ENDEAVOURS CLAUSES IN SINGAPORE CONTRACT LAW
| Citation | (2019) 31 SAcLJ 21068 |
| Published date | 01 December 2019 |
| Publication year | 2019 |
| Date | 01 December 2019 |
1 Usually, contractual obligations are absolute, in the sense that they strictly require the obligor to achieve a contractually-stipulated outcome.1 Under an absolute contractual obligation, the obligor must completely and precisely procure the contractually-stipulated outcome. Any failure by the obligor to do so, without lawful excuse, will constitute a breach of contract.
2 However, contracting parties often prefer to impose non-absolute (or qualified) contractual obligations on the obligor. In KS Energy Services Ltd v BR Energy (M) Sdn Bhd (“KS Energy”), the Court of Appeal provided a clear explanation of the difference between “absolute” and “qualified” contractual obligations:2
A contract will usually impose an obligation on a party to do something. The obligation may be absolute or non-absolute (ie, qualified). An example of an absolute obligation in a contract is: Party A shall deliver a pen to me by tomorrow. An example of a non-absolute obligation is: Party A shall use reasonable endeavours to deliver a pen to me by tomorrow. In the latter example, the obligation is qualified by the phrase ‘reasonable endeavours’. A party under an absolute obligation undertakes to achieve a result, whereas a party under a non-absolute obligation merely undertakes to try to achieve a result in accordance with a particular standard of conduct (eg, reasonable endeavours). [emphasis added]
3 There are many reasons why contracting parties might wish to impose qualified contractual obligations. One important reason would be that the obligor is unable or unwilling to guarantee the achievement of the contractually-stipulated outcome. This is likely to happen where the obligor is required to procure the action or approval of some third party, over whose decisions the obligor has little or no control. It may also happen where the contractually-stipulated outcome is too indeterminate or ambitious to be amenable to an absolute obligation.
4 To formulate such qualified contractual obligations, contracting parties frequently use qualifying phrases such as “best endeavours” or “reasonable endeavours”. Contractual clauses incorporating such qualifying phrases are referred to as “endeavours clauses”. Whatever the reason parties might have for imposing qualified contractual obligations, it is clear that endeavours clauses are a useful mechanism for doing so.
5 Clarity on the use and meaning of endeavours clauses is important in several contexts. First, parties should understand what an endeavours clause entails before including it in their contracts. As will be made clear in the discussion that follows, the choice of phrasing used in an endeavours clause can have dramatic implications on the scope of the obligation imposed on the obligor. Second, during the actual performance of an endeavours obligation, it is useful for the obligor to be aware of what it is (and is not) required to do in light of its current circumstances, as what is demanded of an obligor under an endeavours clause can vary with the situation. Third, when things fall apart, as they tend to do from time to time, and the obligee alleges a breach of an endeavours clause by the obligor, it may be necessary to adjudicate between competing interpretations of what the endeavours clause required the obligor to do. This is not always easy as endeavours clauses impose obligations of a rather indefinite nature.
6 The Singapore courts have, through a series of cases, established guidelines for the interpretation of endeavours clauses. This article now turns to examine the case law to date pertaining to endeavours clauses, with the view to explaining the Singapore courts' approach to interpreting endeavours clauses.
7 It is established law that “interpretation is the ascertainment of the meaning which the expressions in a document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties at the time of the contract”.3 When interpreting a contract, the court's task is to “ascertain, based on all the relevant objective evidence, the intention of the parties at the time they entered into the contract”.4
8 The Singapore courts have adopted a set of general principles applicable to the interpretation of contracts. Endeavours clauses, like any other contractual clauses, must be interpreted in accordance with these principles which were recently summarised by the Court of Appeal as follows:5
(a) The starting point is that one looks to the text that the parties have used (see Lucky Realty Co Pte Ltd v HSBC Trustee (Singapore) Ltd [2016] 1 SLR 1069 at [2]).
(b) At the same time, it is permissible to have regard to the relevant context as long as the relevant contextual points are clear, obvious and known to both parties (see Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd [2008] 3 SLR(R) 1029 at [125], [128] and [129]).
(c) The reason the court has regard to the relevant context is that it places the court in ‘the best possible position to ascertain the parties’ objective intentions by interpreting the expressions used by [them] in their proper context’ (see Sembcorp Marine Ltd v PPL Holdings Pte Ltd [2013] 4 SLR 193 at [72]).
(d) In general, the meaning ascribed to the terms of the contract must be one which the expressions used by the parties can reasonably bear (see, eg, Yap Son On v Ding Pei Zhen [2017] 1 SLR 219 at [31]).
9 It should be emphasised that the contractual text will always be the “first port of call” in interpreting an endeavours clause.6 The courts first make reference to the words used to constitute the endeavours clause in question, read in the light of the rest of the contractual text (that is, the internal context);7 this is followed by reference to the available extrinsic facts (that is, the external context).8
10 Given the principles of contractual interpretation summarised above,9 it may be questioned why it is necessary to consider case law dealing specifically with the interpretation of endeavours clauses. If contracts should always be interpreted by reference to the general principles of interpretation in light of the particular facts of each case, what is the relevance of past precedents to the interpretation of an endeavours clause in a present case?
11 It is true that precedents are usually of limited utility in the interpretation of words and phrases used in contractual documents. This is because the same word or phrase can bear different meanings in different contexts. Thus, in L Schuler AG v Wickman Machine Tool Sales Ltd, Lord Morris doubted “whether, save in so far as guidance on principle is found, it is of much value (although it may be of much interest) to consider how courts have interpreted various differing words in various differing contracts”.10
12 That being said, precedents are of higher value where what is being interpreted is a standard word, phrase or clause frequently used in contracts. In such “standard form” cases, greater weight is placed on prior decisions that illuminate the meaning of the standard words used by the parties. The general principles of interpretation do continue to apply, and context remains relevant, but their influence is structured by the intermediating framework generated by precedent.11
13 More precisely, the Court of Appeal has made it clear that past decisions interpreting a standard phrase can establish a prima facie meaning of that standard phrase, which applies by default in future cases. As explained in KS Energy:12
[D]ecisions on the meaning and effect of certain commonly-used phrases provide authoritative guidance on the prima facie meaning of similar phrases when they are used in documents that are intended to have legal effect. This is especially so because the contracting parties would have taken into account the general law in reaching their agreement. Furthermore, attributing such prima facie meanings to similar phrases (ie, phrases similar to commonly-used phrases) promotes commercial certainty. Hence, unless there is a contrary and objectively-ascertained intention on the part of the parties, the court will generally assume that in using similar phrases in their contract, the parties intended these phrases to bear their prima facie meaning.
14 Endeavours clauses, incorporating standard phrases such as “best endeavours” and “reasonable endeavours”, are so commonly used in contracts that they may safely be regarded as a type of standard clause. Thus, past decisions providing guidance on the interpretation of endeavours clauses are relevant to the interpretation of such clauses in a present case. In this regard, the Singapore courts have taken pains to set out specific guidelines for interpreting the meaning of endeavours clauses. These specific guidelines are practically significant because, as mentioned above, they are applicable by default.
15 The courts have laid out guidelines for at least three common variants of endeavours clauses: (a) “best endeavours” clauses; (b) “all reasonable endeavours” clauses; and (c) “reasonable endeavours” clauses. In Singapore, the guidelines for “best endeavours” clauses and “all reasonable endeavours” clauses are fairly well-developed, while there remains some uncertainty with respect to “reasonable endeavours” clauses. This article now turns to examine the guidelines for each variant.
16 It is settled law, at least in the Singapore context, that “best endeavours” clauses and “all reasonable endeavours” clauses generally impose the same standards on the obligor.13 The Court of Appeal in KS Energy took the view that there was unlikely to be any practical
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