Scope of 'reasonable endeavours' obligation
BRISTOL ROVERS FOOTBALL CLUB v SAINSBURY’S (CA) [2016]
The Court of Appeal (“CA”) considered the scope of an express duty of good faith in the context of the parties’ respective obligations under a contract to sell a football stadium and the extent of a reasonable endeavours obligation to obtain planning permission acceptable to the purchaser.
Facts:
- Bristol Rovers Football Club (“B”) entered into a conditional contract to sell its stadium to Sainsbury’s (“S”) for redevelopment as a supermarket. The contract (“Agreement”) was conditional on suitable planning permission being obtained which permitted deliveries to the newly developed supermarket from very early in the morning until late at night. S was obliged to use 'all reasonable endeavours' to procure an acceptable planning permission as soon as reasonably possible. In the event, the local planning authority imposed conditions which were much more restrictive as to when deliveries could be made.
- S submitted one appeal but then began to realise that the economics of the deal had changed and wished to terminate the Agreement if it legitimately could. It therefore served notice terminating the Agreement. It argued that it had lawfully terminated the Agreement for non-satisfaction of the condition relating to planning permission. B argued that the Agreement had not been terminated or, alternatively, that it had been terminated in breach of contract.
- One provision of the Agreement required S to: “use all reasonable endeavours to procure the grant of an Acceptable Store Planning Permission [as defined] as soon [as] reasonably possible…”. In the event of an unsuccessful planning application, S was obliged to appeal the decision if “[a specialist planning barrister] confirms that such an appeal has a 60% chance or greater of achieving an Acceptable Store Planning Permission”.
- Both parties had also agreed to: “act in good faith in relation to their respective obligations in this Agreement and to assist the other in achieving an Acceptable Store Planning Permission”.
Decision:
- The CA decided that S was not obliged to lodge an appeal unless a specialist planning barrister advised that its chances of success passed the 60% test. As this had not occurred, S was not in breach.
- The first part of clause 31.1 required each party to: “act in good faith in relation to their respective obligations in this Agreement ” (our emphasis added). B submitted that this obligation meant that S was obliged to “adhere to the spirit of the contract ” and not resort to its black letter wording. B wanted to submit its own planning application and sought support from S in order to do so. However, the CA found that the duty was only to use good faith in relation to the respective obligations of each party. Since B had no obligation under the Agreement to make an application for Store Planning Permission, the CA therefore decided that S was not failing to act in good faith as required by the contractual provision.
- Clause 32.2 required that: “All parties shall (at no cost to that party) lend such assistance as the other may reasonably and specifically request and [which] lies within their ability to give”. Read literally this appears to require each party to “lend … assistance” without limitation, provided only that the assistance was reasonably and specifically requested, and that the other party was not made liable for any costs as a result. B accepted that the assistance must be in connection with the overall objectives of the Agreement but the CA did not think that the clause would be read in such an unspecific way. It said that, “Such an obligation would sit very uncomfortably in an Agreement which spells out the respective obligations of the parties, and in particular their planning obligations, in such detail ”. The CA commented that the clause should be read, even though not spelled out in such words, as requiring assistance only in relation to the discharge of the other party's obligations under the Agreement. Since B was not under an obligation to seek planning permission, the obligation to lend assistance did not apply.
Points to note:
- This case is another example of the English Courts giving a very narrow interpretation of a good faith commitment particularly in the context of a detailed and professionally prepared agreement. Arguments based on such principles only succeed very exceptionally.
- It also demonstrates how any kind of ‘endeavours’ commitment can be curtailed and made much more certain by an express objective threshold of exactly when action is required.
- Finally, the judgment shows that a general duty to lend assistance or cooperate will be of comparatively limited value if the contract contains other more specifically framed obligations dealing with the same subject matter.