High Court updates 'reasonable endeavours': Commercial interests vs An obligation owed

Litigation Update (Australia)

Electricity Generation Corporation v Woodside Energy Ltd; Woodside Energy Ltd v Electricity Generation Corporation [2014] HCA 7 (5 March 2014)

WHAT HAPPENED?

The High Court has, by a 4:1 majority, held that Woodside Energy Ltd and other gas suppliers in Western Australia (the Sellers) did not breach their obligation under a Gas Supply Agreement to use "reasonable endeavours" to make additional quantities of gas available to the Electricity Generation Corporation t/as Verve Energy (Verve). The Court has reaffirmed its approach to the interpretation of commercial contracts that such contracts should be given a business-like interpretation on the assumption that parties intended to produce a commercial result. Viewed in this light, contractual obligations framed in terms of "reasonable endeavours" do not oblige a party to forego or sacrifice their business interests. THE BACKGROUND

The Sellers and Verve were parties to a Gas Sale Agreement (GSA), which in addition to the maximum daily quantity of gas, also obliged the Sellers to use "reasonable endeavours" to make available to Verve a supplemental maximum daily quantity of gas (SMDQ).

On 3 June 2008, an explosion occurred at a gas plant operated by a third party (Apache Energy Limited). This led to...