Where parties enter into a contract which confers a discretion on one of them, the discretion must be exercised honestly and in good faith, and not ‘arbitrarily, capriciously or unreasonably’. The owner had acted unreasonably in that there was no material on which a reasonable owner could reasonably have exercised the discretion in the way that he did. Several factors called into question the owners’ good faith and strongly suggested that their decision was arbitrary. The court upheld the judge’s approach to the question of reasonableness: ‘The essential question is always whether the relevant power has been abused. Where A and B contract with each other to confer a discretion on A, that does not render B subject to A’s uninhibited whim. In my judgment the authorities show that not only must the discretion be exercised honestly and in good faith, but, having regard to the provisions of the contract by which it is conferred, it must not be exercised arbitrarily, capriciously or unreasonably.’
Judges:
Leggatt LJ
Citations:
[1993] 1 Lloyd’s Rep 397
Jurisdiction:
England and Wales
Cited by:
Cited – Paragon Finance plc v Nash etc CA 15-Oct-2001
The court was asked to consider whether there was any implied term limiting the power of a mortgagee to set interest rates under a variable rate mortgage.
Held: A loan arrangement which allowed a lender to vary the implied rate of interest, . .
Cited – Paragon Finance Plc v Pender and Another CA 27-Jun-2005
The defendants had purchased their property from the local authority with the support of a loan from the claimants. The defendants fell into arrears but now sought to resist possession on the basis that the claimant, in securitising their portfolio . .
Cited – Lymington Marina Ltd v MacNamara and others ChD 4-Apr-2006
The claimant marina had been constructed with financial assistance from debenture holders who in return were given low cost licences. The claimant sought to refuse to the defendant debenture holders the right to sub-licence their rights to berth . .
Cited – Lymington Marina Ltd v MacNamara and others CA 2-Mar-2007
A share in a marina had been inherited by one brother whose application to grant successive sub-lcences of it to the other two was rejected by the marina, who said that this was not permitted. The marina appealed a finding that it had to make its . .
Cited – Office of Fair Trading v Abbey National Plc and seven Others ComC 24-Apr-2008
The Office sought a declaration that the respondent and other banks were subject to the provisions of the Regulations in their imposition of bank charges to customer accounts, and in particular as to the imposition of penalties or charges for the . .
Cited – Unique Pub Properties Ltd v Broard Green Tavern Ltd and Another ChD 26-Jul-2012
The claimant freeholder sought to install in the tenant’s pub, equipment to monitor sales. It claimed a right for this in the lease. The tenant refused access, saying that the proposed system was inaccurate. The claimant now sought summary relief. . .
Cited – Socimer International Bank Ltd v Standard Bank London Ltd CA 22-Feb-2008
Rix LJ considered the restraints operating a party to a contract in exercising any discretion gien under it, preferring the use of the term ‘irrationality’ to ‘unreasonableness’: ‘It is plain from these authorities that a decision-maker’s discretion . .
Cited – Braganza v BP Shipping Ltd SC 18-Mar-2015
The claimant’s husband had been lost from the defendant’s ship at sea. The defendant had contracted to pay compensation unless the loss was by suicide. They so determined. The court was now asked whether that was a permissible conclusion in the . .
Cited – British Telecommunications Plc v Telefonica O2 UK Ltd SC 9-Jul-2014
The parties disputed the termination charges which BT was entitled to charge to mobile network operators for putting calls from the latter’s networks through to BT fixed lines with associated 08 numbers. BT had introduced new tariff charges.
Lists of cited by and citing cases may be incomplete.
Contract
Updated: 17 May 2022; Ref: scu.229645