Braganza v BP Shipping Limited and another

A contractual power to make a decision affecting both parties is ordinarily subject to an implied term requiring honesty, good faith and rationality, consistently with the contract’s purpose. Rationality may require both limbs of the Wednesbury test: the decision-maker must consider relevant matters and exclude irrelevant ones, and must not reach an outcome which no reasonable decision-maker could reach.

The content and intensity of review depend on the contract and context. An employment relationship, particularly where an employer determines a factual condition excluding a contractual benefit, may justify close scrutiny. A positive finding of an inherently improbable event such as suicide requires cogent evidence. An employer acts irrationally if it makes that finding without appreciating the inherent improbability or considering an obvious alternative explanation.

Mr Renford Braganza disappeared from an oil tanker owned and managed by the first respondent. His employment contract with the second respondent provided death-in-service benefits unless, in the employer’s opinion, his death resulted from his wilful act, default or misconduct. Relying on an internal investigation, the employer formed the opinion that he had committed suicide and refused payment to his widow.

Teare J upheld the contractual claim in [2012] EWHC 1423 (Comm), holding that the opinion was unreasonable, but rejected the separate negligence claim. The Court of Appeal allowed the employer’s appeal in [2013] EWCA Civ 230. The central issues before the Supreme Court were the standard governing review of a contractual fact-finder’s opinion and whether an employer required cogent evidence before positively finding suicide.

1. By a majority comprising Lady Hale, Lord Hodge and Lord Kerr, the appeal was allowed. The employer’s opinion that the employee had committed suicide was irrational. The widow’s contractual claim for the death-in-service benefit therefore succeeded. Lord Neuberger and Lord Wilson dissented.
2. Per Lady Hale, a contract conferring a decision-making power on one party ordinarily contains an implied term controlling its exercise. The court does not substitute its own decision. It reviews whether the contractual decision-maker acted honestly, in good faith, rationally and consistently with the contractual purpose. Depending on the contract and context, rationality includes both limbs of the test in Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223: the process must address relevant considerations and exclude irrelevant ones, and the outcome must not be one which no reasonable decision-maker could reach.
3. The precise content of the implied term is contextual. A lay contractual decision-maker need not conduct the detailed legal and factual inquiry expected of a court, and a slight immaterial misdirection will not invalidate a decision. In an employment contract, however, the implied obligation of trust and confidence informs the exercise of a power affecting contractual benefits. Per Lord Hodge, the relational nature of employment may justify more intense scrutiny where the employer decides whether a factual condition defeats a prima facie benefit.
4. The civil standard remains the balance of probabilities; there is no sliding legal standard based on seriousness. Inherent improbability is nevertheless relevant to whether that standard is met. Because suicide is inherently improbable, a rational positive finding required cogent evidence. The employer could instead conclude that it was unable to form an opinion, in which event the contractual exception would not apply.
5. The evidence relied upon was insubstantial and contained no positive indication of suicide. The employer failed to explore important evidence, appreciate the inherent improbability, and consider the real possibility that the employee went on deck for a work-related reason and accidentally fell. The internal team’s different safety remit did not supply a sufficiently cogent evidential basis for the employer’s benefit decision.
6. Lord Neuberger, with Lord Wilson, accepted the general rationality standard but dissented on its application. He considered that the extensive investigations and reports rationally supported the employer’s opinion and that the reviewing court should respect the contractually selected fact-finder.

1. United Kingdom Supreme Court: By a 3-2 majority, allowed the widow’s appeal and restored the contractual result reached at first instance.
2. Court of Appeal: In [2013] EWCA Civ 230, allowed the employer’s appeal and held that its conclusion of suicide was reasonable.
3. High Court, Admiralty Court: In [2012] EWHC 1423 (Comm), Teare J upheld the widow’s contractual claim because the employer’s opinion was unreasonable. He dismissed her separate tort claim, and that dismissal was not appealed.