Key Points

• The decision clarifies that a party’s using a contractual gap to “intentionally harm” the counterparty may constitute a breach of the implied covenant. The court rejected ASM’s argument that the parties had intentionally left a contractual gap with respect to the efforts ASM had to use to obtain the consents, in order to allocate the risk to the Vendor of the landlords not giving the consent for any reason. The court stated that, at the pleading stage, it was reasonably conceivable that, without a standard of efforts set forth in the agreement, ASM could have been neutral with the landlords, but, based on the implied covenant, could not use the contractual gap to “intentionally harm” the Vendor.
• The decision underscores the need for careful drafting of third party consent conditions. Parties should consider whether to specify in their agreement a standard of efforts for obtaining such consents and may wish to specify the extent to which the other party can participate in the process of seeking to obtain them. Where a standard of efforts is not set forth, the party responsible for seeking a consent should keep in mind that, depending on the specific facts and circumstances, advocating for the third party not to give the consent may be considered to be intentionally harming the counterparty and thus a breach of the implied covenant.

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