Most commercial contracts contain a standard clause obliging the parties to use “reasonable endeavours” or “best endeavours” to carry out their obligations.

In Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7 the High Court considered whether they are they the same and how far a party had to go to satisfy the obligation.

The case concerned the supply of gas to the Western Australian market, which was temporarily disrupted by an explosion at a gas plant, and whether the sellers breached the “reasonable endeavours” obligation by not providing the full quantities required at a fixed price.

The supply contract expressly stated that the supplier was able to take into account “commercial, economic and operational matters”.

The majority of judges decided that “the Sellers are not obliged to forgo or sacrifice their business interests when using reasonable endeavours”. The Sellers were not obliged to perform the contract if it conflicted with their own business interests.

For the purpose of the decision “reasonable endeavours” was equated with “best endeavours”.

The decision highlights the importance of drafting a clause that takes into account the business objectives of the parties.

In Cypjayne Pty Limited v Babcock & Brown International Pty Ltd [2011] NSWCA 173 the NSW Court of Appeal decided that where an obligation to use ‘reasonable commercial endeavours’ to satisfy conditions precedent to an agreement was imposed, a purchaser could withdraw from the proposed transaction because it was not in the party’s commercial interests to proceed.

The purchaser was obliged to take steps reasonably available to it to put itself in a position where it could enter into the transaction and to negotiate agreements in acceptable form. However, if such steps did not result in the party being financially able to do so the reasonable endeavours obligation did not require the purchaser to proceed with the transaction.