Bristol Rovers shown the limits of good faith

On 13 July 2015, we finally learnt of the court’s decision in the battle between Sainsbury’s and Bristol Rovers concerning the Bristol Rovers Memorial Stadium (Sainsbury’s Supermarkets Ltd v Bristol Rovers (1883) Ltd).  It was bad news for Bristol Rovers.

The case raises important issues about parties’ rights to rely on specific provisions in a contract despite any express duties of good faith that could be said to point in a different direction.

Background to the case

Sainsbury’s had applied to the court for a declaration that it had lawfully terminated a conditional contract to buy the Memorial Stadium. The deal had been that Sainsbury’s would buy the stadium and lease it back to Bristol Rovers for a peppercorn rent while Bristol Rovers built its new stadium.

There were a number of conditions which had to be satisfied before the purchase by Sainsbury’s could go ahead.  One such condition was that Sainsbury’s had to secure planning permission acceptable to them in order to redevelop the stadium as a supermarket.  Planning permission was granted, but it placed restrictions on delivery.  The contract specifically stated that certain restrictions on delivery would be deemed to be “onerous” and therefore not acceptable. In the meantime Sainsbury’s had decided internally that it wanted to withdraw from the development, but it was already bound to pursue the planning application ‘in good faith’.

Sainsbury’s therefore made an application to vary these restrictions.  By this time, an application for a Judicial Review of the decision to grant planning permission had been brought by a group of disgruntled residents who were against the new Sainsbury’s store.  As a result, it was not a good time to make the application.

The application was refused and shortly thereafter Sainsbury’s resolved to terminate the agreement.  Despite Bristol Rovers’ requests, they refused to appeal the decision, which led Bristol Rovers to start proceedings against Sainsbury’s.  These proceedings were settled on the basis that Sainsbury’s would appeal the refusal of the application if Counsel’s advice was that the prospects of success for doing so exceeded 60% as prescribed by the contract.

The advice to Sainsbury’s was that prospects of success were lower than 60% and Sainsbury’s sought a declaration that it could lawfully terminate the contract.

Outcome of the case

The Court held that Sainsbury’s was entitled to terminate the contract.

Mrs Justice Proudman rejected Bristol Rovers’ arguments that Sainsbury’s relied too heavily on the black letter of the contract, made the application at the wrong time and that Sainsbury’s was obliged to appeal the decision in accordance with the duty of good faith in the contract.  The court held that, although it was clear that the duty to act in good faith applied, this did not mean that Sainsbury’s could not rely on the specific provisions of the contract.

The main points leading to the court’s decision were as follows:

1. Both Sainsbury’s and Bristol Rovers agreed that the planning conditions were onerous and that the purchase of the stadium could not go ahead on the basis of the original permission.
2. Bristol Rovers agreed that Sainsbury’s should make the application to remove the conditions attached to the planning permission “as soon as possible” despite the tricky climate brought about by the application for a Judicial Review. This undermined their later claim that Sainsbury’s should have waited.
3. Both Sainsbury’s and Bristol Rovers agreed it was not reasonable to proceed with the purchase with the conditions attached to the planning permission.
4. The contract ruled out a withdrawal and re-submission of the application.
5. Planning Counsel did not put chances of success higher than those required by the contract.
6. Sainsbury’s failure to lobby local councillors and objectors did not impact on the outcome as the application was made at a “politically inexpedient time”.

Points to take away from the case

An obligation of good faith does not override the other terms of the contract.

Unless and until the case is decided differently, the principles surrounding express duties of good faith established by cases such as TSG Building Services Plc v South Anglia Housing Limited [2013] EWHC 115 (good faith will not cut across contractual rights) and Gold Group Properties Limited v BDW Trading Limited [2010] EWHC 1631 (TCC) (a party is not required to give up its commercial interests) remain as strong as ever.

Bristol Rovers now have leave to appeal the decision.