| Date | 12 March 1997 |
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| Judgment | Leicestershire County Council -v- Warren Energy Ltd (ORB) 20 January 1997, 6 Bliss 5 |
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| The Issue | Interpretation of best endeavours clauses. |
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| Implication |
Best endeavours will relate to the situation and knowledge at any given time during a contract, combined with an element of reasonableness. Further guidance in relation to best endeavours given. |
printConstruction contracts often require a contractor to employ best endeavours in carrying out and completing the construction works. There has however been little in the way of judicial guidance on the meaning of these words and the case of Leicestershire County Council -v- Warren Energy Ltd may therefore be of some interest. The case concerned the generation of electricity from methane gas produced as a by-product of the disposal of domestic rubbish at Warren Quarry, Enderby, near Leicester. Initially this landfill gas was collected from the site through a system of wells and pipes and burnt from flare stacks. However, in December 1989 Leicestershire County Council (LCC) entered into an agreement with Warren Energy Ltd (WEL) that, for a period of fifteen years, LCC would supply landfill gas to WEL which the latter would use to generate electricity for onward sale to the East Midlands Electricity Board. Disputes arose between the parties concerning the volumes and pressures of gas supplied to WEL, who refused to make payments for any gas supplied from the outset of the contract, saying that as a consequence of the manner in which the gas had been supplied, they were entitled to substantial damages for loss of profits. WEL admitted that they had received in revenue from sales of the electricity generated by engines driven by the gas, an amount of approximately £530,000. LCC considered that they were entitled, as a minimum, to a payment of approximately £330,000 for gas supplied by them. In considering the matters before him, His Honour Judge Bowsher QC said that the central and most important issue was the agreement of both parties' experts that gas had been delivered to the generating engines at inadequate pressure and as a result less electricity had been generated than might have been expected. Although there was a guaranteed minimum provision for quality and quantity of gas, he was satisfied that LCC had consistently supplied more than that contractual minimum. Unfortunately, however there was no express or implied terms to be found in the contract requiring LCC to supply gas at more than a nominal pressure above negative pressure. Within the contract, both parties were to execute aspects of their works using best endeavours. LCC agreed to use its best endeavours to maintain, develop and operate the gas extraction and pumping systems at the quarry to ensure extraction of the optimum volumes and qualities of the gas. WEL, on the other hand, were to use its best endeavours during the contract to maximise the use of the gas available from the quarry. Judge Bowsher had therefore to consider these "best endeavours" clauses. He was satisfied that a best endeavours provision can create an enforceable obligation upon a party, referring to the 1992 case of Walford -v- Miles. He also considered the 1952 case of Terrell -v- Mabie Todd, and the 1982 case of Pips Ltd -v- Walton where it was held that best endeavours would impose a duty to do what can reasonably be done in the circumstances, the standard of reasonableness being that of a reasonable and prudent board of directors acting properly in the interests of their company. He also quoted the rather obvious statement to be found in Sheffield District Railway -v- Great Central Railway, that "best endeavours means what it says - it does not mean second best endeavours". Moving on to the parties' arguments, he rejected the submission made on behalf of WEL that a best endeavours obligation is the next best thing to an absolute obligation or a guarantee. Furthermore, he could not agree with LCC that best endeavours must be construed in the light of the art at the time of entering into the contract. Judge Bowsher stated that it must at least be construed in the light of the science or knowledge as it developed from time to time during the life of the contract. This latter point was particularly relevant considering the developing science in relation to landfill sites. This did not however mean that the actions of either party should be viewed with the benefit of hindsight but rather that the parties should use their "best endeavours" to develop their systems and methods of operation. This corresponds with what most construction professionals would instinctively expect. In overcoming problems on a construction site a contractor is expected to apply such organisation and management skills and to best apply available resources to minimise the effects of the problem. This would not normally include substantial expenditure on further additional resources. Returning to our landfill site, Judge Bowsher was satisfied that he could not find the breaches of contract alleged by Warren Energy Ltd. Their counter claim would therefore be dismissed and judgment was given for Leicestershire County Council in the amount of £330,000.
CJ-9710
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