Refusal to renegotiate did not breach 'good faith' obligation, says High Court

The clause bound the landowner and the property developer to enter transactions and behave towards each other "in good faith".

"Neither shall seek to increase its profit or reduce its loss at the expense of the other," said the contract.

BDW Trading, which used to be known as Barratt Homes, agreed to build houses on land owned by Gold Group Properties. Gold Group would sell the properties and share revenue with BDW based on agreed minimum prices. Work was to begin in June 2008 and take no longer than 30 months, the contract said.

When the credit crunch hit, BDW told Gold Group that the minimum prices were no longer  achievable. It asked Gold Group to renegotiate the minimum prices and did not begin any significant building work.

In December of 2008 Gold Group wrote to BDW to say that it would not change the minimum prices or delay the building work and that it thought BDW was in breach of the contract they had agreed.

In January BDW indicated to Gold Group that the agreement was unworkable and was at an end. Gold Group wrote back in agreement and sued BDW for damages for breach of contract.

The High Court accepted that BDW was in breach of contract by that point, but BDW claimed that Gold Group had already breached its contractual obligations to act in good faith when it refused to renegotiate the minimum prices in the light of a changed property market.

The High Court found that Gold Group was under no obligation to renegotiate the prices. The demand that it act in good faith meant that it should behave in a way that allowed each company to benefit in the way foreseen by the contract, but did not demand that Gold Group give up a financial advantage.

"Good faith, whilst requiring the parties to act in a way that will allow both parties to enjoy the anticipated benefits of the contract, does not require either party to give up a freely negotiated financial advantage clearly embedded in the contract," said the ruling.

Stephen Furst QC, sitting as a Deputy High Court Judge, said that not only had BDW acted in breach of contract, but that its breach was a repudiatory one, meaning that it was so fundamental to the operation of the contract that it could end it altogether.

The repudiatory breach was the result of BDW failing to begin work in June 2008 and in the fact that its conduct meant that there was no chance that the work would be completed with 30 months of that date.

He ruled that when Gold Group wrote to BDW terminating the contract in the way set out in the contract, it also accepted the repudiatory breach, bringing the contract to an end.