28 September 2020
Under Construction - Q3 2020 – 3 of 5 Insights
A recent decision of the Commercial Court, Apache North Sea Limited v INEOS FPS Limited  EWHC 2081 (Comm), provided guidance on the scope of a party’s ability to withhold its consent under a contract where there is a provision that such consent will not be unreasonably withheld. The case confirmed that it would be unreasonable to set onerous conditions prior to giving consent particularly when the consenting party may secure a financial advantage.
Whilst the Apache case concerned an amendment to the shipment schedule in a transportation and processing agreement, construction contracts, like many commercial agreements, often contain consent clauses, providing for consent to be secured before a contractual party is permitted to do something. These provisions then go on to provide that consent should not be unreasonably withheld. For example, the JCT 2016 suite of contracts, at clause 1.10, provides that if consent is required, such consent shall not be unreasonably held or delayed.
The Apache case provides a useful reminder as to how such clauses are likely to be interpreted.
In the Apache case, the court referred Lord Briggs JSC view set out in Sequent Nominees Ltd v Hautford Ltd , that the correct approach is to construe a consent provision on its express terms but that that exercise was not limited to looking at the terms of consent provision in isolation. The whole contract needed to be considered. However, the court should not intervene in the evaluative exercise of the consent-provider and substitute its own judgment or seek to re-write the parties’ bargain.
However, the mere fact that through the imposition of a condition, the consent-provider may acquire an entitlement to something it did not previously have does not automatically render the condition illegitimate. Imposing a condition to address a legitimate concern on the part of the consent-provider may be acceptable when it results in a benefit which is compensatory or mitigatory in nature. For example, if a party refuses consent to an assignment to a financially weak assignee, but in fact grants consent on condition that the assignee's obligations are guaranteed this is likely to be considered reasonable (Sargeant v Macepark (Whittlebury) Limited ).
The case is a useful reminder of the approach to clauses which require the consent of a party to a course of action, such consent not to be unreasonably withheld. The correct approach is to construe a consent provision in the context of the contract as a whole.