to discharge its duty.”  In that case, the judge further clarified that the duty to make best efforts does not require a 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.”

The Court in 2271047 also referenced a decision of the British Columbia Supreme Court in Atmospheric Diving Systems Inc. v. International Hard Suits Inc., in which that Court set out the various principles respecting the phrase “best efforts” that could be gleaned from the case law.  These principles include the following:

  1. “Best efforts” requires more than merely a “reasonable effort;”
  2. “Best efforts” requires “taking, in good faith, all reasonable steps to achieve the objective, carrying the process to its logical conclusion and leaving no stone unturned;” and
  3. “Best efforts” is not a limitless obligation and must be understood in the context of the contract in issue, “the parties to it,” and the overall objectives of the contract.

The phrase “best efforts” also included “doing everything known to be usual, necessary and proper for ensuring the endeavour’s success.”  As confirmed in prior case law, the phrase does not denote a standard of perfection (see Sanctuary et al. v. Toronto (City) et al.).

A plaintiff that alleges a party has breached a “best efforts” obligation need not prove the defendant acted in bad faith.

Court Dismisses the Motion for Summary Judgment

In applying these principles to the facts, the Court noted that the costs of pursuing collection were “properly considered in assessing the nature of Window City’s efforts.”  The Court found it was reasonable for the defendant to wait until the individual defendants had assets in their possession before continuing to pursue collection and further found it to be “unlikely” that conducting examinations in aid of execution would have disclosed additional “meaningful information.”

The Court observed that it was unclear whether Ginzburg had met his obligation to provide “good faith” assistance in the enforcement efforts, which was “relevant to an assessment of whether any relief should be granted.”  In addition, there was a live issue as to the effect, if any, of the term of the Minutes of Settlement and release that precluded claims by 2271047 “other than for an accounting.”

In light of this, the Court ultimately dismissed the motion for summary judgment.

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