Intro
This case concerned the true construction of clauses 4.1, 4.2, and 4.3 of a 2013 Agreement for the production of editorial content and securing advertisements, specifically focusing on whether there was an operative provision for a Minimum Guaranteed Sum (“MGS”) and the effect of a “reasonable endeavours” clause.
The Federal Court dismissed the appeal, upholding the Court of Appeal’s decision.
Legal Principles and Court Findings
1. Construction of Minimum Guaranteed Sum (MGS) Obligation: The court held that there was no specific operative provision for an MGS in the 2013 Agreement, which was the ultimate question of the appeal.
- Court Excerpt on Absence of Guarantee: “Nowhere did the phrase ‘Minimum Guaranteed Sum’ or ‘guarantee’ appear in cls 4.1 and 4.2. It was clear from a plain reading of cls 4.1. and 4.2 that there was no provision creating a liability on the part of the Plaintiff to fulfil any specific amount to the Defendant as an absolute and unconditional obligation under the 2013 Agreement. Instead, cls 4.1 and 4.2 provided for the percentage of Net Advertising Revenue that the Defendant was required to pay to the Plaintiff.”
2. Effect of the “Reasonable Endeavours” Clause (cl 4.3): The court found that the “reasonable endeavours” clause in clause 4.3 meant the thresholds set by clauses 4.1 and 4.2 were merely projections, not rigid commitments.
- Court Excerpt on Nature of Obligation: “With the ‘reasonable endeavours’ clause under cl 4.3 of the 2013 Agreement, the thresholds set by cls 4.1 and 4.2 were merely soft targets and projections to be fulfilled by the Plaintiff based on the standard of reasonable endeavours.”
- Court Excerpt on Commercial Purpose: The inclusion of the clause provided a “pragmatic and commercially sensible approach aligning the Plaintiff’s obligations with the unpredictable dynamics of the advertising industry,” and it functioned as a “soft target establishing a practical benchmark for the Plaintiff’s performance.”
3. Burden of Proof for “Reasonable Endeavours”: The Federal Court clarified where the burden of proof lies when relying on a “reasonable endeavours” clause.
- Court Excerpt on Burden: “The burden of proof in reliance on a ‘reasonable endeavours’ clause fell first on the obligee, ie the Defendant. It follows that, unlike in the case of a guaranteed undertaking… in the case of an obligation of reasonable endeavours, proof that the promised result was achieved was insufficient since the mere fact that the result had not been achieved did not necessarily mean that the obligor had not properly performed its obligation. It was incumbent upon the obligee to prove that the obligor had not discharged its obligation with the reasonable diligence required.”
- The court found that the Defendant failed to lead sufficient evidence that the Plaintiff did not use its reasonable endeavour.
4. The Contra Proferentem Rule: The court declined to answer the question regarding the application of the contra proferentem rule (construing ambiguous clauses against the party who proffered the contract).
- Court Excerpt on Ambiguity: The court declined because “there were also no ambiguities or inconsistencies in the terms or clauses in the 2013 Agreement, nor was this the finding of the Court of Appeal.”
5. The Generalia Specialibus Non Derogant Maxim: The court also declined to answer the question regarding this maxim (general provisions do not derogate from specific provisions).
- Court Excerpt on Application: “Canons of construction should be applied only when the language of the contract was ambiguous.”
- The court found no inconsistency between clauses 4.1 and 4.2 (desired results/no guarantee) and clause 4.3 (standard for performance), as clause 4.3 merely qualified clauses 4.1 and 4.2. Therefore, the maxim did not offer help to the Defendant’s case.
6. Consideration and Uncertainty: The court answered this issue in the negative, finding the Defendant’s contentions without merit.
- The court rejected the argument that a “reasonable endeavours” clause negated the Plaintiff’s consideration obligation under the Contracts Act 1950 (CA).
- The court also rejected the argument that giving effect to a “reasonable endeavours” clause created uncertainty or ambiguity contrary to the CA, noting that Courts use an objective approach to contractual interpretation.
Disclaimer: This post is for informational purposes only and does not constitute legal advice. Please consult a qualified Advocate & Solicitor for your specific legal needs
