Jayam NV v The Diamond Trading Company Ltd

A contractual obligation to use reasonable endeavours gives the obligor substantial latitude as to the method adopted, provided the method remains within the specified contractual criteria and is reasonable. Where demand exceeds supply, an application-capping mechanism may be a permissible means of matching supply and demand, even if the contract does not expressly mention it. A cap based on purchases over the previous ten Sights, with reasonable growth allowances, was not inherently unfair, arbitrary or unreasonable. A new contractual allocation system may ordinarily use previous discretionary allocations as its starting point, unless clear contractual language requires a fresh assessment.

Jayam, a De Beers customer, alleged that DTC breached paragraph 2.4 of the Supplier of Choice Policy Statement. It argued that DTC’s application-capping mechanism introduced an unauthorised additional criterion and caused Jayam to enter the system at too low a level. DTC maintained that the mechanism was a reasonable means of taking account of the requirements of other Sightholders and matching demand with limited supply.

The central issues were whether paragraph 2.4 permitted an application-capping mechanism and whether the particular mechanism, including its use of historical purchases and the transition from the earlier discretionary system, breached the contractual obligation to use reasonable endeavours.

1. Claim dismissed. Jayam failed to establish any breach of paragraph 2.4 of the Policy Statement.
2. Paragraph 2.4 required DTC to use reasonable endeavours to meet applications while taking account of four specified criteria. It did not prescribe a particular methodology or guarantee any particular outcome. Subject to acting reasonably and remaining within the scope of those criteria, DTC had substantial discretion as to the allocation method.
3. Because demand for rough diamonds substantially exceeded supply, it was reasonable in principle for DTC to use an application-capping mechanism. The absence of an express reference to capping in paragraph 2.4 was immaterial.
4. The mechanism used from H2/2003 was not inherently unreasonable or unfair. A threshold based on historical purchases over the previous ten Sights, together with an uplift allowing for growth, could provide a reasonable proxy for forthcoming requirements and address tactical over-application. The mechanism also contained flexibility through growth allowances, ranking incentives and the ability to apply for different bands.
5. The use of previous discretionary allocations as the starting point for the new system was not unreasonable. The purpose of the Supplier of Choice arrangements was to establish a transparent and objective system for the future, not to remedy alleged past injustices. Clear contractual language would have been required before DTC could be obliged to disregard the previous purchasing history entirely.
6. The earlier prototype mechanisms did not establish liability. Their output was advisory, and the evidence showed that the four-Sight reference period used in H2/2002 had not caused Jayam loss when compared with the acceptable ten-Sight alternative.
7. The observations on damages were unnecessary to the result. The parties agreed that any claim would involve loss of a chance and a real and substantial chance of obtaining higher allocations. The court declined to determine quantum in the absence of liability.

First-instance decision. No prior appellate history is stated in the judgment.