“What!,” I hear you say. “More on efforts! You cannot be serious!
Yes, more on efforts, because I’m determined to explore every nook and cranny of the f*cked-up world that is efforts provisions in traditional contract drafting. And today’s topic is the phrase on a best-efforts basis.
A best-efforts offering is a kind of securities offering. Here’s how Practical Law Company defines it:
In a best efforts underwriting, the underwriter agrees only to use its best efforts to sell the securities offered by the issuer or selling securityholders and does not agree to purchase any of those securities itself as principal.
The term best-efforts offering has spawned another phrase used in securities documents, on a best-efforts basis. Here’s an example from something called a “custodian and investment accounting agreement” (emphasis added):
If the Offering is on a best efforts basis, the sale of Securities to the investors in the Offering will be evidenced by a purchase agreement (“Purchase Agreement”) between the Company and such investors in a form reasonably satisfactory to the Company and Wainwright.
I suspect that on a best-efforts basis arose because people thought it would be gauche to say If the offering is a best-efforts offering, as you would have to use the word offering twice.
Inevitably, by a process of cross-contamination on a best-efforts basis has made its way into contracts that have nothing to do with a best-efforts offering. Here’s a sampling from the swirling red tide that is Edgar:
The Consultant shall take reasonable steps to ensure fair treatment for the Company or its Affiliates , and shall, on a best efforts basis, make efforts so that any such transactions that are effected by the Company or its Affiliates are effected on terms which are not materially less favorable to the Company or its Affiliates than if the potential conflict had not existed.
Ultimus represents that it will maintain the confidentiality of information disclosed to its in-house attorneys on a best efforts basis.
The parties agree to work together on a best efforts basis to obtain from the appropriate U.S. governmental authorities, and maintain, such Work Authorization.
What’s objectionable about this broader use of on a best-efforts basis? For one thing, compared with saying use reasonable efforts, it requires that you use an extra word or two. And more generally, Garner’s Modern English Usage notes that use of the word basis “often signals verbosity in adverbial constructions.”
So if you’re using on a best-efforts basis other than in the context of a best-efforts securities offering, smack yourself upside the head.
A few comments:
1/ My pass at better defined term and definition: ‘A “try-to-sell offering” is one in which the underwriter (1) agrees to try to sell the securities offered by the issuer or selling securityholders, but (2) does not agree to buy any such securities as principal’.
2/ This version sidesteps the ‘reasonable efforts’ vs. ‘best efforts’ controversy by going with ‘try’, which seems like a conciser way to say ‘make reasonable efforts’.
3/ In ‘reasonable efforts’, I’ve never understood why the ‘reasonable’ is necessary. It’s implied. No one would construe ‘efforts’ alone to mean ‘reasonable *or unreasonable* efforts’. No one argues for ‘to reasonably try’ over ‘to try’. Why bulk up ‘make efforts’ to ‘make reasonable efforts’?
4/ In that spirit, I would recast the samples this way:
(a) ‘The Consultant shall try to ensure fair treatment for the Company and its Affiliates and shall try to ensure that any such transactions take place on terms not materially less favorable to the Company or its Affiliates than if the potential conflict had not existed’.
(b) ‘Ultimus shall try to maintain the confidentiality of information disclosed to its in-house attorneys’.
(c) ‘The parties shall try together to obtain the Work Authorization from U.S. authorities and to keep it in force’.