Allyson Colby addresses what the Court of Appeal replay between Bristol Rovers and Sainsbury’s means for obligations to act in good faith
Key point
- Obligations to act in good faith and to use reasonable endeavours to achieve a stated object were limited by other, more specific, contractual provisions
There is no general doctrine of good faith in English contract law. However, parties may specifically agree that they will act in good faith in relation to some or all of their obligations in an agreement. The question then arises: where exactly do the boundaries of the duty lie? Bristol Rovers (1883) Ltd v Sainsbury’s Supermarkets Ltd [2016] EWCA Civ 160; [2016] PLSCS 89 demonstrates that the court will not interpret a duty of good faith, or indeed a duty to use all reasonable endeavours to achieve a stated object, in such a way that they cut across specific contractual provisions.
Background
The litigation concerned a £30m deal for the sale of a football stadium, which was to be redeveloped as a retail-led mixed-use development. The contract for sale was conditional on, among other things, the grant of planning permission for the new development and, if the conditions were not satisfied by an agreed date, either party was entitled to terminate the agreement.
The retailer required a planning permission that would enable it to service the store 24 hours a day, seven days a week. However, the permission granted by the local authority was more restrictive. The parties agreed that this was an “onerous condition” for the purposes of their agreement and the retailer made an application to vary the condition.
The timing was unfortunate, due to local opposition to the development, and the application was refused. Meanwhile, the retailer had begun to have its doubts about the scheme and was looking for a way out of its contractual obligations. It considered that the planning authority’s refusal to vary the condition offered just such an opportunity. The football club disagreed.
Contractual provisions
The club relied on the fact that the retailer had agreed to act in good faith and to use all reasonable endeavours to obtain an acceptable permission as soon as reasonably possible. It did not believe that the retailer had supplied sufficient information in support of its application to vary the planning condition and suggested that it should have appealed against the refusal to vary the condition or made a further application to amend it. Alternatively, the retailer should have allowed the club to make its own application to vary the condition in order to secure an acceptable permission before the contractual deadline passed.
However, the parties’ agreement allowed the retailer to choose not to appeal against a planning decision, unless it was advised that an appeal stood at least a 60% chance of success. The parties had agreed to treat an application to vary the onerous condition as an “appeal” for the purposes of their agreement and the planning barrister instructed by the retailer had considered that any further application had only a 55% chance of success. In addition, counsel had advised that, if the planning authority were to impose limits on noise levels, which could only be complied with at additional – and substantial – cost, then this too would be an onerous condition, even if the football club were to bear the expense.
The retailer claimed that it had lawfully terminated the contract following non-satisfaction of the conditions in the contract. However, the club took the view that the contract was still subsisting, or had been wrongly terminated because the retailer was in breach of its obligations to act in good faith and to use all reasonable endeavours to procure the grant of an acceptable planning permission as soon as reasonably possible.
Planning obligations
One of the points made by the club was that the retailer had taken advantage of a contractual provision prohibiting the club from making its own planning applications in respect of the site. It had asked the retailer for permission to submit its own application to vary the onerous planning condition – and claimed that, had it been allowed to do so, it could have obtained an acceptable permission before the cut-off date in the parties’ agreement.
The court agreed with the club that the retailer had remained under an obligation to pursue an acceptable planning permission until there were no more reasonable steps that it could take to secure such a permission. However, it rejected the club’s arguments that the retailer should have allowed it to make its own application to vary the onerous condition, especially in circumstances where the retailer was not obliged to pursue such an application itself. The court considered that this would cut across the provisions in the agreement spelling out the parties’ planning obligations, or wholly negate them.
Good faith
The court held that the retailer’s duty to act in good faith applied to the way in which it discharged its own obligations under the agreement. It had been obliged to apply for planning permission for the development. Therefore, its refusal to allow the club to make a planning application was not a breach of its duty of good faith under the agreement.
Furthermore, the obligation to act in good faith did not require the retailer to adhere to the spirit of the contract at the expense of the black letter of the agreement. Consequently, the retailer had not been in breach of contract and was entitled to terminate the agreement when it did.
The decision reminds us that the scope of obligations to act in good faith and to use reasonable endeavours to achieve an objective depend on their context – and underlines the importance of agreeing specific provisions that impose limits on general obligations.
Allyson Colby is a property law consultant
