Allyson Colby looks at Bristol Rovers’ defeat to Sainsbury’s, and how the stadium row tests the limits of the duty of good faith
Key points
- The success of schemes that are the subject of conditional contracts is governed both by the terms agreed and by extraneous events
- A duty of good faith will not cut across specific contractual rights or provisions
Feelings often run high in football – and never more so than when a club loses at home. Consequently, fans of Bristol Rovers were deeply disappointed when the club lost a legal battle with Sainsbury’s that was crucial to its plans to move to a new stadium, and will be willing its appeal, which is scheduled to be heard next year, to succeed.
It had seemed a perfect match. Sainsbury’s had agreed to pay £30m for the site of the old-fashioned Memorial Stadium and to lease it back to the club at a peppercorn rent until the new ground was ready. Then, once the club had moved, Sainsbury’s would build a superstore.
Changing conditions
A number of conditions needed to be satisfied before the transaction could proceed and, if the conditions were not met by an agreed cut-off date, either party was entitled to terminate the agreement. One such condition was that Sainsbury’s obtained an acceptable planning permission for its scheme.
Unfortunately, the local authority granted permission subject to a condition that was “onerous” for the purposes of the parties’ agreement because it restricted overnight deliveries to the store. Meanwhile, there had also been a change in economic circumstances and Sainsbury’s was having doubts about the scheme.
However, the company had undertaken “to act in good faith” when discharging its obligations under the agreement and agreed to make an application to vary the condition. The timing was unfortunate; the application was submitted in the teeth of a separate application for judicial review of the scheme – and was refused.
The parties’ agreement allowed Sainsbury’s to choose whether to appeal, unless it was advised that an appeal stood at least a 60% chance of success. The planning counsel appointed by Sainsbury’s rated the chances less highly than that and the company decided to pull out of the scheme, which led to the litigation in Sainsbury’s Supermarkets Ltd v Bristol Rovers (1883) Ltd [2015] EWHC 2002 (Ch); [2015] PLSCS 218.
Obligations
Legal textbooks are full of examples of litigants who have found, and exploited, a loophole in their agreements. In this case, the club complained that Sainsbury’s had tried to wriggle out of its commitment by sticking to the letter of the agreement. The club claimed that Sainsbury’s had applied to vary the condition at an unpropitious time in the hope that the failure of the application would enable it to withdraw.
The agreement required Sainsbury’s to use all reasonable endeavours to procure the grant of an acceptable planning permission and to pursue any appeal – or, for the purposes of this case, the application to vary the onerous condition – with due diligence. Had it done so?
The judge decided that Sainsbury’s could not have done anything more to obtain an acceptable planning permission within the timescale laid down in the agreement. Proudman J accepted that Sainsbury’s should have engaged with local councillors and objectors and kept the club informed, but ruled this did not affect the success of the application to vary the condition. Furthermore, the club had agreed the timing, and terms, of the application.
The judge rejected the club’s suggestion that Sainsbury’s should have withdrawn the application when the political mood became clear and resubmitted it at a later date when – as subsequent events had shown – it would have succeeded. The parties’ agreement did not require this unless Sainsbury’s was advised that a new application would have stood at least a 60% chance of success.
Furthermore, its duty of good faith did not oblige Sainsbury’s to do something that ran counter to the provisions of the agreement, irrespective of how reasonable the suggested course of action might be. So, although a duty to act in good faith requires parties to be faithful to their agreed common purpose, and to act consistently with the justified expectations of both, Sainsbury’s was, nonetheless, entitled to rely on the counsel’s opinion that it had received.
Duration
Draftsmen will also be interested in the judge’s ruling on the duration of the parties’ obligations under the agreement. The question was whether the obligation to use all reasonable endeavours to procure the grant of an acceptable planning permission, and to act in good faith, subsisted only until Sainsbury’s served a notice terminating the agreement, or whether Sainsbury’s remained bound by its obligations until the agreement ended. The judge decided that the obligations remained in full force and effect until the company’s termination notice actually expired.
The decision turned on the wording of the agreement in question and the ruling did not affect the judge’s conclusion that Sainsbury’s was not in breach of contract while the agreement subsisted. Nonetheless, it is a point worth noting; if parties are to be relieved of contractual obligations after the service of a termination notice and before an agreement ends, it is advisable to say so.
Drafting
Contracts for the sale of land are often expressed to be subject to the satisfaction of conditions. It is never easy to draft such agreements and practitioners will be acutely aware of the possibility that parties may try to exploit any weakness in drafting, or extraneous circumstances, to walk away from their commitments following a dip in the market or a change in fortune. In this case, it was the terms of, and timetable imposed by, the agreement, coupled with local opposition to the scheme, which created the conditions that enabled the chain to withdraw.
Allyson Colby is a property law consultant
