In Macdonald Hotels Ltd v Bank of Scotland Plc [2025] EWHC 32 (Comm), the High Court examined the terms of a loan which precluded a borrower from creating any security or selling or disposing of any relevant assets without the lenders’ prior approval.
The court held that a term should be implied to the effect that a lender should not be entitled to refuse its consent "for a reason or reasons unconnected with what it perceived to be its own commercial best interests or … when no reasonable entity in the position of [the lender] could have refused consent" and there is a duty to exercise a contractual discretion “in good faith and not arbitrarily or capriciously”.
This ruling has wider implications in commercial contracts. A party wishing to retain an absolute discretion to approve or reject an action by a counterparty under a contract should consider drafting the relevant undertaking as an absolute prohibition, rather than as a prohibition without prior consent.
NRF’s fuller summary on the case can be found here, and the judgment can be found here.
