When Is Consent Unreasonably Withheld?

The phrase 'consent not to be unreasonably withheld' is often seen in commercial contracts. However when is withholding consent actually unreasonable and how can this be determined?

The phase 'consent not to be unreasonably withheld' can be used in a number of different situations, for example, in commercial and financial contracts, and in leases. Other variations, such as, "such consent not to be unreasonably conditioned, withheld or delayed", can arguably make the obligation stricter as it adds the requirements that consent must also not have unreasonable conditions attached or be unreasonably delayed.

Interpretation

So when is consent unreasonably withheld? This will be a question to be determined in the context of the relevant facts and the answer will differ depending on the context.

In a 2011 case, Porton Capital Technology Funds and others v 3M UK Holdings Limited and others [2011] EWHC 2895 (Comm), this phrase was interpreted in the context of a commercial agreement between two parties for the acquisition of the shareholding of a company. One of the Defendants had agreed that it would not cease the business of the development or marketing of a product, "without the written consent of the vendors, which shall not be unreasonably withheld". Consent was sought several times pursuant to that clause but was refused. The Defendants considered that such consent was unreasonably withheld. The court disagreed and sided with the Claimants, finding that refusal of content had not been unreasonable. The court found that principles developed mainly in the context of landlord and tenant cases were of assistance and that the following approach was appropriate:

1. The burden is on the party alleging unreasonableness to prove this;
2. The party refusing consent simply needs to show that it was reasonable in the circumstances, not that the refusal was right or justified;
3. In determining what is reasonable, a party deciding whether to consent can have regard to their own interests; and
4. There was no requirement to balance interests or have regard to costs which may be incurred by the requesting party.

The court considered all the particular circumstances and concluded that consent was not unreasonably withheld.

Some more recent cases have also considered the issue of whether consent had been unreasonably withheld:

• Barclays Bank plc v UniCredit Bank AG and another [2012] EWHC 3655 (Comm) - The case concerned a dispute as to whether the Claimant exercised its discretion in a "commercially reasonable manner" in respect of its refusal to consent to the early termination of certain finance transactions. In this case, the court acknowledged that it is difficult to define detailed objective criteria as to whether consent has been exercised in a commercially reasonable manner or if consent has been unreasonably withheld, but noted that, "the question is not whether the decision is justified but whether the decision is one which might be reached by a reasonable man in the circumstances; and the decision maker is entitled to take into account his own commercial interests, in preference to those of the other party, and normally to their exclusion." The decision was upheld on appeal ([2014] EWCA Civ 302).
• Refusal of consent is likely to be unreasonable if the purpose of the provision in question is to preserve the contractual rights of the party needing to consent, but the basis of the refusal is that that party is seeking to enhance such rights. The background and purpose of the provision will need to be taken into account when considering the matter objectively. This was considered in the Barclays case above and in Crowther and another v Arbuthnot Latham & Co Ltd [2018] EWHC 504 (Comm), in which a lender was found to have unreasonably withheld consent to the sale of a property valued at €4m in satisfaction of a €5.9m debt for reason that it did not have security for the balance, which its contractual rights did not extend to.
• Similar considerations arose in Apache North Sea Limited v Ineos FPS Limited [2020] EWHC 2081 (Comm). The court, determining preliminary issues, decided that the defendant could not, under the terms of the contract, make its consent (not to be unreasonably withheld) to the claimant's request to revise its estimated production profile conditional on the agreement of a new tariff. It found, however, that "it may well be legitimate for the consent-provider to impose a condition intended to protect or compensate for a benefit it enjoyed under the contract which the course for which consent is sought would impair. However, that is obviously very different from imposing a condition which would impair a right which the party seeking consent enjoys under the contract." The terms of the contract as a whole must be taken into account in the objective assessment.
• In Gama Aviation (UK) Limited and another v MWWMMWM Limited [2022] EWHC 1191 (Comm), the court considered (on an application for summary judgment) issues including whether consent had been unreasonably withheld in the context of a contract for the management and operation of an aircraft. The court noted the following when looking at whether consent was unreasonably withheld (in this case, in relation to an assignment):
  
  
  • If a party unreasonably withholds consent, the party seeking that consent can treat it as no longer being required.
  • Reasonableness has to be given a broad, common sense meaning.
  • It involves both a reasonable process and a rational outcome.
  • A reasonable process means "one which takes into account considerations which have a legitimate purpose and disregard irrelevant considerations".
  • The refusal of consent can't be based on "extraneous or disassociated matters" or to achieve a collateral purpose.
  • Reasons relied upon to justify refusal of consent must be those which were relied upon at the time, rather than afterthoughts.

Conclusion

We can extrapolate from these cases, but each case will turn on its own facts.Therefore, a court will decide, objectively, whether consent was unreasonably held or not, taking into account the type of contract and all the relevant circumstances. Therefore, whether a decision to withhold consent is reasonable or not could differ in different contexts.

How can uncertainty be avoided? Parties should carefully consider what each provision is designed to achieve. Where possible, clearly agree and set out each parties' rights and obligations in the relevant contract, and if there are particular steps which a party should take to satisfy its contractual obligations, detail these to avoid later argument

Our glossary of key terms referenced in this guide

For ease of reference, we have summarised some key terms referenced in this guide. Click on the links to where these terms are discussed for context and guidance.

This piece forms part of our Contract Interpretation guide. The guide compiled by our Dispute Resolution team and looks at the meaning of some commonly used, but also commonly litigated, contractual terms. To view the full guide click the 'Download File' button or click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.