In Lord Chancellor v Blavo & Co, the court held that “reasonably considers” meant acting rationally.

Blavo had entered into a contract with the Lord Chancellor under a scheme to provide legal aid services to clients in relation to mental health law. Blavo could claim its legal fees from the Lord Chancellor and the Legal Aid Agency would supervise the scheme.

It emerged that Blavo had claimed fees for tribunal representation in cases of which the government had no record. The Legal Aid Agency launched an investigation and produced a report suggesting fraud running to over GBP 22m. The contract provided “…we may serve a notice on you terminating this Contract … [if] we receive a Report and reasonably consider that termination is required to protect Clients or us from possible serious harm or to protect public funds or Clients’ interests”. The Lord Chancellor gave notice terminating under this provision. Blavo challenged.

The court held that the use of the adverb “reasonably” qualified the circumstances in which the termination provision could be relied on. The provision was subject to implied terms that the power under it would be exercised rationally and in good faith: Braganza v BP Shipping.

Examining the rationality of the decision, the court emphasised the evidence of fraud in the investigation report and Blavo’s conduct during the course of investigation. Blavo had failed to provide files verifying its claims, despite the Legal Aid Agency’s request, without any satisfactory explanation. Blavo’s refusal to co-operate and the magnitude of the discrepancy in its claims gave rise to a justified suspicion of fraud at an organisational level. The contract was therefore validly terminated.