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Good Faith - Case Update

There is no widely accepted definition of good faith and instead its meaning and effect are likely to vary depending on the context in which the obligation applies.

In the recent case of Sainsbury's Supermarkets Ltd v Bristol Rovers (1883) Ltd the Court decided that the duty of good faith does not override the other terms of the contract.

Background

Sainsbury's had agreed to purchase Bristol Rover's stadium and lease it back to the club at a peppercorn rent until the club's new ground was ready.  Once the club had moved to its new ground, Sainsbury's was going to build a new store on the site of the old ground.

The contract provided that certain conditions needed to be satisfied and if they were not satisfied by a certain date, either party could terminate the contract.

One of the conditions required Sainsbury's to have obtained an acceptable planning permission for the development of the new store.  Sainsbury's applied for and obtained planning permission but it was granted subject to restrictions relating to overnight deliveries to the new store.

The contract between the club and Sainsbury's specifically stated that certain restrictions on delivery would be deemed to be onerous and therefore not acceptable.  At around this time, Sainsbury's Investment Board had decided that it no longer wanted to develop the new store but it knew that it was bound by the contract which provided that it was obliged to pursue the planning permission in good faith.   Accordingly, Sainsbury's made an application to vary the restrictions on the planning permission.

By this time, a group of local residents who objected to the new store being built had also made an application for Judicial Review of the decision to grant planning permission.  Subsequently, Sainsbury's application to vary the restrictions was refused and despite the club's requests, Sainsbury's refused to appeal the decision. Sainsbury's then sought to terminate the contract with the club. 

The club issued proceedings against Sainsbury's which were settled on the basis that Sainsbury's would appeal the refusal of its application to vary the planning permission conditions if Counsel's advice was that the prospects of success for obtaining a favourable outcome exceeded 60%.  Counsel's advice was that the prospects of success were less than 60% and accordingly Sainsbury's sought a declaration from the Court that it was entitled to terminate the contract to purchase Bristol Rover's stadium.

Outcome

The Court agreed with Sainsbury's that it could terminate the Contract.

The Court held that although Sainsbury's was obliged to act in good faith in respect of its obligations contained in the contract. This did not meant that Sainsbury's were prevented from relying on the specific provisions contained in the contract that Sainsbury's were not obliged to pursue a planning appeal if Counsel's advice on the prospects of success of varying the planning restrictions was less than 60% no matter how reasonable it may or may not have been for Sainsbury's not to pursue the appeal.

Interestingly, the court was of the view that Sainsbury's was not obliged to have waited to submit its application to vary the restrictions on the planning permission until such a time that the political mood surrounding the planning permission and the application for Judicial Review had become clear because the club had previously agreed the timing of the application. 

What next?

The club has been granted permission to appeal, however, for the time being this case provides useful clarification that parties should not rely on the duty of good faith to override contractual provisions and it is a useful reminder for parties to ensure that the contract documents specify what steps each party is obliged to do in certain circumstances in order to avoid disappointment.