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In Woolley v Fonterra Co-op Group Ltd [2023] NZCA 266, the New Zealand Court of Appeal recently considered the approach to the review of contractual discretions adopted by the UK Supreme Court in Braganza v BP Shipping Ltd [2015] UKSC 17, [2015] 1 WLR 1661. The Braganza test is controversial, so it is not surprising that the Court of Appeal ultimately chose to sit on the fence over it.

The case involved a contract between a dairy farmer and the well-known milk company. Under the contract the company had suspended milk collection from the plaintiff’s farm following a dispute between the farmer and the relevant local authority over environmental concerns. Fonterra conceded that it must not exercise its discretion “arbitrarily, capriciously, in bad faith or unreasonably, albeit only in the sense that no contracting party could have rationally so acted”.

This concession was aligned with the second limb of the public law test of reasonableness propounded in Associated Provincial Picture Houses Ltd v Wednesbury Corp [1948] 1 KB 223 (CA). Fonterra did not concede that the so-called first limb of Wednesbury applied, namely that the decision-maker must not have taken into account an irrelevant consideration or failed to take into account a relevant consideration. Braganza had supported the application of both limbs, at least in the context of an employment contract.

The Court felt able to conclude that Fonterra had not acted inappropriately even if both limbs of Wednesbury applied.

The Court noted (at [93]) that the Braganza test did not appear to have been the subject of academic discourse here. That may be strictly true, but I have criticised the Braganza test in an English publication: P Watts “Trustees with Absolute Discretions” (2022) 36 Trust law International 3 at 15ff. 

Even in a public law context it is arguable that Homer nodded in the Wednesbury case when the English Court of Appeal adopted the relevant/irrelevant considerations test for broad statutory discretions. Unless a consideration is expressly and mandatorily included or excluded in the terms of the instrument conferring the power, why should it be fatal that a decision-maker simply overlooks a relevant consideration or gives some weight to an irrelevant one? We all do that, even judges, as Lord Mansfield long ago recognised. 

In a private law context, the position is even stronger. Usually the party who exercises a contractual discretion gets one shot at it, and it is wrong to treat them as in breach of contract for failing the relevant/irrelevant considerations test. That is so even if no damages result where the decision-maker can convince the court that the same decision would have been made had they acted perfectly. 

In a public law context, in contrast, the decision maker will rarely face personal liability for slipping up, nor will they have to fund their own defence. Moreover, they are exercising a public power, often on a repeated basis, so that it is important that there is oversight and that they get things right.

On any basis, the relevant/irrelevant considerations test needs to be handled with kid gloves.

Peter Watts KC is an internationally renowned expert in the law of agency. He has advised on the common law of agency in court proceedings and arbitrations (including ICSID) in many jurisdictions, including England and Wales, New York, Australia, and Denmark. He also has a broad domestic practice in New Zealand in banking law, insolvency law, company law, equity and trusts, the law of restitution, and the law of contract. Learn more.