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29th April 2016

Reasonable endeavours considered by the Court of Appeal

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Successfully reduce uncertainty about the scope of contractual endeavours and good faith obligations.

In a recent appeal, it was shown how detailed drafting can successfully reduce uncertainty about the scope of contractual endeavours and good faith obligations.

Sainsbury’s entered into a conditional agreement with Bristol Rovers, for the purchase of its stadium site. The plan was to demolish the current structure and build a retail-led mixed use development including a superstore. The agreement required that both parties comply with their respective contractual obligations with the intention of satisfying all of the conditions as soon as reasonably practicable.

A condition of the agreement was that planning permission was obtained which permitted deliveries 24 hours a day, 7 days a week. If planning permission was granted subject to delivery time restrictions, then there was an obligation on Sainsbury’s to appeal to have the restrictions removed. However, there was only an obligation to appeal if certain conditions were met (specifically, if there was a greater than 60% chance of succeeding in the appeal). The right to serve a termination notice arose if the condition was not satisfied.

Planning permission was granted, subject to restricted delivery times, which meant that the original permission was not an acceptable permission. Sainsbury’s submitted an appeal, which was refused, they then took expert advice and exercised their right to terminate the agreement on the basis that a new appeal had less than 60% chance of success.

Bristol Rovers wanted to launch a further appeal in Sainsbury’s name and one of the issues before the court was whether Sainsbury’s was in breach of the agreement by refusing to allow this. Bristol Rovers argued that Sainsbury’s had a contractual obligation to use all reasonable endeavours to obtain an acceptable planning permission, and to act in good faith in relation to its obligations under the agreement. It felt therefore, that Sainsbury’s were required to allow such an appeal.

Bristol Rovers’ arguments were rejected and the appeal dismissed. The court found that the all reasonable endeavours and good faith obligations were curtailed by the specific contractual obligations in relation to appeals. As the contract provided that Sainsbury’s was not obliged to lodge an application unless advised by counsel that it had a higher than 60% chance of succeeding, then they were under no duty to allow Bristol Rovers to launch such an appeal.

The judge took the view that, given that Sainsbury’s was not required to make a further planning appeal, it could not have been the intention of the parties that Sainsbury’s should be required to consent to such an appeal by Bristol Rovers.

By providing specific contractual obligations, Sainsbury’s was able to successfully demonstrate that their obligations under the agreement had been discharged and they had not failed to act in good faith in relation to them, allowing them to successfully terminate the agreement.

For more information contact Samantha Hand on 01908 247010 or click here to email Samantha.