Bristol Rovers (1883) Limited v Sainsburys Supermarkets Limited [2016] EWCA Civ 160

Summary

This case provides useful clarification on how the Court will approach “reasonable endeavours” clauses and the duty to act in “good faith”. It highlights the importance of careful drafting to reduce uncertainty about the scope of these commonly used obligations.

The parties had entered into an agreement for Bristol Rovers to sell its football stadium to Sainsbury’s for redevelopment. Sainsbury’s terminated the agreement because one of the conditions had not been satisfied.

Bristol disputed the termination on several grounds. However, first the High Court and then the Court of Appeal found that the termination was valid and that Sainsbury’s had not breached the terms of the agreement by terminating it. The extent of the obligations to use reasonable endeavours and to act in good faith was curtailed by the specific obligations in the agreement.

The facts

Bristol was looking to upgrade to a more modern stadium. It entered into an agreement to sell its current ground to Sainsbury’s. The agreement provided for Sainsbury’s to demolish the existing stadium and to construct a large mixed use development.

The agreement contained various conditions that had to be satisfied before the agreement could become unconditional and the sale could complete. If this did not happen, the agreement contained provisions for termination. Each party had to satisfy the conditions as soon as reasonably practicable and there was also a cut-off date. If completion had not occurred by this date, the parties then had the ability to serve a termination notice.

In particular, there was a condition that Sainsbury’s be granted planning permission allowing deliveries to its new store at all times. Sainsbury’s was entitled to terminate the agreement if the planning condition was not satisfied by the cut-off date, but it was also obliged to use all reasonable endeavours to obtain this planning permission and to act in good faith.

When the Council resolved to grant planning permission for the development, it made it subject to a condition that would restrict the hours for deliveries to the new store. In light of this, Sainsbury’s decided that it would prefer to terminate the agreement.

Having been advised by Counsel that it had only a 55% prospect of success, Sainsbury’s refused to appeal the condition. It also refused to assist Bristol in lodging its own appeal. Instead, it served notice to terminate the agreement on the grounds that acceptable store planning permission had not been granted before the required date.

Bristol, which still wanted the sale to proceed, argued that the agreement had not been terminated by this notice. Alternatively it contended that, even if Sainsbury’s had terminated the agreement, it had done so in breach of contract.

The first decision

The High Court judge found that Sainsbury’s had been entitled to serve a termination notice when it did as the store planning condition was not satisfied. She concluded that the agreement had been terminated validly. Bristol appealed the decision.

The appeal

The Court of Appeal asked itself a number of questions, the key ones being:

  • Did the obligation to use “all reasonable endeavours” to obtain an acceptable store planning permission survive beyond the cut-off date in the agreement?
  • If it did, had Sainsbury’s breached the agreement as a consequence of its refusal to appeal the planning condition?
  • Was Sainsbury’s obliged to assist Bristol in making an appeal in its own name as a consequence of the reasonable endeavours and good faith provisions and, if so, was it in breach of this obligation by refusing to do so?

The decision

The Court of Appeal agreed with the High Court and dismissed Bristol’s appeal. The general obligation on Sainsbury’s to use reasonable endeavours to obtain an acceptable planning permission was narrowed by the specific provisions in the agreement governing the obligation to appeal a planning refusal.

  • The overall intention was to oblige Sainsbury’s to use all reasonable endeavours to obtain an acceptable store planning permission as soon as it was reasonably practicable. Sainsbury’s argued that this obligation came to an end on the cut-off date. The Court found that, whilst Sainsbury’s argument was “beguiling”, it could not be correct. If the cut-off date terminated the parties’ obligations under the agreement automatically, it would not have been necessary to have the provision to serve a termination notice. Therefore unless the parties chose to serve a termination notice, the obligations would continue until such a notice was served – which Sainsbury’s, of course, had done.
  • Under the terms of the agreement, Sainsbury’s was only obliged to appeal a planning condition if it had been advised by Counsel that the prospects of success were greater than 60%. Otherwise it was at the sole discretion of Sainsbury’s.  Counsel in this case had advised that the prospects of success were 55%. Consequently Sainsbury’s was not in breach of the obligation to use reasonable endeavours by refusing to appeal.
  • The obligations to use “all reasonable endeavours” and to act in good faith did not stretch so far as to require Sainsbury’s to assist Bristol in filing its own appeal because they were curtailed by the specific wording of the agreement. The Court felt that, if Sainsbury’s was not obliged to make a further appeal itself, then it could not be obliged to consent to Bristol making an appeal.  The Court therefore found that Sainsbury’s had met its obligations under the agreement. As such it had been entitled to serve the termination notice and the agreement had been terminated.

Our comments

Clauses to use reasonable endeavours and to act in good faith are common in property transactions. However, they can be fertile ground for a dispute over the extent to which they apply. It is therefore useful to have some clarification from the Court on how it will interpret such terms.

It can be seen from this case that careful drafting will successfully reduce the scope for argument and uncertainty about the extent of the obligations. The exact wording of a clause will mean the difference between the agreement becoming unconditional, and thus the completion of the transaction, and the agreement remaining conditional and possibly even ineffective.

If the parties decide to use these general obligations, it may well be sensible to place restrictions or guidelines on how they are to apply. For example, there could be a cap on the costs that a party is obliged to incur when complying with the requirement.

However, if the restrictions are not carefully worded, they may operate to limit the obligations altogether, as Bristol found out the hard way. A qualified obligation may not be a harmless concession made during negotiations. If it is not worded effectively, it can create uncertainty that can be more harmful than an absolute obligation. It will be very important not to give concessions without spelling out exactly what is means and what degree of definition is required. Documents should then be drafted accurately to reflect this.