Whether consent for the granting of a charge over a party’s contractual rights has been unreasonably withheld by the other party is determined objectively by the Courts having regard to all the circumstances (including the withholding party’s actual reasons).  Consent will be considered to be unreasonably withheld if it is based on grounds collateral to the contract’s terms.

This case involved a dispute over the extension of existing charges given by Idoport Pty Limited (Idoport) to cover its rights under a consulting agreement with the National Australia Bank Limited and certain of its subsidiaries (NAB parties). The consulting agreement contained a typical prohibition on assigning, encumbering or otherwise dealing with the rights and obligations under the agreement without the prior consent of the other parties (not to be unreasonably withheld). One of the key issues for consideration was whether the NAB parties unreasonably withheld their consent under the consulting agreement to the extension of the charges.

In finding that the NAB parties had not unreasonably withheld consent, the Court enunciated the following general principles which are applicable in considering the question of whether a party has acted reasonably in withholding consent (unless there are any peculiar features of the relevant clause):

  • the question is a question of fact with “reasonable” being given a broad and common sense meaning - consent would be unreasonably withheld if it was withheld on grounds that “have nothing whatever to do with” the relationship of the parties in regard to the subject matter of the contract;
  • the question is to be determined objectively having regard to all of the circumstances (including the withholding party’s actual reasons for withholding consent) -  consent withheld to achieve an objective which is “a collateral advantage” outside the contract’s terms would be withheld unreasonably, despite the presence of grounds that were reasonable which the withholding party did not rely on;
  • it is necessary to consider the position as at the date consent is refused - account should not be taken of subsequent events; and
  • any delay in responding to a request for consent is relevant in determining whether consent has been unreasonably withheld – while a party is not required to give reasons for withholding consent, the failure to respond amounts to a withholding of consent without reasons, from which it can be more readily inferred that the withholding was unreasonable.

The Court also found that the onus of proof for establishing that consent was withheld unreasonably fell on Idoport (referring to case law establishing that the onus of proof in relation to an exception lay on the person seeking to rely on the exception).  

See case.