Negotiations on loan and security documents often result in consent provisions being qualified so that consent cannot be "unreasonably withheld".
In the recent case of Porton Capital Technology Funds and Others v 3M UK Holdings Ltd and another [2011] EWHC 2895 (Comm) (7 November 2011) the High Court upheld previously established principles in determining whether a consent had been unreasonably withheld.
The judge confirmed that principles developed in landlord and tenant cases are applicable to commercial situations. Therefore this case provides useful guidance in determining whether or not consent has been unreasonably withheld in commercial agreements - including finance transactions. For example it will be useful in the context of the transfer of debt. Where the borrower refuses to consent to the transfer, it will be a question of fact as to whether such consent has been unreasonably withheld.
In determining whether a refusal of consent is unreasonable, the following principles apply:
- the burden is on the party requesting the consent to show that the party refusing consent is acting unreasonably;
- the party refusing consent does not need to show that such refusal is right or justified. It is only necessary to show that the refusal is reasonable under the circumstances, which will be a question of fact in each case;
- the party refusing consent may have regard to its own interests; and
- the party refusing consent need not balance its own interests against the interests of the party requesting consent, unless they are entirely disproportionate. Again, this will be a question of fact in each case.
In cases where a lender is arguing that a borrower is unreasonably withholding consent to the transfer of a debt, the question of reasonableness is likely to depend upon various factors, including the type of borrower, the borrower's credit rating and the identity of the intended transferee.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.