exercise it fairly and reasonably.
66 Such obligations are referred to as “discretion
obligations” by one commentator.
67 As alluded to earlier, given the principle of
freedom of contract and the need for legal certainty, rights and obligations of parties
to a contract are not ascertained in subjective terms. This raises the question of how
discretion pursuant to a contract should be properly exercised; in other words, how
discretion obligations are to be discharged. The same commentator has proposed in
this regard that the test of rationality instead of reasonableness be adopted by the
courts. In his view, this is a comparatively better choice as an objective test for
deciding to what extent a contractual discretion would be considered to have been
exercised honestly and reasonably in the absence of any detailed description in the
contract.
68
The distinction between these two tests has been explained by Lord Sumption in
Hayes v. Willoughby,
69 in the following words:
[R]easonableness is an external, objective standard applied to the outcome of a person’s
thoughts or intentions. The question is whether a notional hypothetically reasonable person
in his position would have engaged in the relevant conduct for the purpose of preventing or
detecting crime.
Lord Sumption explained that “rationality”:
[. . .] by comparison (to reasonableness), applies to a minimum objective standard to the
relevant person’s mental processes. It imports a requirement of good faith, a requirement that
there should be some logical connection between the evidence and the ostensible reasons for
the decision, and (which will usually amount to the same thing) an absence of arbitrariness,
of capriciousness or of reasoning so outrageous in its defiance of logic as to be perverse.
70
Despite the contrasting explanations presented above, it is unclear whether there
is judicial support for one over the other proposition, in that particular case. Indeed, it
is apparent that reasonableness is the parameter mentioned in most cases involving
the element of contractual discretion.
71
5.3 The Relevant Case Law
The legal theory of contractual discretion in English law is invariably derived from
the case law, and therefore, a probe into the leading and significant cases is
understandably essential. It is noteworthy in this context that the start of the line of
66 CVG Siderurgicia del Orinoco SA v. London Steamship Owners’ Mutual Insurance Association
Ltd (The Vainqueur José) [1979] 1 Lloyd’s Rep 557 per Mocatta J.
67 Foxton (2017), p. 362.
68 Foxton (2018) para. 44.
69 [2013] UKSC 17 para. 14.
70 [2013] UKSC 17 para. 14.
71 In this context, see Braganza v. BP Shipping Ltd. and Another [2015] UKSC 17, in particular the
judgement of Lady Hale at pp. 6–7 and paragraph 28.
Shipowner’s Implied Obligations in a Charterparty Relating to. . .
327
66 Such obligations are referred to as “discretion
obligations” by one commentator.
67 As alluded to earlier, given the principle of
freedom of contract and the need for legal certainty, rights and obligations of parties
to a contract are not ascertained in subjective terms. This raises the question of how
discretion pursuant to a contract should be properly exercised; in other words, how
discretion obligations are to be discharged. The same commentator has proposed in
this regard that the test of rationality instead of reasonableness be adopted by the
courts. In his view, this is a comparatively better choice as an objective test for
deciding to what extent a contractual discretion would be considered to have been
exercised honestly and reasonably in the absence of any detailed description in the
contract.
68
The distinction between these two tests has been explained by Lord Sumption in
Hayes v. Willoughby,
69 in the following words:
[R]easonableness is an external, objective standard applied to the outcome of a person’s
thoughts or intentions. The question is whether a notional hypothetically reasonable person
in his position would have engaged in the relevant conduct for the purpose of preventing or
detecting crime.
Lord Sumption explained that “rationality”:
[. . .] by comparison (to reasonableness), applies to a minimum objective standard to the
relevant person’s mental processes. It imports a requirement of good faith, a requirement that
there should be some logical connection between the evidence and the ostensible reasons for
the decision, and (which will usually amount to the same thing) an absence of arbitrariness,
of capriciousness or of reasoning so outrageous in its defiance of logic as to be perverse.
70
Despite the contrasting explanations presented above, it is unclear whether there
is judicial support for one over the other proposition, in that particular case. Indeed, it
is apparent that reasonableness is the parameter mentioned in most cases involving
the element of contractual discretion.
71
5.3 The Relevant Case Law
The legal theory of contractual discretion in English law is invariably derived from
the case law, and therefore, a probe into the leading and significant cases is
understandably essential. It is noteworthy in this context that the start of the line of
66 CVG Siderurgicia del Orinoco SA v. London Steamship Owners’ Mutual Insurance Association
Ltd (The Vainqueur José) [1979] 1 Lloyd’s Rep 557 per Mocatta J.
67 Foxton (2017), p. 362.
68 Foxton (2018) para. 44.
69 [2013] UKSC 17 para. 14.
70 [2013] UKSC 17 para. 14.
71 In this context, see Braganza v. BP Shipping Ltd. and Another [2015] UKSC 17, in particular the
judgement of Lady Hale at pp. 6–7 and paragraph 28.
Shipowner’s Implied Obligations in a Charterparty Relating to. . .
327