Implied Restrictions on Broad Contractual Powers – the “Braganza” Obligation to Act Rationally and in Good Faith When Exercising Unfettered Contractual Discretion

Contracts often include provisions that provide a unilateral discretionary power conferred on one of the parties to the contract. Such discretion may appear to be unfettered. However, English courts have sometimes used the implication of a term that qualifies the manner in which it may be exercised by concepts of good faith, and genuineness and the absence of arbitrariness, capriciousness, perversity and irrationality (often referred to as the "Braganza Duty"). In this client alert, Rob Broom (associate, Energy & Natural Resources) and Joe Abbott (senior associate, Corporate) take a closer look at the Braganza Duty, when it applies, how to fulfil it, and practical tips relating to the exercise of contractual discretion.