Court of Appeal · Decided 26 February 2014

KS Energy Services Ltd v BR Energy (M) Sdn Bhd

Feedback & support

[2014] SGCA 16Case no. Civil Appeal No 46 of 2013

What happened, in plain English

There is no plain-English summary of this judgment yet.

Ask about this judgment

Grounds of decision

Official text from eLitigation

V K Rajah JA (delivering the judgment of the court):
Introduction
[1] This is an appeal against the decision of the High Court in BR Energy (M) Sdn Bhd v KS Energy Services Ltd [2013] 2 SLR 1154 (“the Judgment”), in which the judge (“the Judge”) found the appellant, KS Energy Services Ltd (“KSE”), liable for breaching a joint venture agreement which it had entered into with the respondent, BR Energy (M) Sdn Bhd (“BRE”). Specifically, the Judge found that KSE had breached its obligation to use “all reasonable endeavours” to procure the construction and delivery of an oil rig known as a workover pulling unit (“WPU”) by a prescribed deadline (see the Judgment at [137]).
[2] This case provides an opportunity to clarify the content of provisions which impose an obligation on a party to exercise “endeavours” in a particular regard (“‘endeavours’ clauses” or “‘endeavours’ obligations” for short). It also illustrates how a party bound by such a provision might satisfy its obligations in the face of dynamic (and often unforeseen) circumstances, unfamiliar settings and sometimes intransigent third parties. “Endeavours” clauses are often found in contracts, but infrequently considered by the courts here. To facilitate our discussion of these clauses, we shall, where appropriate in this judgment, refer to: (a) a party who is bound by such a clause as an “obligor”; (b) a party who is to receive the benefit of such a clause as an “obligee”; and (c) the outcome which the obligor is to exercise “endeavours” to procure as the “contractually-stipulated outcome”.
[3] “Endeavours” clauses are often of considerable importance in commercial settings. As this court noted in Ng Giap Hon v Westcomb Securities Pte Ltd and others [2009] 3 SLR(R) 518, the doctrine of good faith remains a fledging doctrine in both English and Singapore contract law. Until and unless the theoretical foundations and architecture of the doctrine are settled, our courts cannot imprecisely endorse an implied duty of good faith in the local context (at [47]–[60]). Parties to a contract governed by Singapore law therefore do not ordinarily have either the burden or the benefit of a general obligation to conduct themselves in accordance with an ascertainable standard of commercial behaviour. To address this lacuna, express “endeavours” clauses are often introduced into written contracts to regulate the parties’ obligations. However, as will be seen, notwithstanding the relative prevalence of such clauses, there remains a degree of uncertainty as to what legal responsibilities they might entail. As our discussion in this judgment will illustrate, the wealth of case law from across the various common law jurisdictions provides some degree of insight, but ultimately, each case will have to be resolved on its own facts. The same “endeavours” formulation, when used in different factual matrices, does not necessarily have the same or a similar meaning or implication.
The background
[4] The facts of this case are as follows. BRE is a Malaysian company which provides services in the oil and gas industry. On or around 11 August 2005, BRE submitted a tender to Petronas Carigali Sdn Bhd (“PCSB”) for the provision of a WPU. BRE was supported in this tender submission by an oilfield services provider known as China Oilfield Service Limited (“COSL”), for which it was the exclusive Malaysian representative. The WPU was to be based on an existing design, and was to be constructed by a rig construction company known as RG Petro-Machinery Co Ltd (“RG”). The construction of this WPU will hereafter be referred to as “the WPU project” where appropriate.
[5] BRE’s tender submission was successful. On 21 November 2005, PCSB issued a letter of award to BRE (“the Letter of Award”), and a contract between them (“the PCSB contract”) came into existence. Under the terms of the Letter of Award, the WPU was to be delivered to PCSB in Labuan, East Malaysia, no later than 120 days from the date of award, ie, by 21 March 2006. Unbeknownst to PCSB, COSL and RG had pulled out of the WPU project sometime in October 2005 because RG would not have been able to fulfil the order. BRE was still keen on pursuing the WPU project, but needed a new partner which could arrange for a rig builder to replace RG. COSL’s Director of Marketing, Lim Hong Khun (“LHK”), sought to assist BRE in his private capacity. He contacted a business acquaintance, Tan Fuh Gih (“TFG”), an Executive Director of KSE, to seek KSE’s assistance to find a rig builder for BRE.
[7] On 30 November 2005, BRE’s Chief Executive Officer, Abdul Yazid (“Mr Yazid”), wrote to PCSB. He informed PCSB that RG was no longer involved in the WPU project and nominated Oderco as an alternative rig builder. PCSB was assured that the WPU would be constructed according to the specifications in the tender, and was also informed that construction and delivery would take six months. PCSB replied on 8 December 2005 acceding to the variation of the deadline for delivery to 180 days from 21 November 2005, ie, by 21 May 2006, effectively giving BRE five months and 13 days from 8 December 2005 to perform. For each day thereafter, liquidated damages of US$4,000 per day (up to a maximum of 30 days) were payable. Further, PCSB could terminate the PCSB contract for late delivery after 20 June 2006.
[8] The pressure of time appears to have been a major concern for the Parties right from the outset, as the correspondence between them indicates unease by both of them about the short time frame for completing the WPU as well as the liquidated damages which PCSB was entitled to impose under the PCSB contract. Nevertheless, the Parties were committed to pursuing the WPU project and entered into a joint venture agreement (“the JVA”) on 13 December 2005. The structure of their relationship was described in the preamble to the JVA as follows:
[9] Under clause 3 of the JVA, the first order of business for the Parties was to secure the incorporation of the joint venture company mentioned in the preamble to the JVA, BR Offshore Services Ltd (“BRO”). The Parties defined the incorporation of BRO as “Completion” in clause 1.1 of the JVA. Under clause 7, KSE was to next proceed to procure financing for BRO to acquire the WPU. Clause 6 sets out the details of the Parties’ subsequent obligations as follows:
It is this “all reasonable endeavours” provision in clause 6.2 of the JVA that the Parties vigorously join issue over.
[10] On 18 December 2005, five days after the JVA was entered into, Mr Yazid signed a document (“the Authorisation Document”) authorising KSE to proceed to contract with Oderco for the construction of a WPU with “Delivery – 6 months ex works”. On 21 December 2005, KSE entered into a contract with Oderco (“the Oderco contract”). Clause B(3) of the Oderco contract provided that the time of shipment of the WPU would be “Ex-works basis within 165 days from date of Contract”,ie, by 4 June 2006. This was well after the deadline of 21 May 2006 under the PCSB contract and immediately exposed BRE to liquidated damages under that contract even if Oderco performed as agreed.
[11] BRO was only incorporated on 3 March 2006. On 10 March 2006, KSE and BRO entered into a contract under which KSE agreed to sell and BRO agreed to buy the WPU (“the BRO contract”). Clause B(3) of the BRO contract provided that the time of shipment of the WPU would be “Ex-works basis within 6 calendar months from 18December 2005”,ie, by 17 June 2006.
[12] Also on 10 March 2006, BRE entered into the charter agreement with BRO that was provided for by clause 6.1 of the JVA (“the Charter Agreement”). Clause 3.3 of the Charter Agreement was inconsistent with both the Oderco contract and the BRO contract in that it provided that “[BRO] shall use all reasonable endeavours to procure the WPU is constructed and ready for delivery in Abu Dhabi or another location specified by [BRO] within six months after the date of this agreement”,ie, by 9 September 2006. However, that clause was consistent with clause 6.2 of the JVA, which provided that “[KSE] shall use all reasonable endeavours to procure the WPU is constructed and ready for delivery in Abu Dhabi or other location specified by [KSE] within six months after the Charter Agreement is executed” [emphasis added].
[13] To summarise, the various deadlines are as follows:
(a) under the PCSB contract, BRE had an absolute obligation to deliver the WPU to PCSB in Labuan no later than 21 May 2006 in order to avoid liquidated damages, and no later than 20 June 2006 in order to avoid termination;
(b) under the JVA, KSE had to use all reasonable endeavours to procure the construction and delivery of the WPU (in Abu Dhabi or at a location of its choosing) within six months of the Charter Agreement being executed (ie, by 9 September 2006);
(c) the Authorisation Document provided for delivery “6 months ex works”;
(d) under the Oderco contract, Oderco had an absolute obligation to have the WPU ready for shipment on an ex-works basis by 4 June 2006;
(e) under the BRO contract, KSE had an absolute obligation to have the WPU ready for shipment on an ex-works basis by 17 June 2006; and
(f) under the Charter Agreement, BRO had to use all reasonable endeavours to procure the construction and delivery of the WPU by 9 September 2006.
These deadlines are illustrated in the diagram below:
[14] Oderco was unable to meet the 4 June 2006 deadline stipulated in the Oderco contract. PCSB granted numerous extensions of time for the completion of the WPU, namely:
(a) from 21 May 2006 to 25 July 2006;
(b) from 25 July 2006 to 4 September 2006;
(c) from 4 September 2006 to 6 October 2006; and
(d) from 6 October 2006 to 26 October 2006.
[15] Oderco did not meet any of these revised deadlines. PCSB eventually wrote to BRE to terminate the PCSB contract on 12 April 2007. Notwithstanding PCSB’s termination, the Parties continued with the construction of the WPU. On 20 August 2007, KSE terminated the Oderco contract with BRE’s consent, with a view to moving the partially-completed WPU to its own yard in Dubai, which it had recently acquired. This was accomplished in early November 2007.
[16] The Parties’ relationship soured sometime in the latter half of 2007. BRE wished to sell its shares in BRO to a company owned by BRE’s founder and financier, Wee Khen Peng, but KSE would not allow BRE to do so unless it satisfied an obligation under clause 3.6A of the JVA to provide a shareholders’ loan of US$400,000 to BRO. On 19 December 2007, KSE wrote to BRO seeking payment of US$7,784,385, which it claimed was due as a milestone payment under the BRO contract. In response, BRO wrote to BRE seeking the US$400,000 shareholders’ loan and a further loan of US$3,700,000 to enable it to make payment to KSE. BRE replied to BRO on 26 December 2007 declining to extend either loan and expressing the view that KSE was not entitled to seek payment because it had breached the JVA by failing to complete the WPU. On the same day, BRE wrote to KSE purporting to terminate the JVA for KSE’s failure to deliver the WPU “on time” under the terms of the JVA and the BRO contract.
Summary of the Parties’ pleadings
BRE’s statement of claim
[17] Contrary to the express wording of clause 6.2 of the JVA, BRE pleaded in its statement of claim that the relevant date by which KSE was to deliver the WPU was 17 June 2006, and not 9 September 2006:
[18] BRE asked for the Charter Agreement to be rectified to reflect a deadline of 17 June 2006, but did not do so for the JVA. BRE also pleaded that KSE’s obligation to use “all reasonable endeavours” was a continuing one:
[19] BRE then pleaded that in breach of clause 6.2 of the JVA, KSE “failed to use all reasonable endeavours to procure the construction and delivery of the WPU by 17 June 2006, or by 9 September 2006, or by the extended delivery dates, in particular by the final delivery date of 26 October 2006”, in that:
[20] BRE further alleged that it was put in breach of its own obligation to deliver the WPU under the PCSB contract because of KSE’s failure to satisfy clause 6.2 of the JVA, leading to PCSB’s termination of the PCSB contract. Consequently, BRE claimed damages for the following losses:
KSE’s defence
[21] KSE denied BRE’s claim that the relevant delivery date under clause 6.2 of the JVA had been varied and that it was under a continuing obligation to use all reasonable endeavours to procure the construction and delivery of the WPU even after the deadline for completing the WPU had lapsed. It maintained that the relevant delivery date was six months from the execution of the Charter Agreement. KSE also denied breaching clause 6.2 of the JVA. It pleaded that:
(a) it was not solely responsible for the organisation, management and/or supervision of the construction of the WPU;
(b) it had not made any representations about Oderco’s suitability;
(c) it had sent constant reminders to Oderco to expedite the construction of the WPU and to ensure that the WPU would be completed on time;
(d) it would not have been possible to engage another rig builder in place of Oderco when it became obvious that Oderco was unlikely to be able to deliver the WPU on schedule;
(e) it had made the necessary milestone payments to Oderco;
(f) it had made payments directly to Oderco’s suppliers to ensure that all equipment and materials necessary for the construction of the WPU (“critical equipment”) were delivered to Oderco for the construction of the WPU; and
(g) it had arranged for some of the critical equipment to be airfreighted to Oderco to shorten the delivery time.
[22] KSE further pleaded that in any event, it was indemnified against all claims by clause 6.6 of the JVA. It also pointed out that PCSB had cited other reasons in addition to late delivery for the termination of the PCSB contract, and it therefore could not be concluded that its alleged breach of clause 6.2 of the JVA caused the termination.
KSE’s counterclaim
[23] KSE averred that BRE was itself in breach of the JVA on the following bases:
(a) BRE’s termination of the JVA was wrongful and constituted a repudiatory breach of the JVA;
(b) BRE breached clause 6.5 of the JVA in failing to: (i) comply with the PCSB contract; and (ii) ensure that the PCSB contract remained valid, binding and enforceable on PCSB; and
(c) BRE breached clause 3.6A of the JVA in failing to contribute the sum of US$400,000 to BRO as a shareholders’ loan.
Accordingly, KSE pleaded for damages to be assessed for the losses arising from these breaches.
BRE’s defence to KSE’s counterclaim
[24] In response to KSE’s counterclaim, BRE denied being in breach of the JVA. It addressed the issue of the US$400,000 shareholders’ loan by averring that neither of the Parties had contributed the loan at Completion as required by clause 3.6A of the JVA, and that neither of them had considered the other party’s failure to contribute the loan to be a breach of the JVA.
[25] BRE also denied that its alleged breaches had caused KSE loss and damage. Moreover, it claimed that even if it was in breach of the JVA, KSE had waived the alleged breaches by not terminating the JVA and/or had affirmed the JVA by continuing to procure the construction and delivery of the WPU at all material times.
The decision below
[26] As the trial was bifurcated, the Judge only had the issue of liability before her.
[27] The Judge first held that in the circumstances of the case, there was little or no relevant difference between the standard imposed by “all reasonable endeavours” clauses and that imposed by “best endeavours” clauses. Accordingly, she applied the “best endeavours” standard set by this court in Travista Development Pte Ltd v Tan Kim Swee Augustine and others [2008] 2 SLR(R) 474 (“Travista”) to clause 6.2 of the JVA, and framed the question which she had to decide in these terms: “whether KSE took all reasonable steps in good faith which a prudent and determined company, acting in its own commercial interests and anxious to obtain the required result within the time allowed, would have taken” (see the Judgment at [69]).
[28] The Judge then turned to the date by which KSE was obliged to procure the construction and delivery of the WPU. She noted the discrepancies in the various contracts as to when the WPU was to be delivered, and held (at [59] of the Judgment):
It was therefore found that “[t]he overall contractual objective of the ‘all reasonable endeavours’ obligation in cl 6.2 of the JVA was … to procure the construction and delivery of the WPU in June 2006” (see the Judgment at [75]). While the Judge did not expressly consider what obligations KSE would have been under beyond this date, she found, with reference to events in October 2006, that “KSE was already in breach of cl 6.2 of the JVA prior to the June 4 [2006] date, and … the breach was ongoing” (see the Judgment at [125]). This indicates that the Judge was of the view that KSE had to exercise all reasonable endeavours to procure the construction and delivery of the WPU even after 20 June 2006 had passed.
[29] The Judge then found that the evidence, looked at cumulatively, showed that KSE had failed to discharge its obligation to use all reasonable endeavours to procure the construction of the WPU for delivery in June 2006. She found that the evidence demonstrated that construction of the WPU had already been irremediably delayed by 21 May 2006 because of KSE’s failure to use all reasonable endeavours, such that KSE’s subsequent efforts from July to October 2006 to catch up on the delays in construction were belated and futile. She further held that it was because of KSE’s mismanagement of the Oderco contract that the WPU was not completed.
[30] Turning to the specifics of KSE’s breach, the Judge found that: (a) the Parties knew that the delivery date under the PCSB contract was very difficult to meet; and (b) it was KSE, and not BRE, which had control over the construction of the WPU. The Judge also found that KSE had actively sought such control and had, in doing so, undertaken to manage the construction and delivery of the WPU by Oderco by 4 June 2006 so as not to fall foul of PCSB’s termination date of 21 June 2006. Therefore, “cl 6.2 of the JVA required KSE to not only put pressure on Oderco, but … also put its available resources to bear on Oderco in order to realise KSE’s right … to have the WPU delivered by the June 4 [2006] date” (see the Judgment at [86]). She accepted the evidence of BRE’s expert that KSE should have provided onsite supervision of the construction of the WPU from the outset.
[31] The Judge found that there were many signs that the construction of the WPU was not progressing well. In particular:
(a) Oderco was slow in responding to KSE’s queries and demands for information and key documents;
(b) there were signs that Oderco lacked manpower;
(c) the construction schedules provided by Oderco suggested that key components of the WPU had not even been purchased as late as April 2006;
(d) Oderco’s estimated date of delivery was continually being postponed;
(e) Oderco was unable to produce purchase orders for key components of the WPU; and
(f) Oderco was not making claims for milestone payments according to the dates on which it should have made those claims had the construction of the WPU been proceeding on schedule.
[32] In these circumstances, the Judge held, KSE should not have confined itself to sending e-mail chasers and making telephone calls to Oderco. Instead, it should have taken active steps to ascertain the cause of Oderco’s delays and determine why critical equipment had yet to be purchased. Where it was apparent that it was taking longer than was acceptable for such equipment to be delivered, KSE should have pressed for shorter delivery periods.
[33] As regards KSE’s argument that there was no causal link between its alleged breach of the JVA and BRE’s alleged loss arising from the termination of the PCSB contract, the Judge relied on the decision of the British Columbia Supreme Court in Atmospheric Diving Systems Inc v International Hard Suits Inc and Can-Dive Services Ltd [1994] 5 WWR 719 (“Atmospheric Diving Systems”) and held that this was a matter of causation in the context of damages, which did not excuse KSE from liability. Also relying on Atmospheric Diving Systems, the Judge found that the onus was on KSE to prove that the PCSB contract would inevitably have been terminated notwithstanding its efforts.
[34] The Judge held that KSE’s breach had assumed a gravity that went to the root of the JVA and deprived BRE of substantially the whole benefit of the JVA which the Parties had intended to confer upon themselves. Accordingly, BRE was entitled to rescind the JVA and KSE’s counterclaim against BRE for (inter alia) wrongful termination of the JVA failed. The Judge therefore found in favour of BRE on liability and dismissed KSE’s counterclaim.
The Parties’ respective cases on appeal
KSE’s case
[35] Before this court, KSE did not take issue with the Judge’s finding that an “all reasonable endeavours” clause could impose as onerous an obligation as a “best endeavours” clause. However, it argued that such clauses must not be considered in isolation, but should instead be considered in the context of the whole document in which they appeared. Since the Parties had used three different formulations of non-absolute obligations (namely, “reasonable endeavours”, “all reasonable endeavours” and “best endeavours”) in different parts of the JVA, there was a presumption that they had adopted “tiered-obligations” for the three types of “endeavours” clauses, with each type of “endeavours” clause imposing a different standard of conduct. KSE submitted that the principles applicable to clause 6.2 of the JVA were as follows:
(a) an undertaking to use “all reasonable endeavours” was not a warranty to procure the contractually-stipulated outcome;
(b) where there was an insuperable obstacle to procuring the contractually-stipulated outcome, it was irrelevant that there might be other obstacles which could be overcome, or in respect of which the obligor had not done all that it could reasonably be expected to have done in order to try to overcome; and
(c) the obligor was entitled to take into account its own interests.
In any event, KSE submitted that it had satisfied both the “all reasonable endeavours” and the “best endeavours” standards.
[36] Turning to the issue of breach, KSE argued that the Judge erred in finding that the situation was one of “immense urgency” (at [90] of the Judgment) and, consequently, wrongly imposed on KSE the obligation to act as a project manager. KSE submitted that its obligations should be determined by reference to the terms of the Oderco contract, which merely provided for site visits and not onsite supervision during the construction of the WPU. In monitoring the construction of the WPU in accordance with the level of access provided for in the Oderco contract, KSE’s efforts were in line with the Parties’ intentions. KSE also submitted that the root of Oderco’s problems was a lack of funds. KSE had remedied this by loaning money to Oderco and making direct payments to Oderco’s suppliers.
[37] On the issue of causation, KSE argued that even if it had breached clause 6.2 of the JVA, BRE had to prove that but for such breach, the WPU would have been built by 12 April 2007 and the PCSB contract would not have been terminated. KSE submitted that the Judge’s reliance on Atmospheric Diving Systems was incorrect and at odds with precedent. Further, if it could not be said that KSE’s alleged breach of clause 6.2 had caused the termination of the PCSB contract, it followed that this alleged breach was not such as to have deprived BRE of substantially the whole benefit of the JVA. Accordingly, BRE would not have been entitled to terminate the JVA. On the facts, KSE contended, Oderco’s tardiness was such that onsite supervision would not have made a difference anyway. Moreover, some of the delay could be attributed to the changes made to the design of the WPU as construction progressed. In addition, anything KSE might have done would also ultimately have been futile for the simple fact that a crucial piece of critical equipment, which arrived only on 23 January 2007, could not have been procured by an earlier date.
BRE’s case
[38] BRE, on its part, submitted that an obligor who was bound by an “all reasonable endeavours” or “best endeavours” clause had to continue using such endeavours until they had all been exhausted and going on would have been mere repetition. Further, account would have to be taken of events as they occurred. Although BRE accepted that an obligor was not expected to sacrifice its interests in performing its obligations, it submitted that an obligor could not satisfy its obligations merely through financial expenditure.
[39] BRE rejected KSE’s contention that its obligations were to be determined by reference to the provisions of the Oderco contract. BRE asserted that KSE should have: (a) deployed an onsite supervision team from the outset; (b) put in place a recovery plan once it became clear that Oderco was not performing as agreed; (c) procured critical equipment itself; and (d) sent additional help to ensure that the WPU was completed on time. BRE submitted that the evidence showed that the WPU could have been completed within a year, and denied that it was design variations that had caused the delay.
[40] As regards causation, BRE submitted that loss occurred upon non-delivery of the WPU and it was not necessary to consider whether the PCSB contract would have been terminated if KSE had not been in breach of clause 6.2 of the JVA. However, it would be open to KSE to argue, at the assessment of damages, that BRE had suffered little or no loss as a result of KSE’s breach.
The issues before this court
[41] The following issues arise for consideration in this appeal:
(a) the correct interpretation of “endeavours” clauses in general, and of “all reasonable endeavours” in clause 6.2 of the JVA in particular;
(b) whether KSE breached clause 6.2 of the JVA;
(c) if KSE did indeed breach clause 6.2 of the JVA, whether such breach caused BRE loss; and
(d) KSE’s counterclaim.
These issues will now be considered seriatim.
Interpretation of “endeavours” clauses
The approach to interpreting “endeavours” clauses
[42] A contract will usually impose an obligation on a party to do something. The obligation may be absolute or non-absolute (ie, qualified). An example of an absolute obligation in a contract is: Party A shall deliver a pen to me by tomorrow. An example of a non-absolute obligation is: Party A shall use reasonable endeavours to deliver a pen to me by tomorrow. In the latter example, the obligation is qualified by the phrase “reasonable endeavours”. A party under an absolute obligation undertakes to achieve a result, whereas a party under a non-absolute obligation merely undertakes to try to achieve a result in accordance with a particular standard of conduct (eg, reasonable endeavours). Non-absolute obligations may be desirable where the obligation requires the party concerned to procure the doing of something by a third party over whom he may not be able to exercise absolute control. Another situation where non-absolute obligations may be desirable is where a party is unwilling to undertake an absolute obligation to do something by a specific time.
[43] Various phrases such as “reasonable endeavours”, “all reasonable endeavours” and “best endeavours” are widely used to formulate non-absolute obligations. The usage of these phrases seems to suggest that each of these phrases connotes a different standard of conduct which the obligor has to meet. However, there seems to be no consensus on the meaning of these phrases.
[44] At the outset, it should be noted that where phrases such as “reasonable endeavours”, “all reasonable endeavours” and “best endeavours” are used in written agreements, the court’s role is to interpret these phrases. Contractual interpretation denotes “the process of uncovering meaning in and seeking to understand a [written contract] where there is some doubt or room for a difference of opinion” (see Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd [2008] 3 SLR(R) 1029 at [41]). In this regard, the general principle is that the court will ascertain the meaning which the expressions used in the contract in question would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties at the time of the contract (see, eg, Sandar Aung v Parkway Hospitals Singapore Pte Ltd (trading as Mount Elizabeth Hospital) and another [2007] 2 SLR(R) 891 at [35]–[37], citing Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912–913).
[45] Since any contract is a consensual arrangement between particular parties made against the background of particular circumstances, it is not difficult for the court to distinguish a previous court decision on the meaning of a particular phrase when a similar phrase is used in a different contract based on a different set of circumstances. Notwithstanding this, decisions on the meaning and effect of certain commonly-used phrases provide authoritative guidance on the prima facie meaning of similar phrases when they are used in documents that are intended to have legal effect. This is especially so because the contracting parties would have taken into account the general law in reaching their agreement. Furthermore, attributing such prima facie meanings to similar phrases (ie, phrases similar to commonly-used phrases) promotes commercial certainty. Hence, unless there is a contrary and objectively-ascertained intention on the part of the parties, the court will generally assume that in using similar phrases in their contract, the parties intended these phrases to bear their prima facie meaning. It is against this backdrop that we proceed to review the case law on “reasonable endeavours”, “all reasonable endeavours” and “best endeavours” clauses.
Review of the case law
The standard imposed by “best endeavours” clauses
[46] The phrase “all reasonable endeavours” has not previously been considered by this court. However, the interpretation of the phrase “best endeavours” was authoritatively set out by this court in Travista (at [22]):
[47] Travista lays down the following propositions regarding a “best endeavours” obligation:
(a) The obligor has a duty to do everything reasonable in good faith with a view to procuring the contractually-stipulated outcome within the time allowed. This involves taking all those reasonable steps which a prudent and determined man, acting in the interests of the obligee (see further [52] below) and anxious to procure the contractually-stipulated outcome within the available time, would have taken.
(b) The test for determining whether a “best endeavours” obligation has been fulfilled is an objective test.
(c) In fulfilling its obligation, the obligor can take into account its own interests.
(d) A “best endeavours” obligation is not a warranty to procure the contractually-stipulated outcome.
(e) The amount or extent of “endeavours” required of the obligor is determined with reference to the available time for procuring the contractually-stipulated outcome; the obligor is not required to drop everything and attend to the matter at once.
(f) Where breach of a “best endeavours” obligation is alleged, a fact-intensive inquiry will have to be carried out.
[48] The position taken by this court in Travista is generally in line with the English position. However, the test laid down in Travista (“the Travista test”) allows the obligor to take into account its own interests and represents a slight departure from some English cases in so far as those cases appear to suggest that the obligor is in a quasi-fiduciary position vis-à-vis the obligee and must therefore completely align its interests with the latter’s interests. Two such cases shall be discussed.
[49] The first is Sheffield District Railway Company v Great Central Railway Company (1911) 27 TLR 451 (“Sheffield District Railway”). In that case, the lessee of a railway line agreed to use its “best endeavours” to develop traffic on the leased railway line. The lessee operated two other railway lines that were apparently of greater length and importance than the leased railway line. The lessor charged that the lessee had favoured the other railway lines to the detriment of traffic on the leased railway line. The court stated (at 452 per A T Lawrence J):
[51] The second case which appears to take the quasi-fiduciary approach is the English Court of Appeal decision of IBM United Kingdom, upon which the Travista test is based. In that case, the purchaser of a property (“IBM”) was obliged by the sale and purchase agreement to use its best endeavours to obtain planning permission for the development of the property. Such permission was sought and refused, but there was recourse to an appeal to the Secretary of State. IBM did not pursue such an appeal, and sought a declaration as to the extent of its obligation to use best endeavours. The English Court of Appeal held that “best endeavours” should be understood to mean that “the purchaser is to do all he reasonably can to ensure that the planning permission is granted” (at 339). As to what steps IBM should have taken to obtain planning permission, Buckley LJ (with whom Geoffrey Lane and Goff LJJ agreed) set the standard in the following terms (at 343):
[52] Importantly, Buckley LJ clarified (at 349) that the phrase “acting in his own interests” in the above quotation meant acting in the obligee’s interests, and not the interests of “somebody who is under a contractual obligation”, ie, the obligor. As can be seen from [46]–[47] above, the test applied in IBM United Kingdom was largely adopted in Travista: an obligor under a “best endeavours” obligation is to take all those reasonable steps which a prudent and determined man, acting in the interests of the obligee and anxious to procure the contractually-stipulated outcome within the available time, would have taken. However, the Travista test adds that the obligor can take into account its own interests in fulfilling its “best endeavours” obligation. We do not think that the English Court of Appeal set out to state in IBM United Kingdom that the obligor is to act only in the interests of the obligee and cannot take into account its own interests. In any case, to the extent that IBM United Kingdom may be interpreted as such, the Travista test has departed from it.
[53] On the facts of IBM United Kingdom, the English Court of Appeal held that if planning permission were at first refused and if an appeal to the Secretary of State would have a reasonable chance of success, it could not be said that best endeavours had been used to obtain planning permission if no appeal were made. This indicates that the obligor must pursue all courses of action with a reasonable likelihood of success in procuring the contractually-stipulated outcome.
Do “all reasonable endeavours” clauses impose the same standard as “best endeavours” clauses?
[54] As stated earlier, the phrase “all reasonable endeavours” has not previously been considered by this court. There is some suggestion in a number of English cases that “all reasonable endeavours” clauses do not impose the same standard of conduct as “best endeavours” clauses. Two such cases shall be referred to here.
[55] The first is UBH (Mechanical Services) Ltd v Standard Life Assurance Co The Times (13 November 1986) (“UBH”), which involved a “reasonable endeavours” clause. Rougier J opined in obiter dicta that the three types of “endeavours” clauses – namely, “reasonable endeavours”, “all reasonable endeavours” and “best endeavours” clauses – ranked in increasing levels of onerousness:
However, Rougier J did not explain how and why the three types of “endeavours” clauses differed. He also proceeded to refer to cases on “best endeavours” clauses for the proposition that the obligor, in exercising reasonable endeavours to procure the contractually-stipulated outcome, was entitled to weigh its contractual obligation against all the relevant commercial considerations which prevailed.
[56] The second case which suggests that “all reasonable endeavours” clauses and “best endeavours” clauses differ in standard is Jolley v Carmel Ltd [2000] 2 EGLR 153 (“Jolley (HC)”), where an implied obligation to use “reasonable endeavours” was alleged. Kim Lewison QC (the notable author of Kim Lewison, The Interpretation of Contracts (Sweet and Maxwell, 5th Ed, 2011), whose name surfaces repeatedly in the relevant cases), sitting as a deputy judge of the English High Court, opined in obiter dicta that the phrases “reasonable efforts”, “all reasonable efforts” and “best endeavours” denoted a spectrum of obligations, with “reasonable efforts” being at “the lowest end of the spectrum” (at 159):
Once again, the distinctions and the reasons for the distinctions between the three different types of “endeavours” clauses were not explained.
[57] On the other hand, three other UK cases (two English and one Scottish) suggest that there is no meaningful difference between “all reasonable endeavours” obligations and “best endeavours” obligations.
[58] The first in this series of cases is Oversea Buyers Ltd v Granadex SA [1980] 2 Lloyd’s Rep 608, where a party attempted to fault an arbitral tribunal for making a finding that the obligor had done “all that could reasonably be expected of [it]”, instead of determining whether the obligor had used its “best endeavours”. In response, Mustill J observed (at 613) that he could:
[59] The second case is the decision of the Outer House of the Scottish Court of Session in EDI Central Ltd v National Car Parks Ltd [2011] SLT 75 (“EDI”), where Lord Glennie opined (at [20]):
[60] The third case is Rhodia International Holdings Ltd & Anor v Huntsman International LLC [2007] 1 CLC 59 (“Rhodia”). There, Julian Flaux QC, sitting as a deputy judge of the English High Court, held (at [33]):
[61] Although Mr Flaux QC was of the view that an obligation to use “reasonable endeavours” was clearly distinct from one to use “best endeavours”, he was open to the possibility that an “all reasonable endeavours” obligation might impose the same standard of conduct as a “best endeavours” obligation. However, he did not settle on a definite view on the matter, and merely made reference to that section of Jolley (HC) quoted at [56] above (see [34] of Rhodia):
[62] Notwithstanding the fact that the cases do not speak with one voice as to whether an “all reasonable endeavours” obligation imposes the same standard of conduct as a “best endeavours” obligation, we are of the view that the Judge was correct to hold that “there is little or no relevant difference between the standard constituted by the formulation ‘all reasonable endeavours’ and that constituted by the formulation ‘best endeavours’” (see [55] of the Judgment). Like the Judge, we do not find it useful to distinguish an “all reasonable endeavours” obligation from a “best endeavours” obligation. Perhaps, lawyers may occasionally perceive an apparent spectral difference between these two types of “endeavours” obligations due to the difference in their wording. However, without the parties specifying how these two types of “endeavours” obligations differ and what steps are required to fulfil each type of “endeavours” obligation, any attempt to draw a distinction between them would merely be a pointless hair-splitting exercise. Any differences between “all reasonable endeavours” obligations and “best endeavours” obligations are likely to be more metaphysical than practical (see above at [59]). We therefore hold that the test for determining whether an “all reasonable endeavours” obligation has been fulfilled should ordinarily be the same as the test for determining whether a “best endeavours” obligation has been fulfilled, ie, the Travista test (see above at [46]–[47]) should apply in both situations. This test should ordinarily apply even if the parties use a variation of the phrase “all reasonable endeavours” or “best endeavours” (as the case may be). However, the test may not be entirely applicable where the parties expressly stipulate the steps which are to be taken by the obligor to discharge its “all reasonable endeavours” or “best endeavours” obligation. In that scenario, the inquiry would be centred on whether the stipulated steps have been taken. It also bears emphasis that whether an “all reasonable endeavours” or “best endeavours” obligation has been fulfilled can only be ascertained through a fact-intensive inquiry.
[63] We accept that an “all reasonable endeavours” obligation is ordinarily more onerous than a “reasonable endeavours” obligation. This is because the latter might require the obligor to take only one reasonable course of action, and not all of them. A “reasonable endeavours” obligation is also not subject to the standard laid down in Travista (at [22]) of “all those reasonable steps which a prudent and determined man, acting in [the obligee’s] interests and anxious to [procure the contractually-stipulated outcome within the available time], would have taken”. An obligor under a “reasonable endeavours” obligation merely has to act reasonably to procure the contractually-stipulated outcome, and we do not find it helpful to define the applicable standard any further than that. Such an obligor may well (depending on the circumstances) have to take steps which the prudent and determined man posited in the Travista test would take, but it need not necessarily do so as long as whatever it does to procure the contractually-stipulated outcome is reasonable.
[64] At this juncture, we observe that the position which we have taken at [62] above is similar to the Australian position in that the Australian courts do not appear to draw any real distinction between a “best endeavours” obligation and an “all reasonable endeavours” obligation, even though the Australian test for determining whether a “best endeavours” obligation has been satisfied seems to be slightly different from the Travista test. We shall now turn to two Australian cases.
[65] The first is Transfield Pty Ltd v Arlo International Ltd (1980) 144 CLR 83 (“Transfield Pty Ltd”), where a licensee covenanted to “at all times … use its best endeavours in and towards the design fabrication installation and selling of the ARLO PTL pole [a piece of equipment used for erecting power transmission lines] throughout the licensed territory” (at 87). The licensee submitted a tender to the Electricity Commission of New South Wales for the construction of a high-voltage transmission line for part of a larger project between Wallerawang and Sydney. The Electricity Commission expressed doubts about the use of ARLO poles because difficulties had previously been encountered when such poles were last used in Australia. The licensee decided to overcome these apprehensions by using a substitute pole of its own devising. The Australian High Court had to consider the narrow issue of whether the “best endeavours” clause in question prevented the licensee from using its own substitute for the ARLO pole, for the clause would be void for falling foul of two Australian statutory provisions if that were indeed its correct interpretation.
[66] Mason J referred to the English High Court decision of Terrell v Mabie Todd & Coy Ld (1952) 69 RPC 234 (“Terrell”), where it was held (at 237) that a “best endeavours” clause required the obligor to “do what [it] could reasonably do in the circumstances”. He concluded (at 101 of Transfield Pty Ltd):
[67] Wilson J likewise relied upon English cases (at 107 of Transfield Pty Ltd):
[68] The second Australian case which we wish to draw attention to is Hospital Products Limited v United States Surgical Corporation and others (1984) 156 CLR 41, a decision of the High Court of Australia on an implied term to use “best efforts” to promote the sale of certain goods. Gibbs CJ made the following observations (at 64):
[69] Mason J elucidated the rational for “best efforts” clauses as follows (at 91–92):
The operation and extent of “all reasonable endeavours” obligations
[70] With the foregoing points in mind, we now turn to some cases which shed light on the operation and extent of an “all reasonable endeavours” obligation. These cases also show that the prevailing approach to “all reasonable endeavours” obligations has generally been indistinguishable from the approach of this court to “best endeavours” obligations in Travista.
[71] The first case which we wish to discuss in this regard is A P Stephen v Scottish Boatowners Mutual Insurance Association (The “Talisman”) [1989] 1 Lloyd’s Rep 535 (“The Talisman”), a decision of the House of Lords involving the interpretation of an “all reasonable endeavours” clause. The claimant was the owner of a fishing vessel and the defendant, his insurer. One of the clauses in the insurance contract stated that “[t]he Association shall not be liable for any claim for loss or damage when the insured making such claim has not used all reasonable endeavours to save his vessel from such loss or damage” (at 536).
[72] The claimant’s fishing vessel sank after taking on water. The defendant refused to indemnify the claimant on the basis that he should have: (a) closed the valves through which water was pumped into the vessel; and (b) sent a mayday call. The House of Lords unanimously held that the standard by which the claimant’s conduct was to be assessed was that of what an ordinarily competent fishing boat skipper might reasonably be expected to do in the same circumstances (at 539 per Lord Keith of Kinkel):
[73] This approach is somewhat different from that taken in Travista, in that the House of Lords had regard to an ordinarily competent fishing boat skipper without any mention of the attributes which he was deemed to have. There was no mention that the ordinarily competent fishing boat skipper was deemed to be a prudent and determined man, acting in the interests of the obligee and anxious to procure the contractually-stipulated outcome within the available time. There was also no mention of the degree to which such a skipper would have desired to save his vessel from loss or damage. There was, therefore, less of an attempt to align the obligor’s interests with the obligee’s interests. However, it need hardly be said that the ordinarily competent fishing boat skipper would naturally have desired to save his vessel, subject to his other duties to, say, his crew and other vessels in the area (as can be seen from Terrell and Rackham v Peek Foods Ltd [1990] BCLC 895, an individual obliged to exercise “best endeavours” is nevertheless entitled to have regard to his pre-existing duties). In other words, it was implied in The Talisman that the steps which an ordinarily competent fishing boat skipper would have taken to save his vessel would be the same as those steps which a prudent and determined man, acting in the interests of the obligee and anxious to procure the contractually-stipulated outcome within the available time, would have taken. If that is the correct understanding, Travista and The Talisman are not inconsistent.
[75] The second case discussing the operation and extent of an “all reasonable endeavours” obligation is the English High Court’s decision in Yewbelle Limited v London Green Developments Limited, Knightsbridge Green Limited [2007] 1 EGLR 137 (“Yewbelle (HC)”). That case involved the sale of a property which was conditional on the seller entering into an agreement with the local authority on a stated set of terms (“the prescribed agreement”). The seller was obliged to use “all reasonable endeavours” to obtain that agreement. The prescribed agreement was not concluded with the local authority, and the seller was accused of failing to meet its obligations. It should be noted that Lewison J appeared to have used the words “reasonable endeavours” and “all reasonable endeavours” interchangeably in his judgment, even though the clause in question in Yewbelle (HC) was an “all reasonable endeavours” clause.
[76] On the issue of whether the obligor was obliged to sacrifice its commercial interests in fulfilling its obligations, Lewison J referred to the decision of the English Court of Appeal in Phillips Petroleum Co UK Ltd & Ors v Enron Europe Ltd [1997] CLC 329 (“Phillips Petroleum”). The contract in Phillips Petroleum was a gas sales agreement under which the sellers and the buyer were to use “reasonable endeavours” to agree to the date on which the sellers would commence deliveries of gas to the buyer. It was argued that each party was under an obligation to reach agreement, having regard only to criteria of technical and operational practicability and without regard to selfish or commercial motives. The English Court of Appeal rejected that argument. Kennedy LJ said (at 342):
[77] Potter LJ referred to the extensive negotiations and careful drafting behind the contract in question, and opined (at 342) that there was:
On the strength of Phillips Petroleum, Lewison J held in Yewbelle (HC) that an obligor was not required to sacrifice its own commercial interests in performing its obligations (at [122]). Yewbelle (HC) therefore supports the proposition that regardless of whether an obligor owes a “reasonable endeavours” obligation or an “all reasonable endeavours” obligation, it need not sacrifice its own commercial interests in at least one situation, namely, where the parties are obliged to come to an agreement. We note here that an obligor’s commercial interests can be equated with its financial interests, and we shall use these two terms (viz, “commercial interests” and “financial interests”) interchangeably in this judgment.
[78] In Yewbelle (HC), Lewison J also accepted that an “all reasonable endeavours” obligation required the obligor to use endeavours to the point where all reasonable endeavours had been exhausted (at [123]):
However, he also added the qualification that account must be taken of events as they unfolded, including extraordinary events (at [123]). Moreover, Lewison J accepted that an obligor need not take any particular step unless that step had “a real prospect of success” (at [128]) in procuring the contractually-stipulated outcome. He listed various matters which, on the facts of Yewbelle (HC), could have been raised with the local authority to persuade it to enter into the prescribed agreement, and held that “I do not think that I can conclude that a reasoned protest would have had no real chance of achieving the result” (at [128]).
[79] Yewbelle (HC) was pursued on appeal in Yewbelle Limited v London Green Developments Limited, Knightsbridge Green Limited [2007] 2 EGLR 152 (“Yewbelle (CA)”). The case of The Talisman was resurrected on the seller’s behalf for the proposition that the test for determining whether a particular step was within the scope of an “all reasonable endeavours” obligation was whether it would, if taken, offer a significant chance of success in procuring the contractually-stipulated outcome, and that Lewison J had therefore posed the wrong test in setting the standard at “a real prospect of success”. The English Court of Appeal rejected this argument, observing that the case at hand was a long way removed from The Talisman both on the facts as well as in terms of the content and context of the “all reasonable endeavours” obligation concerned. The English Court of Appeal also doubted that Lord Keith had intended to lay down a general rule in The Talisman as to “the standard by reference to which it is to be tested whether a party had undertaken all reasonable endeavours, under whatever kind of contract” (see Yewbelle (CA) at [32]). Further, it expressed doubt (likewise at [32]) that Lewison J would have considered the words “substantial”, “significant” and “real” to have any different meaning. Accordingly, the English Court of Appeal did not accept that Lewison J had applied the wrong legal test in judging whether all reasonable endeavours had been used (at [33]). The English Court of Appeal can therefore be taken to have held that an obligor under an “all reasonable endeavours” obligation need only pursue those endeavours with a real chance of success in procuring the contractually-stipulated outcome, and that there is no significant difference in meaning between “real”, “significant” and “substantial”.
[80] Ultimately, the English Court of Appeal found that the seller did not lack bargaining strength with the local authority, and observed (at [93]) that “there would have been cards for [the seller] to play” in persuading the local authority to agree to the stated set of terms provided for in the prescribed agreement. Accordingly, Lewison J’s finding that the seller had not exhausted all reasonable endeavours to obtain the execution of the prescribed agreement was upheld.
[81] However, the English Court of Appeal differed from Lewison J on the separate issue of whether, when there was an insuperable obstacle to procuring the contractually-stipulated outcome, the obligor had to overcome other obstacles which also stood in the way. There was, adjoining the land subject to the conditional sale agreement, another parcel of land. Under the prescribed agreement, this piece of land was also to be developed. However, the land was discovered to belong to a third party instead of to the local authority as initially assumed. The English Court of Appeal held that if there was an insuperable obstacle to procuring the contractually-stipulated outcome, it was not relevant that there might have been other obstacles which could have been overcome. In such circumstances, the obligor would not have to do anything more to overcome other obstacles which also stood in the way, but which might have been resolved (at [103]). In our view, this is really just another way of saying that the endeavour undertaken must have a significant prospect of achieving the contractually-stipulated outcome, rather than merely address an associated obstacle. As the third party would not have agreed to participate without substantial payment, and as the seller was not obliged to lay out its own money in such sums as would have been required for that purpose, there was nothing more for the seller to do in regard to the third party’s land. Accordingly, the English Court of Appeal reversed Lewison J’s decision on this point.
[82] The third case discussing the operation and extent of an “all reasonable endeavours” obligation, specifically relating to whether an obligor is required to sacrifice its own commercial interests in fulfilling its obligation, is CPC Group Ltd v Qatari Diar Real Estate Investment Co [2010] EWHC 1535 (Ch) (“CPC Group”). One of the parties advanced the argument that an obligation to use “all reasonable endeavours” was to be equated with an obligation to use “best endeavours”, such that a party subject to an “all reasonable endeavours” obligation must, if necessary, subordinate its own financial interests to procure the contractually-stipulated outcome. As a matter of the established interpretation of “best endeavours” as set out in Travista and of “all reasonable endeavours” as set out in Yewbelle (CA), this argument, in our view, goes too far. It is clear that such obligations do not require the obligor to subordinate its financial interests in all cases. Instead, the obligor is entitled to take its own financial interests into account, and certainly need not pursue any course of action that would be prohibitively expensive or ruinous. Unsurprisingly, Vos J rejected the above argument, citing Yewbelle (CA) with approval (at [251] of CPC Group):
[83] Vos J concluded (at [252]) that “[i]t seems to me, therefore, that the obligation to use ‘all reasonable endeavours’ does not always require the obligor to sacrifice his commercial interests” [original emphasis in italics; emphasis added in bold italics]. There may be a subtle difference between Yewbelle (CA) and CPC Group, in that the former held that an obligor was “not required to sacrifice its own commercial interests” (see Yewbelle (CA) at [29]), whereas Vos J qualified this by saying (at [252] of CPC Group) that the obligation to use “all reasonable endeavours” did not “always require” the sacrifice of commercial interests. In so far as there is a difference between these two cases, we are of the view that Vos J’s approach is to be preferred. Although an obligor is entitled to take into account its own interests, including its financial interests, in performing its obligations, there is no particular reason why it should, as a rule, never have to sacrifice its commercial interests. Such sacrifice may be negligible or, even though substantial, reasonable in the circumstances. For the purposes of determining whether the sacrifice arising from a particular course of action is reasonable, it will generally be the case that the endeavours entailed by that sacrifice will be capable of being assessed for reasonableness in monetary terms, even if they are not expressly spelt out in such terms in their original form. It would be arbitrary to draw a distinction between different types of endeavours based on whether they were expressed in monetary terms in the first instance.
[85] Jet2 sought damages for breach of contract and a declaration that BAL was obliged to accept aircraft movements outside Blackpool Airport’s normal operating hours. In contrast, BAL argued that it was entitled to take into account its own commercial interests when considering what steps to take in satisfaction of its obligations, such as the losses which it had incurred in operating Blackpool Airport beyond its usual operating hours. It was common ground that “best endeavours” and “all reasonable endeavours” meant the same thing. At first instance, Mr Mackie QC, sitting as a judge of the English High Court, found a breach of contract. However, he declined to grant the declaration sought in view of the fact sensitivity of the issue. He perceptively observed, “[t]he meaning of the expression remains a question of construction not of extrapolation from other cases … the expression will not always mean the same thing” (at [46]).
[86] On appeal, Mr Mackie QC’s finding of breach was upheld by a majority of the English Court of Appeal. Moore-Bick LJ held (at [31]–[32] of Jet2 (CA)):
[87] Longmore LJ indicated that the criteria for assessing the reasonableness of the sacrifice required of the obligor might also be affected by how the agreement was in fact performed (at [70]):
[88] It can be discerned from Moore-Bick and Longmore LJJ’s judgments in Jet2 (CA) that there are no hard-and-fast rules as to whether an obligor must sacrifice its financial interests in fulfilling its obligations. The test is whether the nature and terms of the contract in question indicate that it is in the parties’ contemplation that the obligor would have to sacrifice its financial interests, and if so, to what extent the obligor is to sacrifice its financial interests.
[89] A further point to note is that although the parties in Jet2 (HC) and Jet2 (CA) agreed that “best endeavours” and “all reasonable endeavours” meant the same thing, such that the court was not called upon to make any pronouncements on the matter, Moore-Bick LJ held (at [31] of Jet2 (CA)) that BAL’s obligation to use its “best endeavours” obliged it to do “all that it reasonably could”, effectively equating a “best endeavours” obligation with an “all reasonable endeavours” obligation. Such language has recurred numerous times in the cases, and indicates that the gap between “best endeavours” and “all reasonable endeavours”, in so far as one even exists conceptually, is a small one.
[90] It is noteworthy that Lewison LJ, the dissenting judge in Jet2 (CA), was of the view that the trial judge and the majority of the English Court of Appeal had gone beyond interpreting the contract to construing the contract in the sense of making a contract which the parties had not themselves made. He was unwilling to find an obligation for BAL to allow flights to and from Blackpool Airport outside the airport’s normal operating hours in the absence of an express agreement. Although Lewison LJ found himself in the minority in Jet2 (CA), we are of the view that his concerns are sound. Contracting parties would be well advised to specify the objective to which all reasonable endeavours are to be directed and the criteria by which the endeavours are to be judged, even if the “endeavours” clause in question is enforceable in the absence of such specifications. What may be readily apparent to the parties at the time of their contract may not be so apparent to a court, and it would be helpful for them to set out those obligations that they consider important. We note with some interest that Lewison LJ did not express any view on the appropriateness of equating “best endeavours” with “all reasonable endeavours”.
[91] The last case which we wish to discuss in relation to the operation and extent of “all reasonable endeavours” obligations is EDI (also referred to earlier at [59] above). We think there is merit in Lord Glennie’s view that it may well be part of an “all reasonable endeavours” obligation for the obligor to inform the obligee of any difficulties it is encountering so as to ascertain whether the obligee has a possible solution (at [21]):
We should point out here that it is not an ironclad rule that the obligor under an “all reasonable endeavours” obligation must always inform the obligee of any difficulties it is encountering so as to see whether the latter has any possible solution. Rather, whether the obligor has informed the obligee in this regard is a matter that the court may (depending on the circumstances) take into consideration in determining whether the obligor has satisfied its “all reasonable endeavours” obligation.
[92] On the issue of the burden of proof, we also generally agree with Lord Glennie that (at [22]):
In this regard, we go further than Lord Glennie in that we are of the view that once the obligee points to certain steps which the obligor could have taken to procure the contractually-stipulated outcome, the burden ordinarily shifts to the obligor to show that it took those steps, or that those steps were not reasonably required, or that those steps would have been bound to fail.
Summary of the guidelines applicable to “all reasonable endeavours” and “best endeavours” clauses
[93] The foregoing cases are the more significant cases to have originated from the English and Scottish courts on “all reasonable endeavours” clauses and “best endeavours” clauses. The available commentaries in this area of the law (and these tend to be professional rather than academic) tend to agree that there is a great deal of uncertainty surrounding the obligations imposed by the various “endeavours” clauses. The typical advice in these commentaries is for the parties to expressly specify the criteria by which satisfaction of such clauses is to be assessed. This lack of certainty is unfortunate. Be that as it may, following on our holding (at [62] above) that the test for determining whether an “all reasonable endeavours” obligation has been satisfied should ordinarily be the same as the test for determining whether a “best endeavours” obligation has been satisfied (ie, the Travista test), we also endorse the guidelines below vis-à-vis the operation and extent of both “all reasonable endeavours” and “best endeavours” clauses:
(a) Such clauses require the obligor “to go on using endeavours until the point is reached when all reasonable endeavours have been exhausted” (see Yewbelle (HC) at [123] and Yewbelle (CA)), or “to do all that it reasonably could” (see Jet2 (CA) at [31]).
(b) The obligor need only do that which has a significant (see The Talisman) or real prospect of success (see Yewbelle (HC) and Yewbelle (CA)) in procuring the contractually-stipulated outcome.
(c) If there is an insuperable obstacle to procuring the contractually-stipulated outcome, the obligor is not required to do anything more to overcome other problems which also stood in the way of procuring that outcome but which might have been resolved (see Yewbelle (CA)).
(d) The obligor is not always required to sacrifice its own commercial interests in satisfaction of its obligations (see CPC Group), but it may be required to do so where the nature and terms of the contract indicate that it is in the parties’ contemplation that the obligor should make such sacrifice (see Jet2 (CA)).
(e) An obligor cannot just sit back and say that it could not reasonably have done more to procure the contractually-stipulated outcome in cases where, if it had asked the obligee, it might have discovered that there were other steps which could reasonably have been taken (see EDI).

The judgment continues past this page. Read the rest at eLitigation.

KS Energy Services Ltd v BR Energy (M) Sdn Bhd

Grounds of decision

Introduction

The background

Summary of the Parties’ pleadings

BRE’s statement of claim

KSE’s defence

KSE’s counterclaim

BRE’s defence to KSE’s counterclaim

The decision below

The Parties’ respective cases on appeal

KSE’s case

BRE’s case

The issues before this court

Interpretation of “endeavours” clauses

The approach to interpreting “endeavours” clauses

Review of the case law

The standard imposed by “best endeavours” clauses

Do “all reasonable endeavours” clauses impose the same standard as “best endeavours” clauses?

The operation and extent of “all reasonable endeavours” obligations

Summary of the guidelines applicable to “all reasonable endeavours” and “best endeavours” clauses