High Court considers scope of Braganza-style limitation on lender's contractual discretion to permit disposal of secured assets

The High Court has found that, while a bank's contractual discretion to permit or prohibit a borrower's disposal of secured assets was subject to a Braganza-style implied term, the bank did not breach that duty by rejecting various alternative proposals for achieving the borrower's debt reduction, which were against the bank's own commercial interests: Macdonald Hotels Ltd & Anor v Bank of Scotland plc [2025] EWHC 32 (Comm).

Where the so-called Braganza duty applies, a decision maker must exercise its discretion in a manner that is reasonable and not irrational, arbitrary or capricious, in accordance with the Supreme Court's decision in Braganza v BP Shipping Ltd [2015] UKSC 17. In the present case, the court found that a limited Braganza-style duty applied, but the scope of that duty did not prevent the bank from acting in its own best interests, and the bank was not required to balance its own commercial interests against those of the borrower.

The case is a useful illustration that, where in principle a Braganza-type duty applies to any contractual discretion, the effect and scope of the term implied will depend on the nature of the discretion in question. While this decision arises in the finance context, the principles apply to commercial contracts more generally.

For more information see this post on our Banking Litigation Notes blog.