Rhodia International Holdings Ltd. Rhodia UK Ltd. v Huntsman International Llc

An obligation to use reasonable endeavours is generally less stringent than an obligation to use best endeavours. However, where the contract expressly requires a particular step, that step must be taken if the specified condition is satisfied. A party subject to a reasonable-endeavours obligation could not refuse to provide a parent-company guarantee merely because doing so might prejudice its commercial interests. A categorical refusal by a third party may end the obligation to make further efforts, but the refusal must genuinely be categorical. A valid contractual notice relieving a purchaser from further obligations could not be given where the purchaser had failed first to comply with its reasonable-endeavours obligation.

The claim arose from the sale of a European chemical surfactants business under a sale and purchase agreement. The Energy Supply Contract for the Whitehaven combined heat and power plant was a restricted contract requiring consent to novation. Huntsman performed Rhodia’s obligations for a period, but the contract was never novated because Cogen required financial assurances concerning the designated purchaser.

Huntsman later withdrew its request for novation and served notice requiring exclusion of the contract under clause 15.1.4. Rhodia claimed an indemnity or damages, alleging breach of clause 15. The trial was limited to liability. The issues were whether Huntsman had used reasonable endeavours, whether its notice was valid, and whether it remained obliged to perform under clause 15.1.3.

1. Huntsman was in breach of clause 15.1.2. The obligation to use reasonable endeavours was less stringent than an obligation to use best endeavours. It did not necessarily require every reasonable course. Nevertheless, the contract expressly required Huntsman to provide a direct covenant if Cogen reasonably required one. That requirement was mandatory.

2. Cogen’s request for a guarantee or similar security was communicated to Huntsman by October 2001 at the latest. The request was sufficiently clear even though Cogen had not specified the precise form of guarantee required. Huntsman was obliged to find out what form would be acceptable and, if necessary, provide it. Its reluctance to give a parent-company guarantee for reasons of group policy or commercial self-interest was no answer.

3. The requirement for security continued. Cogen’s subsequent requests for financial information did not replace the requirement for a guarantee or similar protection. The letter of 31 January 2003 was not a categorical refusal which relieved Huntsman from further endeavours. Huntsman therefore remained in breach.

4. The notice dated 5 March 2004 under clause 15.1.4 was invalid because the condition that Huntsman must first have performed its clause 15.1.2 obligations was not satisfied. The court nevertheless considered the alternative construction of clause 15.1.4 and preferred Huntsman’s argument: a purchaser which had complied with its reasonable-endeavours obligation and served a valid notice would generally be relieved of further obligations, irrespective of the third party’s reason for refusing novation.

5. Clause 15.1.3(b) applied. The Energy Supply Contract did not impose a blanket prohibition on subcontracting or delegation. Cogen’s acquiescence in Huntsman’s performance also meant that performance could not, as between Cogen and Rhodia, be treated as prohibited. Huntsman therefore remained liable to perform Rhodia’s obligations under clause 15.1.3(b) after 5 March 2004.

The court determined all three liability issues in Rhodia’s favour.