BNZ V Gloriavale: Contractual Discretions To Be Exercised For A Proper Purpose

Introduction

In a recent judgment, the New Zealand Court of Appeal ("the Court") has signaled a possible change of approach in relation to the exercise of contractual discretions.¹

Previously, the Court had proceeded on the assumption that the "default rule", that a contractual discretion must not be exercised arbitrarily, capriciously, or unreasonably, applied in New Zealand.² However, it has now said that it considers that the "proper purpose" approach, proposed by Professor Paul Davies and Lord Sales in a recent journal article, is the "most promising" approach in this area.³

In addition to being of obvious significance in New Zealand, the decision is also of potential significance in England and Wales, where, while it is usually considered that the law is governed by "the default rule" or "the expanded default rule" (from the Braganza decision), the authorities do not always speak with one voice.