Court of Appeal considers "all reasonable endeavours" obligation

The Court of Appeal has held that a party was not in breach of an obligation to use "all reasonable endeavours" to procure the grant of planning permission where that obligation was subject to a qualification regarding the circumstances in which it had to pursue an appeal, ie only where planning counsel advised the prospects of success were 60% or greater: Bristol Rovers (1883) Ltd v Sainsbury's Supermarkets Ltd [2016] EWCA Civ 160.

The decision illustrates that general obligations to endeavour to achieve some object, whether that is to use "best" or "reasonable" or (as here) "all reasonable" endeavours, will give way to more specific provisions setting out steps that must be taken, or steps that need not be taken, to comply with the obligation. In this case there was some ambiguity in the drafting of the relevant clause, which complicated matters, but nonetheless the decision illustrates the value of including such provisions in order to set boundaries on a potentially open-ended endeavours obligation.

James Farrell and Maura McIntosh outline the decision below. For more information on endeavours obligations, see our recently published guide: Endeavours obligations: How hard do you have to try? which forms part of our series of contract disputes practical guides.

Background

The defendant, Bristol Rovers football club, entered into a contract to sell its football stadium to the claimant, Sainsbury's, subject to a number of conditions precedent. These included the grant of an "Acceptable Store Planning Permission" - ie a planning permission which did not contain (inter alia) restrictions to the deliveries that could be made to the store between 5 am and midnight.

The contract required Sainsbury's to "use all reasonable endeavours to procure the grant of an Acceptable Store Planning Permission as soon as reasonably possible". It further provided that Sainsbury's "may in its absolute discretion pursue an Appeal against a Planning Refusal but shall be obliged to do so if" planning counsel confirmed that such an Appeal had at least a 60% chance of success (Paragraph 2.11).

The parties also agreed "to act in good faith in relation to their respective obligations in this Agreement and to assist the other in achieving" planning permission. If an Acceptable Store Planning Permission was not obtained by the Cut Off Date (as defined in the agreement) either party could serve notice of termination.

Simplifying the facts slightly, Bristol County Council resolved to grant planning permission, but subject to a restriction regarding delivery hours. In return for Rovers' agreement that this meant the permission was not an "Acceptable Store Planning Permission", Sainsbury's agreed to pursue an application under section 73 of the Planning Act to obtain a permission which did not restrict delivery hours, without taking planning's counsel's advice regarding chances of success. (Although by the time of trial it was common ground that this was not in fact an "Appeal" for the purposes of Paragraph 2.11, both parties acted under the assumption that it was an Appeal for those purposes and that, accordingly, Sainsbury's would not have been obliged to pursue the application without planning counsel's advice that the prospects were 60% or better.)

The section 73 application was refused. Rovers asserted that the application had failed because Sainsbury's had omitted necessary detail and therefore Sainsbury's had failed to use all reasonable endeavours. Ultimately the parties reached a further agreement that Sainsbury's would lodge an appeal against the refusal of its section 73 application, but that it could withdraw the appeal if planning counsel advised the prospects were less than 60%. Planning counsel did so advise, and Sainsbury's withdrew the appeal.

The High Court rejected Sainsbury's argument that the obligation to use all reasonable endeavours ceased on the Cut Off Date; the obligation continued until expiry of the termination notice. However, the judge found that Sainsbury's was not in breach of the "all reasonable endeavours" obligation. She rejected Rovers' argument that Sainsbury's should have withdrawn and re-submitted the section 73 application; the parties had proceeded on the basis that a section 73 application was an Appeal under paragraph 2.11, and Sainsbury's were not bound to submit an Appeal unless it passed the 60% test. The judge also rejected Rovers' case that the section 73 application Sainsbury's did bring was not prosecuted with due diligence and was not conducted in a good and efficient manner. The judge concluded that an Acceptable Store Planning Permission could not have been obtained before the Termination Date, and so Sainsbury's case succeeded. Rovers appealed to the Court of Appeal.

Decision

The Court of Appeal dismissed the appeal, with Lord Justice Floyd giving the leading judgment (with which McCombe and Laws LJJ agreed).

The court rejected Sainsbury's argument that its obligation to use all reasonable endeavours came to an end with an initial planning application that was refused or an unsuccessful appeal. The terms of the agreement specifically envisaged that Sainsbury's might withdraw a planning application and submit another one where it was reasonable to do so in order to obtain an Acceptable Store Planning Permission as soon as possible. Floyd LJ said:

"It is true that Sainsbury's obligation is qualified by the provisions about appeals in paragraph 2.11. Whatever the reason for the qualification, it does not seem to me to be an indication that the process envisaged by paragraph 2 of Schedule 1 comes to a halt after an unsuccessful appeal. Rather it will do so when there are no more reasonable steps which Sainsbury's can take to secure the grant of an Acceptable Store Planning Permission."

The court similarly rejected Sainsbury's submission that the obligation to pursue planning permission ended at the Cut Off Date. If the arrival of the Cut Off Date terminated the parties' obligations under the agreement, there would be no need to serve termination notices. Where the parties chose not to serve a termination notice, the obligations continued.

The Court of Appeal agreed with the judge that a section 73 application was to be treated as an Appeal for the purposes of paragraph 2.11. The parties had proceeded on that common assumption and it would be unconscionable for Rovers to resile from that common assumption so as to place Sainsbury's in breach; that gave rise to an estoppel by convention. Accordingly, Sainsbury's was not in breach by failing to lodge a further section 73 application. It was not obliged to do so unless planning counsel advised that it passed the 60% test, and that had not occurred.

The Court of Appeal also rejected Rovers' argument that the "all reasonable endeavours" obligation required Sainsbury's to consent to Rovers filing its own section 73 application in circumstances where Sainsbury's would not themselves be obliged to file such an application. Such an interpretation would, the court said, "cut straight across paragraph 2.11 if not wholly negate it". The parties' obligation to act in good faith in relation to their respective obligations under the agreement similarly did not require Sainsbury's to consent to Rovers filing its own application. If Sainsbury's was not required to submit a further section 73 application, its reliance on that contractual provision could not be said to lack good faith. Further, the duty was to use good faith in relation to the respective obligations of the party; Rovers had no obligation to apply for planning permission, and so Sainsbury's lack of consent was not a failure to act in good faith.