Lymington Marina Ltd v MacNamara & Ors [2006] EWHC 704 (Ch)

[2006] EWHC 704 (Ch)

Case No HCO3 C03838

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date 04/04/2006

Before

MR JUSTICE PATTEN

Between

Lymington Marina LimitedClaimant

(1)Bingham MacnamaraDefendants

(2) John Macnamara (3) Rory MacnamaraDefendant

Mr Edward Bartley Jones Q.C (instructed by Wacks Caller, Solicitors) for Claimant

Mr Michael Norman (instructed by Clive Sutton, Solicitor) for Defendants

Hearing Hearing dates: 21 - 24 February 2006

Judgment

Mr Justice Patten :

[1]The principal issue which I have to decide in this action is whether the Claimant Company, Lymington Marina Limited (“LML”) was entitled to refuse its consent in 2003 to the grant by the First Defendant, Mr Bingham Macnamara, to his two brothers of successive sub-licences of his right to berth a boat in Lymington Marina during the period from 1 October 2003 to 30 September 2004.

[2]LML, as its name suggests, owns and operates Lymington Marina (“the Marina”) in Hampshire. The Marina is situated on the River Lymington opposite the Isle of Wight ferry terminal and is immediately adjacent to the boatyard and premises of Berthon Boat Co. Limited (“Berthon”), the parent company of LML. The Marina was the idea of Mr David May (a well-known yachtsman and at the time the controlling shareholder of Berthon) and LML was incorporated to own and manage the Marina. Its issued shares are held as to 75% by Berthon with the balance of the shares being distributed amongst various members of the May family.

[3]The evidence is that in the 1960s there were no marinas as such in the UK. Mr May had seen the quality of the marinas and the moorings they provided in the USA and decided to develop the marsh and mudflats adjacent to Berthon’s premises into something comparable.

[4]He therefore approached various friends and acquaintances in the yachting world. The initial capital for the project was raised by the issue of 52 debentures. These were issued for £4,000 each and carried interest of 5% per annum payable half yearly. They were transferable, but were not redeemable except in the event of default by LML. None of the other terms of the debentures is relevant to what I have to decide.

[5]Each of the original debenture holders was also granted a licence to berth a yacht in the Marina. The licences were granted by separate deed and there is nothing in either the debentures or the licence agreements themselves which requires them to be held or transferred together. The licences do not relate to any specific berth. Clause 1 of the licence agreement in this case (so far as material) grants to the licensee for a period of 98 years from 1 April 1969:

“(a) the right to moor a yacht not exceeding fifty five feet in length overall or twenty feet in beam owned by the Licensee and nominated by him in writing to the Company not less than one month before exercising the rights hereby granted at such place within the Marina at Lymington Hampshire owned by the Company as the Company may from time to time indicate (b) the right to park not more than two private cars in such place or places as may from time to time be indicated by the Company adjacent to the Marina and (c) to use such lavatories showers and washing facilities as are to be provided adjacent to the Marina”

[6]The licence fee is the sum of £50.00 payable annually in advance on 1 March in each year.

[7]Clause 3 of the licence contains a number of covenants by the licensee which govern the use by him of the Marina. These include provisions which confirm LML’s right to require the licensee only to moor in the places it directs and covenants not to cause damage in the Marina and to observe and perform the rules and regulations governing the management and use of the Marina and the car park.

(g) prohibits the licensee from using:

“the Company’s premises or any yacht exercising the rights hereby granted for any commercial purposes including hiring embarkation of charter parties sale or demonstration of such yacht or hiring sale or demonstration of such cars without the prior written consent of the Company ”

[8]The licences are transferable. The evidence includes an extract from the original offer letter sent out in 1967 and 1968 inviting subscriptions for the debentures and mooring licences. This described the licence in these terms:

“The Licence which is in certain circumstances transferable, is obviously a valuable asset and the investment as a whole should be readily saleable if for any reason it is desired to dispose of it. Additionally the berth can be sublet with the consent of the Company.”

[9]The transfer of the licence and what is described in the letter as the sub-letting of the berth is dealt with in clause 3 (k) of the licence agreement. This is a covenant by the licensee:

“not to assign transfer charge or otherwise alienate this Licence or the rights hereby granted or any of them and will not part with possession or occupation or use or grant any licence in respect of the said rights or any of them or any part thereof PROVIDED ALWAYS that the Licensee may: (i) assign this Licence as a whole (but not any of the rights hereby granted separately) to an assignee approved by the Company which approval may be granted or withheld at the Company’s absolute discretion or (ii) authorise a third party to exercise all the rights hereby granted as a whole but not any of the rights hereby granted separately for a period of not less than one month and not more than twelve months PROVIDED ALWAYS that such third party shall first be approved by the Company or (iii) serve on the Company three months’ notice in writing calling on the Company to accept a surrender of this Licence and on the expiry of such notice the Company shall in exchange for such surrender pay to the Licensee the market value of the Licence at such date of surrender. The market value is to be decided in default of agreement between the parties by an independent expert to be appointed by the President for the time being of the Institute of Chartered Accountants in England and Wales acting as an expert and not as an arbitrator”

PROVIDED ALWAYS that the Licensee may:

[10]Clause 3 (l) of the licence states:

“that the Licensee will within four weeks after the date of every assignment or sub-licence leave the assignment or instrument of devolution with the Company for the purpose of registration.”

[11]The Marina was developed under these arrangements but was eventually constructed with accommodation for up to 270 boats of different sizes. The berths are arranged in the form of five piers each with finger pontoons on both sides. Two boats can be moored between each of the pontoons and the longer (55ft) pontoons can, if necessary, accommodate two boats each of up to 20 feet in length. Car parking is provided on hard standing adjacent to the Berthon offices and boatyard. There is no club house as such, but users of the Marina are obviously able to entertain each other on their boats and some of them may belong to the Royal Lymington Yacht Club, which has its clubhouse and premises nearby.

[12]The Marina does, therefore, accommodate a large number of boats apart from those owned by the holders of the 98 year licences. Most of these other users have been granted annual licences for the season which runs from end of March in each year. Others are casual users who simply pay a daily fee for a mooring. The daily rate for casual use is worked out on the basis of the length of the boat. The charge equates to 85p per foot. A 40ft boat will therefore be charged £32.00 per day. The annual licence fee is calculated at the rate of £140.00 per foot.

[13]There are about 32 of the long-term licences still in existence. The remainder have been surrendered. About 200 annual licences are issued, which leaves a minimum of approximately 30 berths available for casual users assuming that all the long-term and annual licensees are mooring their boats in the Marina.

[14]However, because the long-term and annual licences do not give the licensee exclusive possession of any particular berth, the practice of LML is to use any vacant berths for casual lettings at the per diem rate. The company also runs a voluntary scheme which is available to long-term licensees who are absent from the Marina for more than one month. Under this scheme LML will offer to fill the berth, usually available for the long-term licensee, with casual users and will account to the licensee for a portion of the daily licence fee it receives. The long-term licensees will get a payment based on a per diem rate which equates to the cost of an annual licence for a boat of the relevant size. LML will receive the difference between the annual rate and the daily rate which the casual user is charged. This scheme operates as an alternative to a sub-letting organised by the licensee himself under clause 3 (k) (ii) of the licence agreement.

[15]The current Managing Director of LML is Mr Brian May. He is the son of Mr David May who set up the Marina. He gave evidence about how the Marina is run and the commercial and other considerations which affect the way in which the company approaches the sub-letting and assignment of long-term licences. He identified in his evidence three factors which he says lie behind the company’s approach to the running of the Marina. Broadly speaking, they are:(i) the need to maximise the potential use of the Berthon boatyard repair facilities by licensees of the Marina;

(ii) the desirability of maintaining what he describes as the exclusive club atmosphere of the Marina; and

(iii) the need to minimise or avoid the administrative burden which could be placed on LML were it to have to deal with numerous repeated requests by long-term licensees to sub-let their mooring rights.

[16]I shall come later in this judgment to consider the particular circumstances which have led to the dispute between LML and the Macnamara family in relation to the sub-letting of one of the long-term licences but it is useful and perhaps important to analyse the considerations identified by Mr May which are said to underlie much of the current dispute. Berthon

[17]In an earlier witness statement made in connection with a successful appeal by LML against the Master’s order transferring this case to the Southampton County Court, Mr May summarises the importance of the Marina to Berthon in this way. The Marina was set up by his father to provide a much improved mooring facility for yachtsmen, many of whom had purchased boats through the Berthon yard. These were wealthy individuals who had acquired expensive boats which they were likely to use Berthon’s services to maintain. Berthon also operates a brokerage service and many owners sell their boats or acquire new boats through the yard.

[18]Mr May says that the concern of LML ( on behalf of its parent) is that casual users under clause 3(k) (ii) sub-licences are much less likely to make use of the Berthon repair facilities than the long-term users themselves. If the sub-licensees also happen to be people who do not fit into what he describes as the ethos of the Marina, this is likely to discourage annual licence holders who are attracted by the social atmosphere of the Marina and who tend to use Berthon for the maintenance and repair of their boats.

[19]There is no doubt that Berthon has a well established reputation as a boatyard. It carries out repair and renovation to both sailing and motor boats and also has a substantial boat sales and yacht brokerage business, which on Mr May’s evidence, involves selling up to 200 yachts a year. The repair and refitting business employs about 60 craftsmen and apprentices and has an annual turnover of about £8m. It operates however in a highly competitive environment in which a number of local boatyards have ceased to trade.

[20]As I have already indicated, one of the reasons why Mr David May decided to set up the Marina was that it could provide Berthon with a regular clientele and source of income for its repairing business. The original Marina was relatively small and was clearly designed to cater primarily for the long-term licensees who were the original debenture holders. These were to some extent handpicked by Mr May and were prominent individuals such as the chairmen of well known public companies. But the Marina was then expanded considerably to its current size and with the passage of time few, if any, of the original licensees remain active users of the Marina.

[21]There is no specific evidence as to how many of the current long-term or annual licensees make use of the Berthon boatyard to maintain their yachts. Clearly there is an obvious convenience in being able to have a boat repaired adjacent to the Marina in which it is moored. But as in all things convenience usually takes second place after cost and Berthon’s success in obtaining work from Marina users is likely to depend on the quality and competitiveness of the services which they provide.

[22]It is, I think, important to bear in mind that there is nothing in the long-term licences which requires the licensees to use the services of the Berthon boatyard or to keep their boats in the Marina. The licences provide a right of mooring which the licensees can exercise or not as they choose. Therefore, although the long-term licences carried with them the prospect of work and income for the Berthon boatyard that could never be guaranteed and was likely to become less certain once the original licence holders had ceased to be active yachtsmen.

[23]The other point to be made is that the long-term licensees form only a very small section of the users of the Marina. As I have indicated, there were only ever 52 of them and now only 32 remain. I am not concerned in this action with the annual or casual licensees and I have not been shown or heard any evidence about the terms of the annual licences. But the impact of sub-letting by the 32 long-term licensees in relation to the Berthon yard will obviously be limited. I also question the premise upon which LML’s concern about sub-letting is based. Mr May says in his evidence that short-term licensees are less likely to use the Berthon yard than long-term users of the Marina. As a general proposition that may be correct, but one does need to examine what the position is likely to be if consent for a sub-letting is refused.

[24]Of necessity, a sub-licence will only be contemplated if the holder of the long-term licence has no immediate use for a berth in the Marina. Clause 3(k) (ii) of the licence agreement contemplates a sub-licence of anything between one and twelve months. It may therefore cover a whole season. In this particular case, the current licensee, Mr Bingham Macnamara, has no boat at all and can only make use of his licence by acquiring a new boat (which he does not intend to do) or by assigning or sub-letting his mooring rights. If LML is within its rights in refusing consent to either of those things, then no use will be made of the Marina or the Berthon yard by Mr Macnamara. The space created will be available during the season for casual users but they will often be visitors and are on Mr May’s evidence, unlikely to use the Berthon yard except perhaps in cases of emergency. It seems to me therefore that the refusal of approval for a sub-licence is not guaranteed (and indeed is probably unlikely) to result in anything but casual use of the space during the intended period of the sub-licence. If the permanent licensee intends to make use of the Marina during that time he will by definition not be interested in sub-letting. A refusal of consent will not therefore ensure the permanent or regular use by the licensee himself of the Marina (and probably the Berthon yard) during the period in question. Social Ethos

[25]LML’s desire to maintain what Mr May refers to as the exclusive club-like atmosphere or ethos of the Marina is again primarily directed to the use which boat owners in the Marina will make of the Berthon yard. Mr May said that he was anxious to attempt to preserve the rather exclusive nature of the licence holders and that his father had been able, as I have said, to secure the chairmen of major public companies and the like as original licensees. One hesitates to say that money is not a necessary determinant or guarantee of class and that the most vulgar millionaire may well make a better customer for the Berthon yard than the relatively cash-strapped High Court Judge or other professional whose gentility and keenness as a yachtsman may not be matched by his disposable income.

[26]But the short answer to this concern (which was explored with Mr May in cross-examination) is that LML could legitimately refuse to consent to an assignment or sub-licence to someone whose presence would genuinely be detrimental to the operation of the Marina. Examples were given of a prospective licensee who was known to be disruptive, abusive or someone who could not be relied upon to settle his bills. No prospective assignee or sub-licensee can however be required to use the Berthon boatyard and although in granting new annual licences LML will obviously try to favour as licensees boat owners who are likely to wish to do that, even in those cases there can be no guarantees. The other important point which I will return to later is that none of the Defendants who are brothers in the same family, is suggested to be anything but wholly respectable. Mr May agreed at one point in his evidence that they were exactly the sort of people he would like to have in the Marina. Indeed, they are keen sailors who have caused no problems in the past and have behaved in a thoroughly decent and helpful way. Apart from one point which I will come to, the refusal of consent to the grant of the sub-licences was based on a question of principle unrelated to the personality or social standing of the individuals concerned. Administrative Difficulties

[27]Clearly there is paperwork and other administration involved in the grant of temporary licences whether casual or as sub-licences. But there is no evidence which establishes that this is a real problem. LML, as I have indicated, understandably seeks to maximise the use of the Marina by allowing casual users to berth at available moorings. Regular users in the form of annual or long-term licensees will usually inform the dock master in advance of the days when they wish to berth in the Marina and it will therefore normally be possible to calculate with reasonable certainty what temporary space is available from day to day. There is, therefore, regular occasional use of the Marina throughout the season on a daily or short-term basis which must generate a certain amount of paperwork and administration in terms of booking arrangements, the issue of a permit and the collection of fees. Sub-licences under clause 3(k)(ii) of the Licence Agreements cannot be for less than one month and can be for as long as one year. They are therefore likely to generate considerably less administrative work than the casual lettings which are an established part of LML’s business. I consider that there is really nothing of substance in this point. The Dispute

[28]I turn now to the specific events which have given rise to this litigation. On 11 March 1969 one of the long-term licences was granted to Mr Robert Armitage. On 1st January 1973 it was assigned with the consent of LML to Air Commodore Brian Macnamara DSO, the father of the present Defendants. He was a Battle of Britain Spitfire pilot with a distinguished war record. He was also a keen sailor. He retired in middle age to Lymington and spent much of his later life sailing out of Lymington Marina. He was captain of cruising at the Royal Lymington Yacht Club and was a member of the Royal Cruising Club. His boat was moored in the Marina but each summer he took the boat on a cruise and during this period (which was usually about two months) he sub-licenced his mooring rights.

[29]Mr May, in his second witness statement, describes Air Commodore Macnamara as a perfect example of the first generation of Marina community members, but the evidence shows that the Air Commodore took a fairly robust attitude to allowing his mooring rights to be used in his absence. On a number of occasions he simply informed LML of the identity of the sub-licensee who was going to use the mooring rights without seeking any formal consent to the arrangement and LML seems to have acquiesced. In other years he made use of the scheme for casual lettings operated by LML which I described earlier.

[30]In July 1999 the Air Commodore died and his boat was sold through Berthon. Mr Clive Sutton, a local solicitor, was one of his executors and proceeded to deal with LML on behalf of the estate. On 7 July 1999 he wrote to Berthon asking for details of the debenture. This letter was replied to by Mr May on 25 August. In his letter he referred to both the licence and the debenture and made the point that LML had the right (as he put it) to veto any transfer of the licence. In the last paragraph of this letter he said this:

“Finally, as members of the deceased family will be aware, it is the Board of Lymington Marina’s policy to offer for sale for no commission any berth license which comes available to the first name on the waiting list, which is kept for potential purchasers and has been in existence for 25 years. I am sure the Board will be looking to adhere to their previously laid down strict policy.”

[31]The oddity about this is that the strict policy referred to has no basis in contract between the parties. Although an assignment of the licence does require consent from LML and there is an alternative provision enabling the licence to be surrendered, the company has no right to require a licensee to sell a licence to someone on the waiting list referred to, or indeed to anyone of the company’s rather than the licensee’s own choosing. Mr May was cross-examined about this and said that the policy referred to was not a requirement but rather a facility which the company offered. That is not, however, what the letter says, nor is it the case that there has ever been a waiting list in the sense of a physical list of applicants for licences. Mr May’s evidence was that he kept a mental note of people who had been customers of Berthon and had expressed an interest in the past in obtaining a licence if one became available. I therefore take the view that this was simply an attempt by Mr May (doubtless for good commercial reasons) to control the process of disposal of the licences in a way which the licence itself does not justify and the dispute which has arisen is in reality an argument about the degree of control which LML should be able to exert over the use or transfer of the long-term licences which have been granted.

[32]On 8 October 1999 Mr Sutton wrote to Mr May to inform him that the estate wished one of the Defendants to have the use of the licence. He was asked to clarify the position of LML in relation to a proposed assignment under clause 3 (k)(i). Mr May responded to the effect that the company wanted to ensure that licences were transferred only to active yachtsmen who would use the facilities of the Berthon boatyard. Mr Sutton was asked to inform the company if he had a prospective assignee who satisfied these criteria and was more appropriate than one of the candidates on the waiting list. Since no waiting list existed this response was disingenuous, but it also put Mr Sutton into an obvious difficulty. Without some knowledge of who was on the waiting list a comparison was impossible. But in a subsequent letter (of 19 October) Mr May made it clear that the identity of those on the waiting list would remain anonymous.

[33]This initial exchange of correspondence really marks the start of what has become a long running dispute about the scope and proper construction of clause 3(k) of the licence agreement. On 21 December 1999 Mr Sutton wrote again giving details of the three Defendants who are all sailors and at the time each had their own boat. Bingham Macnamara’s boat was then in the Channel Islands; John had a river mooring on the Lymington river; and Rory maintained a boat on the Essex coast near where he lives. Mr Sutton formally disputed the right of LML to refuse consent to an assignment on the basis of the criteria set out in Mr May’s earlier letters. However, as an alternative to an assignment, he requested LML to give its consent to a sub-licence to John Macnamara who had forty years of yachting experience and wanted to moor his boat in the Marina for up to twelve months. Mr May replied on 9 February 2000 refusing consent to the sub-letting to John Macnamara on behalf of LML. The letter complains that what Mr Sutton was intending was in the belief of Mr May to achieve “by stealth” what he described as a marina within a marina.

[34]This phrase has been explained by Mr May to mean an arrangement under which the existing licence is effectively shared or rotated between members of the same family or a similar group by the grant of successive back to back sub-licences. In his witness statement Mr May refers to such an arrangement as a rotational sub-licence. The company, he said, wanted and still wants to achieve a situation in which the mooring rights are exercised primarily by the holder of the licence and any sub-licensing is occasional and subsidiary to the use by the licensee.

[35]On 29 March 2000 Mr Sutton repeated the procedure. He wrote to LML asking Mr May on its behalf, to approve a sub-licence to Bingham Macnamara and gave details of his boat. Bingham Macnamara had held an annual licence at the Marina for three years from 1994 and was well known to Mr May. The letter indicated that Mr Macnamara would have his boat away from the Marina for various periods and that during that time he would ask LML to let out the space to casual users under the voluntary scheme. The letter concluded with a warning that if approval of Mr Macnamara as sub-licensee was not forthcoming proceedings would be commenced for a declaration that the refusal of consent was invalid.

[36]On 4 April Mr May responded formally refusing consent to the sub-licence. LML’s right of veto was, he said, absolute and it did not have to give reasons. However, in a without prejudice letter written on the same day, he asked Mr Sutton for an indication of an intention by the executors to transfer the licence to a single party. This led to further correspondence between Mr Sutton and LML’s solicitor (Mrs Elizabeth Mackay of Hill Dickinson) seeking a way out of the impasse which had been reached. Much of this correspondence raises various legal arguments which have been repeated during the course of this hearing and I shall deal with them when I come to consider the issues of construction which have been raised. In summary, LML adhered to its position that the licence did not on the true construction of clause 3(k)(ii) permit the grant of successive sub-licences and was only intended to deal with temporary and occasional sub-licences. Mr Sutton maintained that the discretion given by clause 3(k) to refuse consent was not absolute and had to be exercised in good faith and for proper reasons. It was being refused, he said, for collateral or improper motives. The executors did not intend to operate a marina within a marina. They did, however, intend to exercise the rights which had been granted and were contemplated by clause 3(k)(ii).

[37]On 21 November 2000 proceedings were issued in the Southampton County Court against LML seeking declarations that the refusal to consent to the sub-licence in favour of Bingham Macnamara was in breach of contract and that a sub-licence in his favour for up to twelve months would not be a breach of contract by the executors. The particulars of claim alleged in terms that approval had been refused not for any reason relating to Bingham Macnamara as a prospective sub-licensee, but in order to give effect to a policy designed to allow the company to procure the transmission of licences to preferred candidates on a waiting list maintained for its own advantage. A refusal of approval in these circumstances was, it alleged, arbitrary, capricious and unreasonable and was not made in good faith.

[38]These proceedings raised essentially the same issues as I have to decide in the current action. But following the service of the particulars of claim and the defence, negotiations began to see if some compromise could be found. A meeting took place on 12 April 2001 between Mr May and Mr John Macnamara with solicitors on each side at which the issues were discussed. This was followed by further correspondence between Mr Sutton and Mr Sorrell of Wacks Caller who now acted for LML. In his letter of 23 April Mr Sutton wrote this:

“In this case the beneficiaries understand your clients’ concern not to have a situation where the berth is effectively used in rotation by three people. In saying this they do not necessarily accept that the terms of the licence preclude this, because Clause 3(k)(ii) allows the licensee to authorise a third party to use the whole of the rights granted by the licence separately for a period of not less than one month and not more than 12 months with the proviso that only the third party, as opposed to the letting itself, should be approved by the company. However, if it assists in an understanding of the respective parties’ positions my clients are quite content that one of the beneficiaries shall continue to use the licence in the same way as the late Brian Macnamara, and any necessary adjustments between the beneficiaries can be made through the estate. ”

[39]Later in the same letter he went on to explain that the most appropriate way forward would be for the licence to be assigned to Bingham McNamara. He was then living in France but according to the letter intended to return to the UK in the next two years or so and to keep his boat on the south coast. The letter then went on:

“That being the case and taking into account your clients’ currently expressed concerns, which I hope I have set out accurately, then Mr Bingham Macnamara would be the obvious person to apply for the assignment of the marina berth. In doing so he would be applying entirely on his own account and not in any way to share the benefit of the berth with either John or Rory Macnamara. However, in using the berth he would expect to be able to sublet the berth for reasonable periods during his normal and proper absences from the berth, such subletting to be to anyone of his choosing consistent with the good management of the marina including Rory and John Macnamara. ………….. He would note that your client would object to and take action against any subletting of the berth which did not accord with the principles which have been set out above. Until Bingham Macnamara was able to bring his boat back to the UK for an extended period he would wish to take advantage of the company subletting arrangement, which I have set out above.”

LML was invited to agree to an assignment on the basis of the arrange- ments summarised in this letter.

LML was invited to agree to an assignment on the basis of the arrange-

[40]At this point in the correspondence a further issue seems to have arisen. LML through its solicitors contended that for the power to sub-licence under clause 3(k)(ii) to become exercisable the licensee must first take up occupation of his mooring rights by bringing his own boat into the Marina. This was a problem for Bingham Macnamara at this time because his boat was in the south-west of France en route to Gibraltar and he had no plans to return it to the UK for at least two years. Mr Sutton therefore wrote another very long letter on 30 May 2001 addressing this and other related issues. He indicated that Mr Macnamara did not wish to return his boat to the UK for the time being and wanted to sub-licence his mooring rights in the meantime either through the voluntary scheme operated by LML or by granting sub-licences under clause 3(k)(ii). Once his boat returned to the UK:

“…Mr Macnamara would intend to use the berth in the same way as any other licencee, namely for permanent mooring of his vessel subject to absences during short or extended periods of cruising. During those periods of absence he would anticipate using the subletting provisions of the licence and in doing so he would allow either of his brothers, or relatives or friends to occupy the berth on a normal sublet basis for shorter or longer periods. ……………. What can be said is that there would not be any sharing of the rights under the licence between the three brothers. Any use by persons other than Mr Bingham Macnamara would be on a casual and temporary basis and be entirely subsidiary to Mr Bingham Macnamara’s use of the marina berth. There would then be no effective subdivision of the licence as feared by your client. My proposal for the resolution of this matter is that these facts are clearly set out in the letter of application to the marina and the marina company grants the licence based on those broad facts. If the company at a future stage feels that the subletting requests to Mr John Macnamara or Rory Macnamara exceeds or goes beyond the principle set out in the letter of application then we would agree that it will be right for the company not to approve any subletting under the clause to those persons which did not comply with the spirit and intention set out in the letter of application. That then leaves the issue of the use of the berth prior to Mr Macnamara returning. Whilst he would feel that your refusal to agree to a company subletting would be arbitrary and unnecessary he appreciates that is not a right to which he is entitled under the licence although he is entitled to normal subletting, whether or not his existing boat has returned for the longer or shorter “qualifying period”.”

[41]This letter did not resolve the issues between the parties. There was a further exchange of correspondence between the solicitors in which their arguments about sub-licensing were repeated. But on 14 June 2001 Mr Sutton sent to LML a formal application for permission to assign the licence to Bingham Macnamara. The letter refers to Mr Macnamara’s intention to return to the UK and to keep his boat on the south coast. It then set out what his intentions for the future were once that had happened:

“When the boat returns Mr Macnamara would intend to use the berth in the same way as any other licensee, namely for permanent mooring of his vessel subject to absences during short or extended periods of cruising. During those periods of absence he would anticipate using the subletting provisions of the licence and in doing so he would allow either of his brothers, or relatives or friends to occupy the berth on a normal sublet basis for shorter or longer periods………….. ……………. What can be said is that there would not be any sharing of the rights under the licence between the three brothers. Any use by persons other than Mr Bingham Macnamara would be on a casual and temporary basis and be entirely subsidiary to Mr Bingham Macnamara’s use of the marina berth. There would then be no effective subdivision of the licence as feared by you.”

[42]Notwithstanding this letter, consent to the assignment to Bingham Macnamara was not given. Instead, as explained by Mr May in his second witness statement, LML wanted the understanding reached between the parties about the future operation of the sub-licensing provisions contained in clause 3(k)(ii) to be reduced to writing in the form of an agreed document. This would then clarify the position for the future and avoid further disagreements. Therefore on 19 September Mr Sorrell sent to Mr Sutton a draft of a document entitled “Memorandum of Understanding” which he asked Mr Sutton to consider and obtain instructions on. The document was, Mr Sorrell said, not intended to create any new obligations under the licence agreement but was merely designed to clarify the parties’ understanding of its terms.

[43]The draft Memorandum of Understanding sets out a number of highly restrictive stipulations about the operation of the licence. It states, for example, that third parties are only entitled to one period by way of a sub-licence and that nothing amounting to a rotating or shared licence will be permitted. Mr Sutton wrote back on 1 November 2001 after considering the draft with Counsel, to say that he considered it to be unworkable in its current form. A revised draft was then submitted to Mr Sorrell. It represented a hardening of the position which Mr Sutton had taken in earlier correspondence. In relation to clause 3(k)(ii), it contained the following sub-paragraphs: “2.3 It is not a pre-condition to the exercise of the rights under the Licence by a duly authorised third party in relation to a yacht owned by him that there should first have been nomination of a yacht by the Licensee and the allocation of a berth to the Licensee: 2.4 It is not a requirement of the Licence that use of the rights by a duly authorised third party should be ancillary to any principal use by the Licensee: ………….. 2.9 It is agreed that if the Licensee were to make a series of short-term sub-licences for reward, such would constitute use of the berth for a commercial purpose and would therefore be a breach of Clause 3(g): 2.10 Subject to para. 2.9 above, the charging of a rent or of a premium to a third party for a sub-licence would not constitute use of the Company’s premises for a commercial purpose since the use of the premises would be by the third party not by the Licensee: 2.11 Subject to Clause 2.9 above, there are no constraints upon the number of times that the Licensee may authorise third parties nor upon the number of times that particular third parties may be authorised.” …………..

[44]Whatever may have been the position earlier this draft made it quite clear to LML what view the executors took about the scope of clause 3(k)(ii). It amounted to a rejection of LML’s construction of the licence agreement and it led to Wacks Caller breaking off further negotiations. On 30 November Mr Sutton wrote again to Mr Sorrell . He explained that in his view the Memorandum of Understanding was likely to create further difficulties and was not, as he saw it, in accordance with the terms of the licence. The solution, he said, was to grant approval for the assignment to Bingham Macnamara:

“Your Clients rights under the licence will be fully preserved, and any practical problems which emerge following the grant can be dealt with on a practical basis if and when they arise. At present they are being dealt with in theoretical terms in a complicated document. That document may well give as much grounds for dispute and litigation, as will the interpretation of the terms of the existing document, and I can see no real point to be gained in such a document. Mr Bingham Macnamara, through me, has given a clear statement of the basis upon which he intends to exercise his rights under the licence when assigned to him. I would hope that would be a reasonable position, and if when he exercises his rights and he acts in a significantly different way, it would obviously be a point that you would be able to make in any action needed to be taken to enforce the licence. His view is that the licensing operated perfectly satisfactorily during the time it was used by his father for the last thirty years also and he cannot see that there is any need for the terms to be reinterpreted at this stage. Your clients of course have their remedies in the event that you feel there is an improper use of the licence. Mr Macnamara does not anticipate using the licence in any way which will conflict with the concerns which you have expressed.”

[45]These paragraphs were put to Mr May in cross-examination. He accepted that he was made aware of the differences which existed in relation to the interpretation of the licence agreement and that Mr Sutton was suggesting that the parties cut through this by granting consent for the assignment and then leaving LML to enforce the rights it had under the licence agreement in relation to any subsequent sub-licensing. I do not, therefore, accept that the letter of 30 November did any more than to suggest that LML could take any points it wished if Bingham Macnamara were to exercise his rights under clause 3(k)(ii) to sub-licence in a different way from that referred to in the formal letter of application of 14 June. The letter certainly does not (unlike perhaps earlier correspondence) contain any undertaking by Mr Macnamara not to exercise his power to sub-licence without first returning his boat to the Marina. Nor does it agree that any sub-licence will only be subsidiary to his own use of the mooring rights. The suggestion is that if Mr Macnamara exercises his rights in some other way LML would then be able to raise whatever objections were actually open to it under the terms of the licence.

[46]Mr May I think accepts this but he says that things changed as a result of a meeting which took place between him and Mr Macnamara in December 2001. There is no note of what was discussed at this meeting. Mr May says in his witness statement that he wanted some assurance from Bingham Macnamara that he intended to use the mooring rights as indicated in the June letter of application. Bingham Macnamara confirmed the assurances given by Mr Sutton in the earlier correspondence and they shook hands on it. The action was discontinued and on 5 February 2002 the licence was assigned to Mr Macnamara with the approval of LML.

[47]Mr May says that he made it clear to Mr Macnamara that he would be holding him and his brothers to what had been said in correspondence to the effect that any sub-licensing would be operated in the same way as the Air Commodore had done and that but for the assurances given, he would have continued with the litigation and not consented to the assignment.

[48]Mr Macnamara does not deal with the December meeting in his witness statement but he was asked about it in cross-examination. At the time his father died he was living and working in the USA, but in March 2000 he moved to Guernsey for three months where his boat was moored and then sailed to Biarritz and from there to Gibraltar. Although Mr Sutton says in his letters in June 2001 that Mr Macnamara intended to return with his boat to the UK, the position at that time was fairly fluid and Mr Macnamara accepted that he had other options which were also under consideration. He was still undecided about his future plans but as time went on he decided to remain in Spain and later in 2004 he sold his boat. He no longer has any use for the mooring rights himself and has subsequently asked for approval to assign the licence to Rory. This has also been refused.

[49]Mr Macnamara accepts that he had a meeting with Mr May in December 2001 and that at the time of the meeting he was aware and had approved the terms of the earlier correspondence from Mr Sutton. He said that had he returned to the UK he would have been the primary user of the mooring rights, but his plans later changed. At the time of the December meeting he accepts (as I have indicated) that his intentions were perhaps more fluid than is indicated by the terms of Mr Sutton’s letters. It was certainly not his fixed or sole intention, but at the same time it remained a distinct possibility. But Mr May did not rely on those representations following Mr Sutton’s letter of 30 November. He says that he agreed to compromise the action by consenting to the assignment to Mr Macnamara on the strength of what passed between them at the December meeting.

[50]As to this, there is a conflict of evidence. Mr Macnamara, I think, accepts that Mr May certainly wanted to hold him to what Mr Sutton had said in his letters about the proposed method or pattern of sub-licencing. He wanted essentially a repeat of what had occurred when his father was the licensee. What he disputes is that he agreed in terms to limit himself in that way. Mr May’s evidence contained in paragraph 62 of his second witness statement does not in fact state that there was agreement in express terms on this point, or that Mr Macnamara actually said at the meeting that he would only sub-licence on the limited basis referred to. His evidence in his witness statement is that he indicated that he would hold Mr Macnamara to what Mr Sutton had said was proposed and that he took the handshake at the end of the meeting to be Mr Macnamara’s acceptance of that.

[51]I accept that Mr May did make it clear to Mr Macnamara that he was looking to his operating the licence in the limited way I have referred to. I do not believe that Bingham Macnamara necessarily agreed in terms to do so, but I do accept that he said nothing which could be taken to contradict what Mr May had said and to indicate that he intended to operate the licence in a materially different way. Mr May reiterated LML’s position at the meeting and Mr Macnamara was not minded to dissent. He had not ruled out a return to the UK and on the assumption that he did return with his boat a problem would not exist. The assignment to Bingham Macnamara therefore proceeded on the basis that LML had not resiled from its stated position in relation to clause 3 (k)(ii) and that Bingham Macnamara (despite having formally taken issue with this through Mr Sutton) had indicated that when he returned with his boat to the Marina any sublicensing would be of a limited kind. Later, of course, his position changed when he decided to remain in Spain and subsequently sold his boat.

[52]I do not therefore accept that the company’s consent to the assignment was procured by anything amounting to a misrepresentation on the part of Mr Macnamara, although that is not in fact in issue in this action. The highest that it can be put is that Mr Macnamara was prepared to accept that he would only sub-licence his mooring rights when he was not himself using them. As I have indicated, that was, I believe, his intention were he to return with his boat to the UK. Nothing however which occurred at the meeting prevented him from changing his mind about returning to England, nor is it suggested by Mr Bartley Jones on behalf of LML that the meeting altered the terms of the licence agreement contractually or created some kind of estoppel by convention as to the meaning and effect of clause 3(k)(ii). For that to occur Mr Sutton’s participation as executor would have been required. The current position is that now that Bingham Macnamara no longer has a boat which will return to the UK and absent an assignment to one of his brothers, he wishes to be able to grant successive sub-licences for up to a year. There is no other way he can exercise his mooring rights.

[53]The remaining events can be summarised quite shortly. The request made on 25 March 2002 to sub-licence the mooring rights to Rory (which elicited the response of 28 March) was interpreted correctly by Mr May as an intention on the part of Bingham Macnamara to grant a sub-licence before taking up residence in the Marina with his own boat. Mr May says that prior use by the licence holder was, in his view, a legal requirement. That point has not been pursued in this litigation and is in any event wrong. There is no requirement in the licence for the holder to make use of the mooring rights himself before he can exercise the power contained in clause 3(k)(ii). Mr Sutton disputed this in correspondence and on 2 May 2002 a second set of proceedings was issued challenging the refusal to consent to the sub-licence to Rory. Mr May consulted leading counsel who advised that LML should take a different point in defence of its refusal to approve Rory McNamara as a sub-licensee. This was that under clause 1 of the licence agreement the right granted was one to moor a yacht “ owned by the licensee and nominated by him in writing to the Company”. Clause 3(k)(ii) enabled the licensee with consent to authorise a third party to exercise “the rights hereby granted”. It therefore allowed the sub-licensee to use the Marina to moor the boat owned by the licensee but not a boat owned by a sub-licensee. Rory intended to use the sub-licence for his own boat.

[54]This argument is as a matter of construction literally correct but it has the effect of considerably restricting the power of sub-licencing. Sub-licencing generally occurs when the licensee himself takes his own boat away from the Marina. It will only be in very limited cases that the sub-licensee will make use of the licensee’s own boat. Chartering is prohibited under clause 3(g) of the licence and therefore only in cases where the licensee is prepared to lend his boat to family and friends could the power contained in clause 3(k)(ii) be exercised if it is limited to the use of the licensee’s boat.

[55]In the end I am not called on to decide this point because Bingham Macnamara applied for and obtained Part 24 judgment on its claim in the second action from the district judge and LML’s appeal to H.H Judge Thompson Q.C was dismissed on 2 January 2003. They decided that clause 3(k)(ii) did not limit the sub-licensee to the use of the licensee’s boat but included the right to moor the sub-licensee’s own boat in the Marina. The Court of Appeal subsequently refused permission for a second appeal.

[56]Because the defence in the second action was based on this single point of construction, no guidance was obtained from the Court about the wider issues which had been canvassed between solicitors in the earlier correspondence. On 20 March 2003 Mr Sutton on behalf of Mr Macnamara asked for the approval of LML to two periods of sub-licensing. The first was a sub-licence to John Macnamara for May and June 2003. The second was for a sub-licence to Rory Macnamara for July, August and September of that year. Approval was given. Then on 15 September 2003 Mr Sutton applied for consent to sub-licences in favour of John from 1 October to 31 May 2004 and for Rory from 1June 2004 to 30 September 2004. On 30 September 2003 Wacks Caller replied on behalf of LML refusing approval to the sub-licences and explaining the reasons.

[57]In summary the reasons given were as follows: i) LML has an absolute discretion whether or not to approve a third party under clause 3(k)(ii). The only restriction is that it should act honestly and in good faith but subject to that, it may take into account its own interests. Its power of refusal is not confined to the personality and attributes of the third party under consideration; ii) on its true construction, clause 3(k)(ii) does not authorise Bingham Macnamara to do what he indicated that he wished to do in his letter of 15 September 2003. Revolving exercises of the clause 3(k)(ii) power are outside the ambit of the sub-clause; iii) Bingham Macnamara obtained consent to the assignment to him of the licence on the basis of representations that there would be no sharing of the licence and that any sub-licences would be temporary and ancillary to his own use of the mooring. What he now intends to do is fundamentally different. It is also outside the terms of clause 3(k)(ii).

[58]Mr May confirmed both in his witness statement and in his oral evidence, that he regards the grant of successive or continuous sub-licences as the sharing of the right to moor. He describes it as a rotational merry-go-round. He also said that he felt let down by what had happened given Bingham Macnamara’s earlier assurances through Mr Sutton that he would not use the licence in this way. His principal objection, however, was and is that the grant of sub-licences other than ancillary to the licensee’s own use of the mooring rights is outside the terms of clause 3(k)(ii). The parties are therefore at odds on a point of principle which turns on the construction of the licence agreement. The Construction of the Licence

[59]Much of the argument centred on the ambit of LML’s discretion under clause 3(k)(ii) to withhold its approval of the third party nominated by the licensee to exercise the mooring rights. But if LML is correct in its contention that successive or continuous sub-licences are simply outside the scope of clause 3(k)(ii), then Mr Macnamara as licensee has no power or right under the agreement to authorise that use of his rights of mooring and questions of consent by LML do not arise.

[60]The first question, therefore, is whether LML is right in its argument that the power to sub-licence conferred on the licensee by clause 3(k)(ii) is restricted in this way. During the course of this dispute this point has been put in various different ways. At the time of the second action, Mr May had asserted in correspondence that it was a condition precedent to the exercise of the right to grant sub-licences that the licensee should first moor his own boat in the Marina. This point, as indicated earlier, was not however relied on in that action and is not part of LML’s pleaded case in these proceedings.

[61]In paragraph 14 of the Particulars of Claim LML asserts that clause 3(k)(ii) does not contemplate either the shared use of the mooring rights or the grant of successive back to back licences amounting to what is described as a virtual assignment of the licence to the third parties in question. In support of this construction, LML relies upon a number of factors and features of the licence agreement. They are: i) the personal nature of the rights granted to the licensee; ii) the fact that a sub-licensee is not in privity of contract or privity of estate with LML; iii) the absolute nature of the discretion given to the licensor under clause 3(k)(i) and 3(k)(ii) and iv) the fact that the licence was designed to give LML substantial control over the Marina and the mooring rights granted.

[62]This is not a case in which it is either necessary or appropriate to examine in any detail the correct approach of the Court to questions of construction. Both sides accept that I can have regard to the circumstances in which the long-term licences came to be granted and any other admissible material of that kind in construing the provisions of the licence itself. Ambiguities are to be resolved in favour of a construction which makes commercial sense of the agreement rather than one which leads to a restrictive or unworkable result inconsistent with its nature and purpose. It was this approach which led Judge Thompson Q.C in the second action to reject the narrow construction of clause 3(k)(ii) contended for by LML and to interpret the reference to “the rights hereby granted” as including the right to moor a yacht owned by the sub-licensee.

[63]Much about the licence agreement is common ground. What is granted to the licensee is not in any sense a proprietary interest in any part of the Marina. There is no right to exclusive possession or use of any particular berth. Instead, clause 1 of the licence merely confers a right to moor a yacht up to the length of 55 feet in the Marina at a place to be decided by LML and the licensee must before exercising this right nominate and notify LML of the identity of the boat he intends to use. Clause 1 therefore confers what is in terms a restrictive right in relation to which LML is given a considerable degree of control. The licensee is limited to using the boat he has nominated and can be put anywhere in the Marina which LML decides to allocate.

[64]The licensee (by clause 3) also enters into a number of covenants governing the use of the Marina. Some of these add little to the provisions of clause 1. Clause 3(b)(1), for example, confirms that the yacht is to be moored in a place directed by LML and at the risk of the licensee. Clause 3(b)(2) makes similar provision in respect of parking. Other covenants require the licensee not to carry out anything but running repairs in the Marina, not to use the yacht or LML’s premises for any commercial purpose purpose including the hiring and chartering of the yacht and to observe and perform the rules and regulations governing the conduct of the Marina published from time to time by LML.

[65]Clause 3(k) is however different in that it regulates not the use of the Marina by the licensee, but rather his right to transfer the benefit of the licence to a third party. Contractual rights of the kind granted by clause 1 are prima facie assignable. They are not rights which by their very nature can only be exercised personally by the original grantee. There is therefore also no reason in principle why the licensee should not authorise others to exercise his contractual rights on his behalf. Clause 3(k) seeks to restrict the power of the licensee to extend the benefit of the licence to third parties. One obvious way of doing this would have been to have made the licence unassignable and restricted to the use of the mooring rights by the licensee alone. But a licence granted for a period of 98 years clearly needed to be transferable if it was to remain usable for its term, and as indicated earlier the offer letters sought to attract investors by describing the licence as a valuable asset which should be readily saleable and could also be sub-let with consent.

[66]The draftsman of clause 3(k) has adopted the device of an absolute covenant against assignment or parting with possession of the mooring rights subject to various provisos which preserve limited rights of transfer. But both sides, I think, accept that this is simply a drafting technique and that I get no real assistance either way from the fact that clause 3(k)(ii) takes the form of an exception to an absolute bar.

[67]The first question, therefore, is what clause 3(k)(ii) permits the licensee to do. Subject to the approval of the third party by LML the sub-clause entitles him to authorise a third party to exercise all (but not some only) of the rights granted by the licence for a period of not less than one month and not more than one year. A sub-licence of all the clause 1 rights for a period of that kind is therefore within the terms of clause 3(k)(ii). Clearly, the licensee cannot grant more than one licence at a time. That is not in issue. But on LML’s construction, having granted one sub-licence, the licensee may not then proceed to grant a further sub-licence absent some intervening period of use by himself.

[68]I do not accept this construction of the agreement. On a literal reading of clause 3(k)(ii) there is no restriction on the grant of successive sub-licences any more than there is any requirement for the licensee to make personal use of the mooring rights either before he may exercise the clause 3(k)(ii) power or before he can re-exercise it. Literal construction can sometimes produce odd results and Mr Bartley Jones quite rightly pointed out that it was necessary for the Court to depart from the literal meaning of the agreement in order to avoid a sub-licensee being restricted to the use of the licensee’s rather than his own boat.

[69]But the argument against successive sub-licences requires one to impose on the licensee a further restriction which is not spelt out in the agreement. That result depends not on construing any particular phrase more widely or more narrowly (which was the position in relation to the question of whose boat the sub-licensee could use), but rather on the insertion into clause 3(k)(ii) of what amounts to an additional proviso requiring a period of use by the licensee prior to any re-letting. The implication of such a term cannot be justified on the ground that it is necessary to make the licence agreement workable. Clause 3(k) operates perfectly well as it stands. Nor am I persuaded that any of the matters pleaded in paragraph 15 of the Pariculars of Claim can justify such an additional term. The request that the third party should be approved by LML is, if anything, a contra-indication because it does give LML a degree of control over who may use the licence in place of the licensee. If the sub-licensee misbehaves during the period of the sub-licence then consent to a further sub-licence in favour of the same person can be withheld. Similarly, if the licensee were to nominate someone who was known to LML to have caused trouble in its or other marinas in the past, then a refusal of consent would be justified. This level of control is already provided for by the proviso to clause 3(k)(ii). It does not require the insertion of an additional term.

[70]One of the real difficulties about the Claimant’s argument on this point is that it is impossible to specify with any certainty precisely what term ought to be implied. To require the grant of sub-licences to be subsidiary to the licensee’s own use would be to impose an uncertain condition and a recipe for further litigation. If a minimum period of use by the licensee between sub-licences is required, then what is it to be?

[71]The other factor relied on by LML is the absence of privity of contract between it and the sub-licensee. It seems to me that this is a defect in the agreement. One would have expected a well-drawn agreement to include a provision requiring any sub-licensee to enter into a direct covenant with LML to observe the provisions of the licence. But the licence agreement contains no such term, although clause 3 (l) requires the instrument of devolution to be registered by the company. Mr May said that in fact this was never done.

[72]The omission of such a term from the licence agreement is not, however, a reason to limit the power to grant sub-licences under clause 3(k)(ii). The absence of privity of contract is a feature of any sub-licence, but LML does not contend that that in itself prohibits any exercise of the power. I can see no justification for attributing to the parties to the licence an intention that a single sub-licence for one year should be permitted but because of the absence of privity there should be no right to grant a successive sub-licence except after a period of use by the licensee. On the construction contended for by LML there could, as I understand it, be a sub-licence granted in each successive year for a number of months and it is difficult to see why the objection based on lack of privity does not apply as much to this as to sub-licences between which there is no use by the licensee himself.

[73]I take the view that on its true construction clause 3(k)(ii) does permit the licensee to grant sub-licences of his mooring rights subject only to three (and to no other) restrictions. They are that the sub-licence should be of all the clause 1 rights; that it should be between one and twelve months in length; and that the sub-licensee should first be approved by LML. If these conditions are satisfied the power is exercisable according to its express terms. The more restricted interpretation advanced by LML is not justifiable either by the language of the agreement, the admissible factual background or by the considerations pleaded in paragraph 15 of the Particulars of Claim.

[74]I can then turn to consider the proviso. Mr Bartley Jones on behalf of LML submits that the proviso to clause 3 (k)(ii) gives to LML what amounts to an absolute right of veto over any prospective sub-licensee. He contends that there is no material difference between the proviso to clause 3(k)(ii) and the right of LML to withhold approval of an assignee at its absolute discretion under clause 3(k)(i). In both cases the company is not required to act reasonably or even to give reasons for its refusal. Provided that it acts in good faith it can withhold consent even if the purpose in doing so is unrelated to the identity of the assignee or sub-licensee and in fact relates to the commercial interests of either LML or its parent Berthon.

[75]It seems to me that the scope of LML’s power to withhold its approval of a sub-licensee(or an assignee) has to be considered in the context of the sub-clause as a whole, having regard to the power which is conferred on the licensee and which he is seeking to exercise. There is no suggestion in this case that LML through Mr May refused to approve Mr Macnamara’s brothers as sub-licensees out of spite or for some improper motive. Questions of good faith in the narrow sense of that term do not arise. We know from Wacks Caller’s letter of 30 September 2003 and from the evidence of Mr May himself, that consent was in fact refused because in the view of the company the grant of successive sub-licences was not permitted under clause 3(k)(ii). Subject to one point which I am about to deal with, it was not refused on grounds relating to the character or qualifications of the proposed assignees.

[76]The one qualification to this concerns the representations made at the time of the assignment of the licence to Bingham Macnamara. As already indicated, Mr May takes exception to the fact that Mr Macnamara asked for approval to grant successive sub-licences to Rory and John after agreeing that he would bring his own boat back to Lymington and operate the licence much as his father had done. Mr Bartley Jones submitted that this could justify refusal of consent in itself regardless of the position more generally. I have already dealt with the evidence about this. Although it is quite true that Mr May and LML were told that (regardless of the correct legal position) Mr Macnamara in fact intended to use the mooring rights himself, circumstances changed and I have explained why I consider that Mr Macnamara is at liberty to exercise his rights to their full extent if he now wishes to do so. I therefore take the view that there is nothing in the Defendant’s change of position which could be said to amount to the obtaining of the licence by misrepresentation or deception and this was not in fact the point which was made in Wacks Caller’s letter of 30 September.

[77]Although what Mr Macnamara now wishes to do is different from his intentions as expressed prior to the assignment the objection taken to it by Wacks Caller and Mr May is that it falls outside the scope of clause 3 (k)(ii). For the reasons given earlier that is not in fact the case and to say that Mr Macnamara had agreed earlier to act in a more limited way than the licence agreement allows, adds nothing (in the absence of a variation of the contract) to the validity or otherwise of LML’s objection based on their construction of the licence agreement. LML’s refusal properly analysed was, as Mr May confirmed, limited to the point of principle I have already dealt with.

[78]Mr Norman accepts that the discretion conferred on LML under clause 3(k) to refuse to approve an assignee or sub-licensee is not qualified by a provision that approval is not to be unreasonably withheld. But he submits that it is not enough for LML to act in good faith in the narrow sense of that term. The discretion has, he says, to be exercised on rational grounds in a Wednesbury sense. It must not, therefore, be exercised in an arbitary or capricious way and this could include a refusal of consent based on a mistaken reading or understanding of clause 3(k) itself.

[79]Mr Bartley Jones does not accept a Wednesbury type of qualification and at one level in the argument this marks the division between the parties. But Mr Norman’s starting point is not the same. He submits that there is a prior question to be decided on the construction of clause 3 (k)(ii) which is whether the proviso itself permits LML to refuse to approve a sub-licensee on grounds which do not relate to the sub-licensee himself. Given that LML based its refusal of consent on Mr Macnamara not being authorised by clause 3(k)(ii) to grant successive sub-licences, this would, he says, make the refusal unlawful in any event. It is outside the contractual scope of the discretion. But if he has to go that far, he also submits that a refusal based on a wrong interpretation of the licence agreement would be Wednesbury unreasonable.

[80]Although the licence agreement contains a number of provisions which one can see are adapted from leases and similar agreements, it is essentially one-off and I am not much assisted by authority on the prior question raised by Mr Norman. The point is a short one of construction which is not capable of much elaboration. Both clause 3(k)(i) and clause 3(k)(ii) refer in terms to the approval of the transferee rather than the transfer. They differ therefore from the standard covenant in leases under which the tenant may not assign or sub-let without the consent of the landlord which is not to be unreasonably withheld. There, the focus is on the effect of the assignment or sub-tenancy on the landlord’s reversion and other interests and the landlord is not required to concentrate solely on the reputation and standing of the proposed sub-tenant or assignee. It seems to me that clause 3(k) on its true construction does not entitle LML to refuse to approve a sub-licensee to whom it has no objection, solely in order to prevent what it regards as an unauthorised use of the power to sub-licence. In the case of an assignment this problem will not arise. The only issue will be whether the proposed assignee is an appropriate person to take on the licence. On a proper analysis the position under clause 3(k)(ii) is no different. If the licensee purports to grant a sub-licence in a way that is not authorised by the licence agreement, then the arrangement is invalid and in breach of contract. LML’s remedy is not to refuse consent. It can simply refuse to allow the sub-licensee to exercise the rights which under the contract he could not be granted. The proviso to clause 3(k)(ii) is intended to operate as part of the contractual machinery for the grant of sub-licences and therefore by definition is exercisable only if the proposed sub-licence is otherwise within the terms of that sub-clause. In these circumstances LML is only concerned with the identity of the sub-licensee in relation to his proposed use of the Marina.

[81]For these reasons I accept Mr Norman’s submission that the refusal of consent to the sub-licences in 2003 was outside the terms of the proviso to clause 3(k)(ii). But (if relevant) it was also Wednesbury unreasonable. Aside from questions of good faith, a public body charged with a statutory function or discretion does act unlawfully if it misconstrues its own powers or bases its decision on a mistaken but wrong view of the law. The test propounded by the Court of Appeal in Associated Provincial Picture Houses Limited v Wednesbury Corporation [1948]1KB 223 is an objective one. It depends on the legality of what the authority has done and it is no answer for a public body which has exceeded its powers to say that it did so in good faith. That is simply irrelevant. In the present case, LML refused to approve the sub-licensees based on its view of the scope of the power to grant sub-licences. In my view, that is a decision which nobody in the position of LML, acting reasonably, could possibly justify because to give effect to a refusal based on these grounds would be to allow LML to re-write the terms of the licence agreement and to impose on Mr Macnamara a restriction which does not exist.

[82]The narrow scope of the proviso to clause 3(k)(ii) really makes it unnecessary therefore to decide whether the discretion it confers is subject to an obligation to act reasonably in the Wednesbury sense. On any view, LML acted outside the scope of the discretion it has. But because more general declarations are sought for the future, I propose to set out my conclusions on the extent to which the discretion is a qualified one.

[83]As indicated earlier, neither side contends that the exercise of the discretion is to be judged by a standard of reasonableness equivalent to that imposed by s.19 of the Landlord & Tenant Act 1927 in relation to qualified covenants against assignment and under-letting in leases. But in relation to the exercise of a discretion the difference between the Wednesbury test and the more general test of reasonableness may be little more than a matter of degree if what is alleged is that the person exercising the discretion has acted in a way which no reasonable person in his or her position could have done having regard to the relevant matters under consideration. If, however, what is alleged is that the decision maker has based the decision on clearly irrelevant matters or conversely has failed to take all relevant matters into account, then the decision is almost ipso facto a flawed or invalid exercise of the power.

[84]Mr Norman’s submission that the power of refusal is to be exercised rationally in a Wednesbury sense is based on a number of recent decisions of the Court of Appeal in relation to a wide range of contractual agreements. In his book: The Interpretation of Contracts: Mr Lewison Q.C(as he then was)suggests that the authorities support a distinction between cases where the discretion is to be exercised by a third party and ones in which one of the parties to the contract exercises the power. In the latter case the power has to be exercised reasonably.

[85]It goes without saying that the incidents of the discretion will obviously vary according to the subject matter of the contract. In Price v Bouch (1987)53 P & CR 257 Millett J accepted that there was no general rule that whenever a contract requires the consent of one party to be obtained by the other, there is an implied term that such consent is not be unreasonably withheld. That was a case involving a restrictive covenant requiring plans for any houses to be approved by a committee established under a scheme of development. The principal reason why Millett J rejected the implication of a term of reasonableness of this kind was because he considered it to be unnecessary:

“It was conceded that the committee had a duty to inspect and consider any application submitted to them, to reach a decision themselves and not to delegate it to others, and to act honestly and in good faith and not for some improper or ulterior purpose. It was also accepted that, if the committee took into account irrelevant considerations or failed to take into account relevant considerations, or reached a perverse decision such that no reasonable committee could possibly reach, then their decision could be impugned, for it would be ultra vires. This, however, was not enough for the plaintiffs. They insisted that the committee must act reasonably and that they must give reasons for their decision, so that it could, if necessary, be challenged, when the court would adjudicate and decide, in the light of the evidence, whether those reasons were justified. ………. In my judgment, the mutual covenantors are equally bound by the decision of the committee, whether it be a decision to grant or refuse approval, and they are so bound, provided only that it is given honestly and in good faith and not for some improper purposes. Where the required consent is that of an individual who is free to consult his own interests exclusively, a provision that such consent must not be unreasonably refused is often included in order to prevent consent being withheld arbitrarily, or capriciously, or from improper motives. If that is the only effect of including such a provision, its implication in the present case is unnecessary…”

[86]In the Product Star (2)

[1993] 1 Lloyds Rep 397

Leggatt LJ said that:

“Where A and B contract with each other to confer a discretion on A, that does not render B subject to A’s uninhibited whim. In my judgment the authorities show that not only must the discretion be exercised honestly and in good faith, but, having regard to the provisions of the contract by which it is conferred, it must not be exercised arbitrarily, capriciously or unreasonably.”

The reference to “unreasonably” has been treated in subsequent cases as a reference to Wednesbury unreasonableness. In Paragon Finance plc v Nash

[2002] 1 WLR 685

at p.701 Dyson LJ said that:

“In that case, the judge held the owner acted unreasonably in the sense that there was no material on which a reasonable owner could reasonably have exercised the discretion in the way that he did. Leggatt LJ (with whom the other two members of the court agreed) found that various factors called into question the owners’ good faith and strongly suggested that their decision was arbitrary. He also upheld the judge’s approach to the question of reasonableness. Thus the word “unreasonably” in the passage at p 404 must be understood in a sense analogous to unreasonably in the Wednesbury sense: Associated Provincial Picture Houses Ltd v Wednesbury Corpn [1948] 1 KB 223.”

[87]One can find a similar approach being taken in Gan Insurance Co. Ltd. v Tai Ping Insurance Co. Ltd (2)[2001] 2 All ER (Comm) 299 where in relation to a re-insurance contract which provided that the insured would not admit or settle its liability without the prior consent of the re-insurers Mance LJ said this (at p.324, para 67):

“I would therefore accept, as a general qualification, that any withholding of approval by reinsurers should take place in good faith after consideration of and on the basis of the facts giving rise to the particular claim and not with reference to considerations wholly extraneous to the subject matter of the particular reinsurance.”

[88]It seems to me that precisely the same considerations apply to the licence agreement. It cannot have been the intention of the parties that LML having granted the licences for a term of 98 years should be able to frustrate their transfer whether by assignment or by a sub-licence on grounds unconnected with the proper operation of the licence agreement and the future conduct of the assignee or sub-licensee. To allow LML to refuse to approve a licensee because (for example) it disliked the amount of paperwork generated or wished to encourage or force the licensee to surrender the licence would be impermissible. Its discretion has to be examined on relevant grounds. If these have nothing to do with the suitability of the assignee or sub-licensee to exercise the Clause 1 rights then they are, in my judgment, irrelevant and the refusal is unlawful.

[89]Mr Bartley Jones submitted that the presence of a right to surrender in clause 3(k)(ii) gave the licensee a way out which he could exercise in the event of a refusal of approval and that this suggested that LML’s discretion to refuse consent was intended to be absolute. I do not accept that. The licence was granted for a term of 98 years with powers to assign or sub-licence and a right of surrender. It is not attractive or consistent with the nature and duration of the licence to suggest that LML was intended to be able to refuse to approve a third party on any grounds it liked and that the licensee’s only remedy in such circumstances would be to surrender its rights.

[90]A particular issue is whether LML can base a refusal on its own commercial interests or those of its parent Berthon. The short answer is that objections of this kind are unlikely to relate to the particular person for whom approval is sought. The only situation I can envisage in which both considerations might arise would be if a prospective sub-licensee or assignee was known to be most unlikely to use the facilities of the Berthon boatyard. But, as already indicated, no licensee is required under the terms of the licence to do so and I do not therefore consider that it would be proper to refuse to approve a third party in the hope that a subsequent candidate might prove to be a customer of Berthon. This again would be to impose on the licensee restrictions on transfer based on considerations outside the terms and scope of the agreement.

[91]In relation to the particular refusal of approval which led to these proceedings, Mr Bartley Jones raised an additional point in support of LML’s claim that it was entitled to act as it did. He submits that even if LML and Mr May were wrong about successive sub-licences being outside the scope of clause 3(k)(ii) this belief was held in good faith and a mistaken view of the construction of the agreement can still constitute reasonable grounds for refusing consent. Clearly, the company could not base a refusal of consent on the same grounds in the future following this judgment. But the misunderstanding about clause 3(k)(ii) entitled LML, as he put it, to one free go.

[92]There are, I think, two answers to this. The first is the point made earlier that a refusal based on the belief that the clause 3(k)(ii) power could not be used to grant successive sub-licences is not a refusal which relates to the proposed sub-licensee. It is therefore outside the scope of the discretion and questions of reasonableness do not arise. The second is that even if one considers the decision as within the scope of the discretion, but subject to a duty to act reasonably in the Wednesbury sense, then for the reasons explained earlier in this judgment the decision was unlawful. LML based its decision on an incorrect view of the meaning of clause 3(k)(ii). It refused its consent to something which Mr Macnamara was entitled to do.

[93]Mr Bartley Jones submitted that his argument on this point was supported by the decision of the House of Lords in Ashworth Frazer Ltd v Gloucester City Council

[2001] 1 WLR 2180

. The issue which led to the granting of permission to appeal in that case was the correctness of the decision of the Court of Appeal in Killick v Second Covent Garden Co. Ltd.

[1973] 1WLR 658

. In that case the Court of Appeal held that unless it could be shown that a prospective assignee would necessarily use the premises in breach of covenant it would be unreasonable for the landlord to refuse its consent to the assignment. The landlord would be able to enforce the user covenant after the assignment and therefore lost nothing by giving its consent. To base its refusal of consent simply on its belief that the assignee intended to use the premises in breach of the user covenant would therefore be unreasonable.

[94]The House of Lords unanimously rejected the authority of Killick and overruled the decision. The question whether the landlord could or could not reasonably refuse its consent on any particular grounds was not to be decided by strict rules but as a question of fact in each particular case. The House remitted the case back to the High Court for a determination as to whether the landlord had acted unreasonably in refusing consent in that particular case. However, they did so against the background of a decision by the majority of the House that on the true construction of the lease, no breach of covenant would have been involved in what the assignee proposed to do. Mr Bartley Jones submitted that this indicated at least a possibility that it was open to the judge to find that a genuine but mistaken view that a breach of covenant would be committed based on a misunderstanding of the lease could nonetheless found a reasonable refusal of consent.

[95]The difficulty I have about this is that the members of the House express no concluded view as to whether a mistaken construction of the lease might justify a refusal of consent and it therefore offers no definitive guidance on the point. For the reasons already given, I consider that LML acted unreasonably and outside the scope of its discretion in this case in refusing to approve sub-licences on the basis of its erroneous construction of clause 3(k)(ii). Duty to give reasons

[96]The other point raised in the proceedings is whether LML is obliged to give reasons for its decision. There is no express obligation to do so and Mr Norman did not contend that such an obligation ought to be implied. But as Millett J observed in Price v Bouch a failure to provide proper reasons which accord with the scope and terms of clause 3(k) may lead to the inference that no such reasons exist. Conclusions

[97]For these reasons I conclude that LML was not entitled under clause 3(k)(ii) to refuse its approval of the second and third Defendants as sub-licensees in 2003 for the reasons which it did.

[98]The power contained in clause 3(k) to refuse to approve an assignee or sub-licensee may only be exercised on grounds which relate to the proposed third party and his suitability as a user of the mooring rights. For the reasons given it may not be exercised so as to further the commercial interests of LML or Berthon.

[99]There is no duty as such to give reasons for refusing consent but the absence of good reasons which conform to the grounds for refusal permitted under clause 3(k) may be taken as indicating that no proper reasons exist.

[100]Once the parties have had an opportunity of considering this judgment I will hear counsel on the form of the declarations which I should make and on any other matters which cannot be agreed.

Cited in 1 later judgment

Scott v Gavigan 2016