Warwickshire College v Malvern Hills District Council

A contractual discretion requiring a party to be satisfied about an expert determination is subject to an implied obligation to act rationally, in good faith and consistently with the contractual purpose. The decision-maker must consider the right matters and must not reach an outcome which no rational decision-maker could reach.

Where a covenant requires an independent specialist body to determine whether a need exists, a partial determination may still be a determination. The contractual decision-maker must assess whether it is satisfactory rationally; it cannot demand an assessment which the specialist body was structurally unable to provide. Once the determination has been properly reviewed and accepted, the decision-maker cannot retain an absolute veto rendering the determination redundant.

The claimant, an educational college and successor to Evesham and Malvern Hills College, owned a former college property subject to a covenant restricting use to further education and ancillary purposes. A change of use required written confirmation from the defendant district council after a determination by the functional successor to the Learning and Skills Council that there was no longer a functional need for a college in Malvern.

The Education and Skills Funding Agency made determinations concerning funded 16–19 provision and addressed, more limitedly, provision for learners aged 19 and over. The council refused to provide the required confirmation, challenging the ESFA’s status, the scope and quality of its determination, and the extent of its own contractual discretion. The central issues were whether the ESFA was a functional successor, whether its communication was a determination within the covenant, whether the council could rationally reject it, and whether the council was obliged to give written confirmation.

1. The ESFA was the functional successor to the Learning and Skills Council for the purposes of the covenant. “Successor in function” required broad functionality, not identical statutory powers or remit. The ESFA’s narrower funding role did not prevent it being a functional successor.

2. The covenant was construed objectively, by reference to its language, documentary and commercial context, purpose, and the circumstances known to the parties when contracting. The word “college” referred back to the defined expression “Further Education College”; it did not require a determination concerning every possible type of college.

3. The ESFA’s Second Determination was a determination, although partial. The covenant required a determination with which the council was satisfied. The limited data available to the ESFA could affect whether the determination was satisfactory, but did not mean that no determination had been made.

4. The council’s contractual power was subject to an implied Braganza term. It had to act lawfully, rationally, in good faith and consistently with the contractual purpose. The two limbs required attention to relevant matters and avoidance of an outcome so unreasonable that no rational decision-maker could reach it.

5. The council could not rationally reject the determination because it did not cover matters which the ESFA was structurally unable to assess. Nor was there a rational procedural basis for rejecting it: the council had no proper grounds to doubt that the ESFA had undertaken its review or considered the representations made to it. The council also could not rationally conclude that the determination was substantively unsupportable on the evidence.

6. The council did not possess an absolute discretion to disregard a determination which it accepted had been properly made. The covenant’s purpose was to vest the relevant assessment in an independent specialist body while retaining a rational review power for the council. Once the council’s review was properly completed, the written confirmation had to be provided.

7. Judgment was therefore given for the claimant on the contractual issues.

Not stated in the judgment.