Berkeley Community Villages Ltd v Pullen
Citations:  EWHC 1330 (Ch);  3 EGLR 101;  24 EG 169 (CS);  NPC 71;  CLY 665.
The defendants were the freehold owners of a farm. They agreed with the claimant that the claimant would use their experience to maximise the potential of part of the land for development. In return, the claimant was entitled to various fees after achieving certain objectives – particularly, obtaining planning permissions.
The defendants later considered selling off the farm. At this time, the claimant had yet to become entitled to any fees, but had performed considerable work and enhanced the land’s value. The claimant contended that selling the land would constitute an actual or anticipatory breach of the express or implied terms of the parties’ agreement. They argued that:
- The defendants’ obligations under the contract included rendering ‘reasonable assistance’ or using ‘reasonable endeavours’ to assist the claimant in promoting the property and seeking relevant permissions. If the defendants sold the land, they would be unable to fulfil these obligations. Selling the land would therefore be an anticipatory or actual breach of these express terms.
- The contract implicitly required the defendants to remain landowners until the claimant had achieved the contractual objectives. Selling the land would breach this implied term.
- This was the only commercially reasonable interpretation of the contract. If the defendants sold the land, the contract would essentially be unenforceable and the claimant would be unable to perform their obligations.
- This was reinforced by clause 33 of the contract. That required the parties to ‘act with the utmost good faith towards one another and…act reasonably and prudently at all times’.
The claimant therefore sought a declaration to this effect and an injunction restraining any sale. The defendants denied that the contract restricted their powers to sell the land.
- Would selling the land constitute an actual or anticipatory breach of the parties’ contract?
The court held in favour of the claimant.
- If the defendants sold the land, they would be unable to perform at least some of their express obligations under the contract. Selling the land would therefore put them in breach of these express terms. Some of these breaches would be actual, some would be anticipatory.
- The sale of the land would also put the defendants in breach of clause 33. Good faith required faithfulness to the contract’s purpose, which a sale of the land would defeat.
- In light of this, there was no need to consider whether there was an implied clause prohibiting the sale. However, the court noted that if it were necessary to decide the point, there would be such an implied term. This would be necessary to give the agreement business efficacy.
As such, the court granted an injunction restraining the sale.
This Case is Authority For…
Morgan J discussed the meaning of contractual ‘good faith’ and ‘utmost good faith’ in this agreement. Relying on the definition given in the United States Second Restatement of Contracts, he thought that the clause required the defendants to:
‘observe reasonable commercial standards of fair dealing in accordance with their actions which related to the Agreement and also requiring faithfulness to the agreed common purpose and consistency with the justified expectations of the…Claimant.’
This case therefore shows that agreements to act in good faith can be enforceable, despite other cases treating ‘good faith’ as an inherently uncertain concept.
An anticipatory breach exists whenever a contracting party makes clear that they do not intend to perform their future obligations. This can be by words or conduct. An example of anticipatory breach by conduct is where a party disables themselves from being able to perform a future obligation. If the anticipatory breach is repudiatory, the innocent party has the option to treat the contract as terminated.
A side issue which arose in this case was whether, if the innocent party to an anticipatory breach chooses to keep the contract alive, they can obtain an injunction to restrain the future breach of contract. Morgan J declined to comment on this issue. This was because there had yet to be a clear authority from the higher courts. He preferred to rely on the actual breaches of the express terms and clause 33 as grounds for granting the injunction.
One of the claimant’s subsidiary arguments was that if they were not entitled to contractual damages, they should receive a reasonable fee for their services under quantum meruit. The court rejected this. The contract here was an ‘entire obligations‘ contract. The claimant could only claim payment on its completion. Parties who agree to such contracts take the risk of being paid nothing if they only complete part of the contract. This excludes the possibility of quantum meruit.