In the recent case of Woodside Energy Ltd v Electricity
Generation Corporation, the High Court considered the
construction of a contractual clause requiring a party to 'use
reasonable endeavours' to supply supplemental gas and found
that a party's contractual obligation to use 'reasonable
endeavours' to deliver a product under a supply agreement did
not require it to forgo its own business and commercial
Electricity Generation Corporation, trading as Verve, is a
statutory corporation responsible for generating and supplying
electricity to a large area of Western Australia.
Verve entered into a long term gas supply agreement with various
gas suppliers including Woodside Energy. Under the supply
agreement, Woodside was obliged to provide gas up to a maximum
daily quantity and to 'use reasonable endeavours to make
available' a supplemental maximum daily quantity of gas.
Following the explosion of a gas plant operated by another
supplier, gas supply to the Western Australian market was severely
disrupted, which in turn caused a significant rise in the market
price of gas.
Woodside subsequently entered into a number of gas supply
contracts and informed Verve that they would be unable to supply
any supplemental quantity of gas under the existing agreement but
could instead supply an equivalent amount of gas at an inflated
Under protest, Verve entered into a short term gas supply
agreement under which Woodside would supply gas at the prevailing
market price, without being obliged to supply any specific quantity
In March 2009, Verve commenced proceedings in the Supreme Court
of Western Australia against Woodside arguing that the Woodside had
breached their obligation to use 'reasonable endeavours' to
supply supplemental gas in accordance with the supply
Woodside argued that the requirement to 'use reasonable
endeavours' was tempered by another subclause in the supply
agreement providing that Woodside must take into account 'all
relevant commercial, economic and operation matters' in
deciding they were 'able' to supply a supplemental quantity
Verve responded that 'able' refers to Woodside's
capacity to supply gas, rather than whether they wished to
Decision at first instance and on appeal
At trial in the Supreme Court of Western Australia, the primary
judge found that Woodside had not breached its reasonable
endeavours obligation by refusing to supply supplemental gas where
it was more profitable to supply the gas under a short term
However, on appeal, the Court of Appeal held that the relevant
consideration was the capacity to supply supplemental gas and
therefore, Woodside had breached their 'reasonable
Decision of the High Court
The High Court explained that a 'reasonable endeavours'
type obligation is not an absolute or unconditional obligation,
being necessarily conditioned by the surrounding circumstances.
The High Court also added that a contractual clause can contain
in its own internal standard of what is reasonable. The chief
commercial object of the supply agreement was to secure minimum gas
supply, with additional gas supply being a supplementary
The High Court held that Woodside was not obliged to sacrifice
its business interests for the purpose of this supplementary
object, and so its decision not to supply additional gas to Verve
was not a breach of contract.
The decision of the High Court in Woodside is not a departure
from existing legal principles - both sides accepted that the
prevailing, objective test for contractual construction was
correct. However, the Court found that the objective test allows
for a court to consider the reasonable business interests of each
party to an arms-length commercial contract, including each
party's desire to maximise profits.
The case serves as yet another example of the fact that a
'reasonable endeavours' clause may not necessarily provide
much protection to parties where extraordinary circumstances
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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