Gold Group Properties Ltd v BDW Trading Ltd

A contractual obligation to act in good faith requires parties to have due regard to each other’s legitimate interests and to conduct themselves consistently with the contract’s common purpose. It does not require a party to surrender a clearly negotiated financial advantage. A refusal to renegotiate revenue-sharing provisions therefore does not necessarily breach good faith, particularly where the proposed change would transfer value from one party to the other. A repudiatory breach requires conduct showing an intention no longer to be bound. Acceptance must be clear and unequivocal; inactivity or acquiescence will generally not suffice. A contractual termination may coexist with acceptance of repudiation and does not necessarily affirm the contract.

The claimant and defendant entered into a development agreement under which the defendant was to develop a residential and mixed-use site, with revenue shared according to contractual provisions and minimum sale prices. Following a substantial fall in property values, the defendant proposed delaying the development or revising the revenue-sharing arrangements, and subsequently asserted that the agreement was void or frustrated. The claimant alleged repudiatory breach and later served notice under the contractual termination clause.

The trial concerned whether either party was in repudiatory breach, whether the claimant’s conduct breached its good-faith obligations, and how and when the agreement ended.

1. Estoppel and abuse of process. The earlier summary judgment decision was final and capable of giving rise to cause of action or issue estoppel. However, the earlier judgment had not necessarily determined the interrelationship between the revenue-sharing clause and the good-faith obligations. The defendant’s arguments were therefore neither barred by estoppel nor an abuse of process. A cautious approach was required where it was difficult to identify what had been necessarily decided.
2. Minimum prices. The definition of the Minimum Price Schedule contemplated that the parties could agree substituted prices, including lower prices. The judge expressed no view on the enforceability of that obligation, although both parties accepted its enforceability following the obiter dicta in Petromec Inc v Petroleo Brasileiro [2006] Lloyd’s Rep. 121.
3. Good faith. The good-faith obligations required the parties to act so that both could enjoy the anticipated contractual benefits, but did not require either party to abandon a freely negotiated financial advantage. The claimant was not obliged to negotiate a proposed revision to the revenue-sharing arrangements which would have transferred approximately £2.8 million to the defendant. Nor did the claimant’s refusal to accept that proposal breach the obligation not to increase its profit or reduce its loss at the other party’s expense.
4. The claimant had incorrectly asserted that the minimum prices were solely for its benefit. That assertion was inconsistent with the agreement and might have amounted to breach if the claimant had refused to negotiate a necessary reduction in minimum prices. It was not causative of the breakdown, because the defendant had not asked for a revision of those prices and was unwilling to proceed unless the revenue-sharing arrangements were changed.
5. The defendant’s failure to commence and diligently perform the works, together with its insistence that the agreement was at an end unless new payment terms were agreed, constituted repudiatory breach. The claimant’s failure to return the site keys and its letter of 26 March 2009 did not clearly and unequivocally accept that breach. The letter of 14 August 2009 assumed that the agreement remained in force and operated as notice under the contractual termination clause.
6. The agreement ended on 21 September 2009 both through exercise of the contractual termination right and through acceptance of the defendant’s repudiatory breach. The contractual termination was not an affirmation of the agreement.

not stated in the judgment.