Westfields Homes Ltd & Anor v Keay Homes (Windrush) Ltd

Contractual obligations to consent to refinancing must be construed in the documentary, factual and commercial context of the agreement. A reference to the “spirit” of an agreement ordinarily concerns the parties’ shared aims, identified through ordinary principles of contractual interpretation. Good faith is context-sensitive. It may require conduct that reasonable and honest people would regard as commercially acceptable, although the threshold remains high. An objective reasonableness obligation differs from a contractual power requiring one party to form an opinion, which is ordinarily reviewable on a Wednesbury basis. Where a party unjustifiably withholds consent required to facilitate development financing, specific performance may be ordered if damages would not provide equivalent practical benefits.

The claimants sought specific performance of contractual obligations requiring the defendant to execute a deed of priority and consent to registration of a first legal charge in favour of United Trust Bank. The obligations arose under a supplemental agreement governing the parties’ respective interests in a property development. The defendant withheld consent, alleging that the refinancing was contrary to the agreement’s spirit, that the claimants had acted in bad faith or unreasonably, and that they had failed to provide required financial information. The principal issues concerned the construction and application of the agreement’s provisions concerning spirit, good faith and reasonableness, and whether specific performance was appropriate.

1. Construction. The Supplemental Agreement was construed by reference to the principles stated in Arnold v Britton [2015] AC 1619. The “spirit” of the agreement meant the parties’ shared aims, ascertained through the ordinary process of contractual interpretation. Those aims included completing the development, maximising shared profit and allowing priority funding by a main lender.
2. Good faith and reasonableness. The requirement of good faith was objective and context-sensitive. Conduct was a breach if capable of being regarded as commercially unacceptable by reasonable and honest people, although this remained a high hurdle. The reasonableness obligation in clause 6 was objective. The obligation in clause 4 concerned the defendant’s own decision and was reviewable on a Wednesbury basis, including whether irrelevant matters were considered or obviously relevant matters ignored.
3. Application. The proposed refinancing was consistent with the agreement’s shared aims. The absence of a priority cap did not alter the defendant’s material risk. Completion of Phase I and an audit were not contractual preconditions to Phase II or refinancing. The claimants had not breached their information obligations and had not acted in bad faith or unreasonably. The defendant’s concerns therefore provided no justification for withholding consent or refusing to execute the deed of priority.
4. Relief. The defendant was in breach of clauses 4 and 6. Specific performance was granted. Damages were inadequate in practical terms because they would not confer equivalent benefits or consequences, and the order caused no unfairness to the defendant. The court directed that the appropriate form of order be settled. Had specific performance been refused, damages would have been awarded at common law, alternatively under section 50 of the Senior Courts Act 1981.