Wednesbury Unreasonableness: An important extension?

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A recent Supreme Court case has raised the question of whether Wednesbury unreasonableness may be relevant in general employment and commercial contract disputes. Walker Morris’ Employment and Commercial Dispute Resolution specialists, David Smedley and Gwendoline Davies, take a look.

Braganza case

Wednesbury unreasonableness provides that a decision may be challenged as unreasonable if the conclusion reached was so unreasonable that no reasonable authority could ever have come to it or if the decision-maker took into account irrelevant matters or failed to take into account relevant matters.

The concept has been applied by The Supreme Court in its recent finding that an employer acted unreasonably, and was in breach of contract, by failing to provide a deceased employee’s widow with death-in-service benefit, as provided for in his contract of employment.

The employee, Mr Braganza, was a ship’s engineer and had either committed suicide or accidently fallen overboard during a voyage. In accordance with a clause in the contract, if the employer was of the opinion that he had committed suicide, then this meant no death-in-service benefit would be payable to his widow.

Mr Braganza was assigned to work on an oil tanker to carry out necessary repairs. He went missing whilst the tanker was in transit across the Atlantic. An inquiry was set up by the employer to establish whether operating systems on board could be improved and to determine how Mr Braganza might have died. The report concluded that he had either fallen overboard accidently or committed suicide, but the latter was most likely. After reviewing the report, the employer formed the opinion that Mr Braganza had committed suicide, therefore no money would be payable to his widow. She claimed breach of contract, and the claim was taken all the way to the Supreme Court.

Key points

  • The employer, as a party to the employment contract, had decision-making powers which could affect both parties, and as such, had a conflict of interest. This was heightened due to the significant imbalance of power between the parties, as is often the case in employment contracts. The courts will imply terms, in such cases, as to the manner in which powers may be exercised, so as to prevent abuse.
  • Due to the personal nature of employment contracts, a more intense scrutiny of the decision-making process may be justified than would be required for other commercial contracts generally.
  • The concept of Wednesbury unreasonableness is relevant to employment contracts and will be relevant to some commercial contracts (depending on the particular case).
  • It is necessary that a full, thorough and relevant investigation is carried out if a party seeks to rely on a clause such as the one contained in Mr Braganza’s employment contract. The decision-maker should consider whether, on the basis of the evidence revealed by such investigation, its conclusion is a reasonable one to draw.
  • Where the clause in question is in the nature of an exclusion or limitation clause, the burden of proof is on the party seeking to rely on the clause.
  • Also where the clause is in the nature of an exclusion or limitation, if no substantive evidence is available to indicate that one finding is more probable than the other, then it is likely that any decision reached will be unreasonable.

The case highlights that even if a contractual decision is reached without being arbitrary, capricious or perverse, it may still be unreasonable in line with the Wednesbury principle. It potentially places significant additional burdens and considerations of reasonableness on employers and other contracting parties.