In Western Australia at the time, it was big news. Amazing
pictures flashed across our television screens - huge flames
leaping into the air, clouds of choking black smoke.This was the
result of a gas explosion at a plant North West of WA.
What was obvious, was that this disaster and the consequences
that flowed from it, would eventually end up in litigation. What
wasn't obvious, was that the High Court would clarify and
reaffirm, amongst other things, the meaning of the term
In a nutshell, Woodside and Apache supply gas in WA, and Verve
Energy (now Synergy) buys it. In 2008, an explosion ripped through
Apache's gas plant, knocking out its operations for a time.
Woodside had an agreement with Verve to supply a guaranteed
amount of gas on a daily basis and to use "reasonable
endeavours" to make available to Verve extra gas (Supplemental
Maximum Daily Quantity of Gas or SMDQ) if it needed it.
During the time Apache was off line, Verve needed SMDQ, but
Woodside informed it that to get extra gas, Verve would have to
tender for it – which it did successfully. Gas was in hot
demand at that time.
The question was therefore, did Woodside breach its obligation
under an Agreement to use reasonable endeavours to supply SMDQ to
Verve during the time Apache was off line?
Woodside had the capacity during that time to supply SMDQ to
It is common in commercial contracts between parties with
independent business interest, to include clauses framed in terms
of "reasonable endeavours". In the Agreement between
Woodside and Verve, clause 3.3(a) stipulated that Woodside must use
reasonable endeavours to make available the SMDQ however, 3.3(b)
conditioned that clause, by entitling Woodside to take into account
its own commercial, economic and operational interests in relation
to the suppliers of SMDQ.
In examining the conditioning clause (3.3(b)) and the Agreement
as a whole, the High Court reaffirmed its prior judgments and
approach to the interpretation of commercial contracts, meaning
that these contracts should be given a business like
In doing so, the court found that contractual obligations framed
in terms of "reasonable endeavours" do not oblige a party
to forego or sacrifice its business interests. The majority
referred to Hospital Products Ltd v United States Surgical
Corporation  HCA 64; (1884) 156 CLR 41), where it was
held that the interests of the opposing party, "could not be
paramount in every case".
Terrel v Mabie Todd & Co Ltd (1952) 69 RPC 234 was
also referred to in the judgment, where it was held that reasonable
endeavours would not require the achievement of a contractual
objective to the "certain ruin of the company or with utter
disregard of the interests of the shareholders."
In addressing "reasonable endeavours", the High Court
in this matter set out three general observations about obligations
to use reasonable endeavours to achieve a contractual
The obligation is not absolute or unconditional.
The extent of the obligation is conditioned by what is
reasonable in the circumstances, which can include circumstances
that may affect the obligee's business.
Some contracts containing an obligation to use or make
reasonable endeavours to achieve a contractual objective contain
their own internal standard of what is reasonable, by some express
reference relevant to the business interest of an obligee.
Thus, it held that Woodside was not obliged to forego or
sacrifice its business interest when using reasonable endeavours to
supply SMDQ available for delivery, and did not breach its
obligation under the Agreement.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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