Eastleigh Borough Council v Town Quay Developments Ltd

There is no general rule that a contractual requirement for consent carries an implied term that consent cannot be unreasonably withheld. The question is whether the instrument, read as a whole against its relevant background, would reasonably be understood to contain that restriction. Business efficacy and reasonable expectations inform that inquiry, but it is not enough that the term would be reasonable. The term was implied here because consent was entrusted to a named public officer and an unrestricted discretion would have frustrated the commercial purpose of reserved access rights.

Botley Flour Milling Company Limited conveyed land to Eastleigh Borough Council under agreements connected with the development of the Wildern site. The Transfer reserved rights to lay services and construct a road over the transferred land, subject to compliance with a development brief and the consent of the council’s director of planning and development.

After planning permission for residential development was granted on appeal, the council refused consent to the proposed access road. Town Quay Developments Ltd, as successor in title, sought declarations that it was entitled to exercise the reserved rights. Etherton J held that consent could not be withheld arbitrarily or unreasonably and that it had been refused unreasonably. The council appealed only on the issue whether that restriction should be implied.

Disposition. The Court of Appeal unanimously dismissed the appeal. Arden LJ gave the leading judgment, with Waller LJ and Thomas LJ agreeing.

1. There is no general rule that a contractual provision requiring consent contains an implied term that consent must not be unreasonably withheld. The implication of such a term presents a high hurdle.
2. The governing inquiry is contractual interpretation. In accordance with Attorney General of Belize v Belize Telecom [2009] 1 WLR 1988, the court asks whether the instrument, read as a whole against the relevant background, would reasonably be understood to mean that the proposed term applies. Concepts such as business efficacy and the officious bystander are reformulations of that inquiry, not separate or additional tests. It is insufficient that the term would merely be reasonable for the parties to agree.
3. The absence of an express restriction, professional drafting, the presence of express reasonableness requirements in the related Section 52 agreements, and the general wording of the proviso pointed against implication. They were outweighed by the fact that the power was entrusted to a named public servant, whom the parties would have expected to act reasonably, and by the commercial circumstances. The reserved rights had a practical purpose, and an unrestricted power to refuse consent could have frustrated that purpose. The approach in Cryer v Scott Brothers (Sunbury) Limited [1986] 55 P & CR 183 supported that conclusion.
4. The court considered that “the exercise of rights” could refer to the manner in which the rights were exercised, providing an additional indication that consent was not to be withheld unreasonably. That point was not necessary to the result. The lease authorities, including Pearl Assurance v Shaw [1985] 1 EGLR 92 and Guardian Assurance Co Ltd v Gants Hill Holdings Ltd [1983] 267 EG 678, arose in a materially different contractual context and did not govern the Transfer.
5. The judge had therefore reached the correct conclusion that the restriction should be implied. The appeal was dismissed.

• Court of Appeal (Civil Division) — [2009] EWCA Civ 1391: dismissed the council’s appeal on the implication of a restriction on withholding consent.
• High Court of Justice, Chancery Division — Etherton J, by order dated 12 November 2008: held that consent could not be withheld arbitrarily or unreasonably and had in fact been refused unreasonably.