Contractual consent: when is it reasonable to attach conditions when giving consent?

Our team: Tim Wright

Contractual consent: when is it reasonable to attach conditions when giving consent?

Contracts often require a party to seek consent from the other party before it can do something. For example, a party to a contract may not be permitted to assign the benefit of a contract, appoint a subcontractor, or move to a new service location, without the prior consent of the other party. Often, the contract provides that such consent must not be unreasonably withheld.

Apache North Sea v INEOS FPS

In the case of Apache North Sea v INEOS FPS (28 July 2020)[1], the English High Court considered just such a clause. Apache and INEOS had entered into an agreement for the transportation and processing of hydrocarbons in the Forties oil field in the North Sea (the TPA). Apache sought INEOS’s consent to revise an attachment to the TPA to provide for oil production estimates until 2040 (beyond those already agreed to 2020). The TPA provided that INEOS’s consent must not be unreasonably withheld.

INEOS received the request for consent. It countered that it would only provide consent to amend the attachment if Apache agreed to revise the tariff payable under the agreement for the extended period, to INEOS’ benefit.

An unreasonable condition is non-contractual

Mr Justice Foxton, sitting in the Commercial Court, found that INEOS was acting non-contractually by withholding its consent unless Apache agreed to the change of tariff. Whilst a consent-provider might be able to justify imposing a condition intended to protect or compensate against a legitimate concern which could arise if consent was given, it could not do so in order to increase or enhance its rights under the contract. But in seeking to change the tariff, INEOS was trying to engineer a fundamental revision to the parties’ bargain rather than protecting against any detriment which giving the consent might cause.

Consent-givers take care  

Businesses should take care when they interpret and apply contractual rights and obligations, especially in long-term relational agreements such as the TPA. Considering requests for contractual consent, it may be tempting to seek to advance the consent-giver’s position by attaching a condition to that consent. However, where the condition leads to a benefit which is not compensatory or mitigatory it will probably be unreasonable to do so.

Getting the balance right can be tricky – do contact me if you are grappling with these kinds of decisions and would like a second opinion.

[1] Apache North Sea Limited v INEOS FPS Limited [2020] EWHC 2081 (Comm)

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