March 1, 2014
Maritime contracts increasingly contain "endeavours" clauses, for example, a party must use its best endeavours or all reasonable endeavours, but uncertainty over the extent of such obligations under these clauses often leads to disputes. Recently, the Singapore Court of Appeal had the opportunity to review contractual clauses referring to the obligation on the part of parties to exercise "endeavours". Although each contract should be interpreted on its own particular wording and surrounding circumstances, the court issued some guidelines.
In KS Energy Services Ltd v BR Energy (M) Sdn Bhd,1 the Court of Appeal held that the guidelines for interpreting a "best endeavours" clause2 apply equally to an "all reasonable endeavours" clause as there is no significant difference between the two and laid down the following guidelines applicable to both such clauses:3
- such clauses require the contracting party to go on using endeavours until the point is reached when all reasonable endeavours have been exhausted;
- The contracting party need only do that which has a significant or real prospect of success in achieving the contractually stipulated outcome.
- Where there is an insuperable obstacle to achieving the contractually stipulated outcome, the contracting party is not required to do anything more to overcome other obstacles which might have been resolved as well.
- The contracting party need not always sacrifice its own commercial interests to perform its obligations unless the contract states otherwise.
- The contracting party may have to ask the other party whether there are other steps that it could reasonably have taken. Otherwise, the contracting party cannot assert that it did all it reasonably could to achieve the stipulated outcome.
- If the other party points to certain steps that could have been taken to achieve the stipulated outcome, the contracting party must then show that it took those steps or that those steps either were not reasonably required or were bound to fail. If this course of action is eventually revealed to be inefficient, the contracting party will not be scrutinised based on perfect hindsight.
The Court of Appeal's decision reduces the uncertainty associated with "endeavours" clauses. Nonetheless, despite the abovementioned guidelines, differing circumstances may still alter the scope of a similarly worded "endeavours" clause. Commercial parties who value certainty should consider expressly stipulating the precise standard of conduct expected of each party under an "endeavours" clause to reduce uncertainty.
1 SGCA 16 ("KS Energy").
2as laid down in Travista Development Pte Ltd v Tan Kim Swee Augustine
3KS Energy at .