In Porton Capital Technology Funds v. 3M UK Holdings Ltd & 3M Company¹, the English High Court considered the concepts underlying the requirement to seek and obtain consent on the one hand, and the countervailing measure of other parties entitlement not to consent. The phrase “subject to consent, such consent not to be unreasonably withheld” is regularly used by lawyers and is often viewed as an innocuous concession that demonstrates the reasonability. The Porton Capital case considered the consent concept².
The High Court in England held that vendors of a business on an earn-out basis had not unreasonably withheld their consent to the cessation of the business and were entitled to damages for breach by the purchaser of its contractual obligations to diligently seek regulatory approval for the product and to market it actively. Such judgment and order was made in context where the defendants argued that they had always acted in good faith and in accordance with the share purchase agreement; they were entitled to terminate business in circumstances where they had requested consent, it was not forthcoming and they had offered compensation.
The Court analysed the commerciality surrounding the business in context of claim for damages and while a number of issues were considered there was one central to the case: Did the vendors act unreasonably in withholding consent from the Defendants to terminate the business in late 2008?
In answering this question, the Court gave detailed consideration to the meaning of the phrase itself and where the onus lies in proving whether withholding consent was reasonable. In considering the issue, the Judge agreed with the claimants who had highlighted the following principles:
- the onus is on the party claiming that a refusal is unreasonable to demonstrate its unreasonableness;
- it is not for the party who may withhold consent to demonstrate that it was right or justified, merely that it was reasonable in the circumstances;
- in determining what is reasonable, the person granting/withholding consent are entitled to have regard to their own interests; and
- there is no requirement on the person granting/withholding consent to balance their interests with the other party or to have any regard to the costliness withholding consent may have, unless the balance is completely disproportionate.
In summary, the party requesting consent must show that the other party's refusal is unreasonable, which is a question of fact. The refusing party is not obliged to show that its refusal is right, simply that it was reasonable in light of the surrounding facts. It is not required to balance its own interests with those of the other party, unless the balance is completely disproportionate.
In light of the evidence brought before the Court, the Judge found that the claimants were entitled to damages, which were calculated at a level which, at approximately $2m, was twice that of the original 3M compensation offer.
Where consent is required, then a contract party is entitled to give or refuse consent. The onus is placed on the counterpart to establish the unreasonable nature of a refusal. When seeking relief from the Courts on the issue of such refusal of consent, its reasonableness will be an issue of fact to be decided by a Court objectively in each individual circumstance, but with regard to the position that the onus is on the party seeking consent to demonstrate the unreasonableness of the decision.