ATMOSPHERIC DIVING SYSTEMS INC.

V.

INTERNATIONAL HARD SUITS INC.

FACTS-

The plaintiff purchased two diving suits from the defendant for a total price of $600,000. The
suits represented new technology and were much like a one-person submarine, enabling a diver
to dive to substantial depths and to operate with dexterity. The parties agreed that at the
plaintiff's request, made within one year after purchase, the defendant would use its "best efforts"
to sell the diving suits to the next available purchaser or purchasers who had ordered suits from
the defendant and who had not yet taken delivery. The plaintiff made that request and, after some
discussion between the parties, the defendant agreed to offer the plaintiff's suits to a customer
who had ordered suits. The defendant did not tell the plaintiff the customer was paying $250,000
for each of three new suits as part of a deal whereby that customer was also obtaining 250,000
shares in the defendant at a price of $1 each. The defendant offered the plaintiff's suits to that
customer at $300,000 each. It did not tell the customer that the plaintiff was willing to accept less
and it did not tell the plaintiff of the customer's needs and circumstances. The customer did not
buy the suits and the defendant did not arrange any other sale. The plaintiff eventually sold the
suits on its own at a total price of $380,000. It sued for damages for breach of contract.

HELD-

Judgment for plaintiff.

A "best efforts" clause in a contract imposes a higher obligation than a "reasonable effort." It
means taking, in good faith, all reasonable steps to achieve the objective, carrying the process to
its logical conclusion, leaving no stone unturned. It includes doing everything known to be usual,
necessary and proper for ensuring the success of the endeavour. The meaning of "best efforts" is
not boundless. It must be approached in the light of the particular contract, the parties to it and
the contract's overall purpose as reflected in its language. While "best efforts" of the defendant
must be subject to such overriding obligations as honesty and fair dealing, it is not necessary for
the plaintiff to prove the defendant acted in bad faith. Evidence of "inevitable failure" is relevant
to the issue of causation of damage, but not to the issue of liability. The onus to show that failure
was inevitable, regardless of whether the defendant made best efforts, rests on the
defendant. Evidence that the defendant, had it acted diligently, could have satisfied the "best
efforts" test, is relevant evidence the defendant did not use its best efforts. Here, the defendant's
actions were commercially unreasonable and fell short of "best efforts." It went through the
motions of offering the plaintiff's suits to its next available customer, but it fashioned an offer
which came nowhere near being reasonably attractive. The plaintiff was entitled to damages
calculated on the $600,000 purchase price, less a 20 per cent negative contingency, i.e.,
$120,000, less the sale price of $380,000.

CASES REFERRED.

BEM Enterprises Ltd. v. Campeau Corp.

Berliz v. Charter Oil Co.

Bruce v. Waterloo Swim Club

CAE Industries Ltd. v. R.

IMPORTANT PHRASES CONSIDERED.

. . . the principles extracted from the cases on the issue of "best efforts" are:

1. "Best efforts" imposes a higher obligation than a "reasonable effort".

2. "Best efforts" means taking, in good faith, all reasonable steps to achieve the objective,
carrying the process to its logical conclusion and leaving no stone unturned.

3. "Best efforts" includes doing everything known to be usual, necessary and proper for ensuring
the success of the endeavour.

4. The meaning of "best efforts" is . . . not boundless. It must be approached in the light of the
particular contract, the parties to it and the contract's overall purpose as reflected in its language.

5. While "best efforts" of the defendant must be subject to such overriding obligations as honesty
and fair dealing, it is not necessary for the plaintiff to prove that the defendant acted in bad faith.

6. Evidence of "inevitable failure" is relevant to the issue of causation of damage but not to the
issue of liability. The onus to show that failure was inevitable regardless of whether the
defendant made "best efforts" rests on the defendant.

7. Evidence that the defendant, had it acted diligently, could have satisfied the "best efforts" test,
is relevant evidence that the defendant did not use its best efforts.