All reasonable endeavours and good faith
Author: Katrina Eldridge
Applies to: England and Wales
A recent Court of Appeal decision has demonstrated how detailed drafting brings clarity to the scope of 'reasonable endeavours' and 'good faith' obligations.
In Bristol Rovers (1883) Ltd v Sainsbury's Supermarkets Ltd the Court of Appeal considered whether Sainsbury's had effectively terminated a conditional contract for the purchase of the Bristol Rovers football stadium.
The deal struck between Bristol Rovers and Sainsbury's was anticipated to be in the commercial interests of each party. Bristol Rovers intended to use the purchase monies to raise funds to build a modern stadium for the football club. For Sainsbury's the purchase represented an opportunity to expand its retail presence in Bristol.
The contract contemplated the demolition of the football stadium and the construction of a new mixed use development including residential units and a Sainsbury's superstore.
Naturally, the contract was a complicated document and some of the drafting meant there was a degree of uncertainty about the application of certain terms. Those issues had to be decided by the court.
One of the pre-conditions to completion was that an 'Acceptable Store Planning Permission' had to be obtained. The contract provided that 'acceptable' meant that there should be no restriction on deliveries to the property between certain times of the day. Planning consent was obtained but it did contain such restrictions. Sainsbury's appealed to have the restrictions removed.
Sainsbury's were only obliged to pursue an appeal if planning counsel advised that there was a 60% chance of success. Its first appeal failed and following an agreement with Bristol Rovers, Sainsbury's made a second appeal. This was withdrawn after Sainsbury's were advised that the 60% test would not be met and it terminated the agreement. Bristol Rovers argued that that termination was in breach of contract.
The Court of Appeal decided in favour of Sainsbury's, that the agreement had been lawfully terminated.
As part of its reasoning, the court had to consider whether Sainsbury's, by withdrawing its appeal, was in breach of an obligation to use 'all reasonable endeavours' to procure the grant of an acceptable planning permission.
The court found that it was not. The agreement expressly provided that Sainsbury's had to pursue an appeal only if there was a 60% likelihood of success. Expert advice from counsel had estimated the likelihood of success to be 55%. The general obligation did not override this.
The court also considered an argument by Bristol Rovers that Sainsbury's was obliged to give consent to Bristol Rovers making its own planning appeal. Bristol Rovers claimed that this was because of the 'all reasonable endeavours' obligation and a separate obligation on each of the parties to act in 'good faith in relation to its respective obligations under the agreement'. The Court of Appeal disagreed with this argument as well.
Sainsbury's was not in breach of either provision. The express provisions of the contract meant that Sainsbury's was not obliged to pursue a further planning appeal. That being the case, it cannot have been the intention of the parties that Sainsbury's should have to consent to a further appeal being made by Bristol Rovers.
The potential scope of the 'all reasonable endeavours' and 'good faith' obligations in the contract had been curtailed by the specific contractual provisions
Obligations to use 'all reasonable endeavours' or to act in 'good faith' often leave doubt as to what any party actually has to do to fulfil its obligations. They can be helpful as principles of conduct but what is actually required is likely to differ according to the circumstances.
The Bristol Rovers case highlights how careful drafting will clarify the steps a party is required to take in order to meet its contractual obligations. General wording did not override the express terms of the contract.