When can mutual obligations of good faith and full and fair disclosure be implied into an ordinary commercial property transaction between unconnected parties of equal bargaining power? The recent decision in Ross River Ltd v Cambridge City Football Club Ltd [2007] EWHC 2115 (Ch) provides an insight.
The club sold its football ground to a developer in return for a cash payment and an additional sum payable by way of overage. The developer promised to minimise any costs that fell to be deducted from the overage, and the parties promised to co-operate to obtain planning permission to trigger the overage.
Prompted by financial difficulties, the club subsequently accepted a payment of £900,000 to extinguish its right to the overage. During the preceding negotiations, the club had asked for information that would help it price the value of the overage. The information that was supplied was misleading and unhelpful, and the club eventually settled on a price that, with hindsight, it considered too low. The club sought to rescind its agreement to extinguish the overage on the grounds that the developer was under an implied duty to act in good faith and should have disclosed all the material facts during the negotiations that preceded the agreement.
Each case will turn on its own facts and on the terms of the parties’ agreement. The courts will not lightly imply duties into commercial contracts that have been negotiated at arms’ length between parties with comparable bargaining power, and will impose only those duties that are consistent with the parties’ contract. However, after weighing up all the facts, the judge decided that the parties’ enterprise was enough of a joint venture to justify importing a duty of mutual good faith, not only with regard to the development itself but also in respect of the negotiations to extinguish the overage payment (especially as the information concealed from the club had been obtained at the parties’ joint expense).
The judge rejected the suggestion that the developer had a positive duty to volunteer information to assist the club in the buy-out negotiations because the parties had already agreed very detailed provisions about what information was required and when. However, the club had specifically asked for information to price the overage, and the developer was under a duty to co-operate or to state unambiguously that it would not assist. It was a grave breach of the duty of good faith to respond positively while at the same time concealing vital information. Moreover, because the misrepresentations were made deliberately and fraudulently by the developer’s project manager, who was an experienced player, it could be inferred that the fraud had actively affected the decisions made by the club. Consequently, the club was entitled to rescind the agreement to extinguish the overage.
The club had a further cause for complaint in that its chief executive officer had received £10,000 from the developer during the buy-out negotiations without the club’s knowledge and informed consent. The judge held that this was another valid reason to restore the parties to their previous position.
Allyson Colby is a property law consultant