Lymington Marina Ltd v MacNamara & Ors

A contractual power to approve a proposed sub-licensee must be construed from the wording and context of the licence. Where approval is required only of the third party, the power is confined to grounds concerning that person and the proposed use of the facility. It cannot be used to advance the licensor’s independent commercial interests.

A term may be implied that the power will be exercised in good faith and not arbitrarily or capriciously. The licensor need only consider the application; it need not establish that its decision is objectively justifiable or undertake further investigations. A refusal founded on a mistaken view that the contractual power is wider than it is falls outside that power and is invalid.

Lymington Marina Ltd granted a 98-year contractual licence to moor a yacht. The licence permitted the licensee to authorise an approved third party to exercise all the licensed rights for a period of one to 12 months.

After the licence had been assigned to Bingham MacNamara, he sought approval for successive sub-licences to his brothers, John and Rory. The marina refused approval, maintaining that rotational sub-licences were prohibited and that it had an absolute discretion to refuse consent.

Patten J held that the licence permitted successive sub-licences and that approval could not be withheld for the marina’s commercial interests. His judgment is reported at [2006] 2 All ER (Comm) 200. The marina appealed. The central issues were the meaning of the sub-licensing clause, the limits of the approval power, and the effect of the marina’s mistake as to those limits.

1. Appeal dismissed. The licence permitted successive or rotational sub-licences, provided that each was for a period between one and 12 months and covered all the licensed rights. The wording imposed no limit on the number of permitted grants. Reading in a requirement that sub-licences be merely temporary, occasional or ancillary to the licensee’s own use would require uncertain additional terms which the parties had not agreed.

2. The approval required by clause 3(k)(ii) was approval of the third party, not of the commercial desirability or terms of the proposed sub-licence. Unlike clause 3(k)(i), it did not confer an express absolute discretion. Approval could therefore be withheld only on grounds concerning the proposed sub-licensee and that person’s proposed use of the marina. The marina could not rely on its own or its parent company’s commercial interests, save where they coincided with a proper objection to that person.

3. A term was implied that the approval power must be exercised in good faith and not arbitrarily or capriciously. That implication was necessary to secure the licensee’s intended benefit of the sub-licensing provision. No further term required the marina to show that a refusal was objectively justifiable. It was obliged to consider the application, but not to seek out additional facts.

4. Public-law Wednesbury language was inappropriate when construing this private commercial contract. Although contractual arbitrariness may be analogous to an extreme form of unreasonableness, the order should not describe the contractual discretion as subject to a requirement of rationality in the Wednesbury sense.

5. The refusal rested on an erroneous belief that rotational sub-licences were forbidden and that the approval power was absolute. Those were grounds outside clause 3(k)(ii). Good faith could not validate a refusal which unilaterally enlarged the contractual power. The judge’s declarations required consequential amendment, but the appeal was dismissed.

• Court of Appeal (Civil Division): Dismissed Lymington Marina Ltd’s appeal and varied aspects of the declarations concerning the contractual approval power: [2007] EWCA Civ 151.

• Chancery Division: Patten J held that the licence permitted successive sub-licences and that the refusal of approval was invalid: [2006] 2 All ER (Comm) 200.