27 May 2016 by

Can you rely on “reasonable endeavours” clauses?

It is common for contracts to include obligations that one party will use their ‘reasonable endeavours’ or their ‘best endeavours’ to achieve certain outcomes. However, the recent Court of Appeal decision in Bristol Rovers (1883) Ltd -v- Sainsbury’s Supermarkets Ltd has cast doubt on whether contracting parties can now rely on such clauses.

The contract in question concerned Sainsbury’s proposed purchase of Bristol Rovers’ stadium for approximately £30 million. The purchase contract was conditional on Sainsbury’s acting in good faith and using ‘all reasonable endeavours’ to obtain, by a specified long-stop date, satisfactory planning permission for the construction of a new superstore i.e. free from any onerous planning conditions. If such a planning permission was not obtained by the long-stop date, either party could serve notice to terminate the contract. The contract also provided that Sainsbury’s “may in its absolute discretion pursue an Appeal against a Planning Refusal but shall be obliged to do so if” their planning counsel confirmed that such an appeal had at least a 60% prospect of success.

One of Sainsbury’s key planning requirements was that it needed the Council to allow 24 hour deliveries, 7 days a week, in order to make the proposed new superstore economically viable. The Council granted planning permission, but did not allow 24 hour deliveries, and in fact made the permission conditional on limiting deliveries to the proposed superstore. Sainsbury’s applied to the Council to vary that condition, in accordance with section 73 of the Town and Country Planning Act 1990, but this was refused by the Council. Bristol Rovers argued Sainsbury’s was under an obligation to make a further appeal under section 73, or an appeal under section 78, of the 1990 Act.

However, Sainsbury’s decided not to make any further appeals, arguing that it had used reasonable endeavours to obtain satisfactory planning permission. Bristol Rovers’ lawyers saw things differently and argued the contract could not be terminated by Sainsbury’s, and that Sainsbury’s had a contractual obligation to exhaust all further possible planning appeals. Sainsbury’s eventually agreed to make a further planning appeal, but this was withdrawn after Sainsbury’s was advised that the prospects of success were below the agreed 60% level. Sainsbury’s then served notice to terminate the contract. Bristol Rovers claimed the termination was a breach of contract and started legal proceedings against Sainsbury’s.

The High Court found that Sainsbury’s was not contractually obliged to make any further planning applications or appeals.  Bristol Rovers appealed that decision on a number of grounds; the issue of most interest was when exactly Sainsbury’s ceased to be under an obligation to use all reasonable endeavours to obtain an acceptable planning permission. The Court of Appeal, in upholding the decision of the High Court, stated that Sainsbury’s obligation to use reasonable endeavours would end when there were no more reasonable steps that Sainsbury’s could take to secure an acceptable planning permission. In addition, the Court of Appeal held that Sainsbury’s obligation to pursue a satisfactory planning permission did not come to an end following an unsuccessful appeal, but continued until the service of a valid termination notice.

The case illustrates how important it is that contracting parties do not rely entirely on general endeavours clauses (or obligations to act in good faith) in a contract if they want to secure a specific outcome.  In light of this case, it is prudent for any parties entering into a contract to ensure that the contract sets out exactly what is required from each party in order to achieve any desired outcomes.

For further information on how to resolve contractual disputes, please contact us on 0207 288 4700 or email us at info@boltburdon.co.uk.

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