Change of control: When is it unreasonable to withhold consent?

Contracts often require consent before a change of control. This ensures the parties know who they're dealing with, protecting against ownership changes that may impact the technical or financial capability of a counter-party, or the introduction of a competitor to the arrangement.

But when is it unreasonable to withhold consent? When does a counter-party’s behaviour slide from reasonable inquiry into unreasonable withholding of consent?

Although the law is fairly settled, parties can still find themselves waiting for what (to them) might have seemed a straightforward approval.

The importance of acting reasonably, and knowing where the line is drawn, was reinforced by the Supreme Court of Queensland in Impact Healthcare Pty Ltd & Anor v St Vincent’s Private Hospitals Ltd [2024] QSC 62.

The sale agreement and the withheld consent to change in control

Impact Healthcare sought consent from St Vincent’s Private Hospitals (SPVH) for the sale of 70% of its shares to Private Emergency Health Australia (PEHA). Their agreement required SPVH’s consent, which could not be unreasonably withheld.

SPVH delayed and withheld consent, conditioning its consent on unrelated amendments in the agreement and requesting extensive financial information about PEHA. Impact assured SPVH that the sale would not affect Impact’s operations, and all necessary details about PEHA had been provided.

Impact initiated legal action after SPVH continued to delay consent. It sought a declaration SPVH had unreasonably withheld consent.

What made the refusal unreasonable

The Court determined SPVH acted unreasonably in:

• Using the consent process to renegotiate the agreement
  
  SPVH withheld consent because it wanted to renegotiate the agreement. Consent may only be withheld to safeguard a legitimate interest that the consent requirement is designed to protect (for example, and it is unreasonable to withhold or refuse consent as leverage to acquire new rights or benefits under the agreement.
  
  
• Requesting unnecessary information beyond what was required to make an informed decision
  
  SPVH had sufficient information about PEHA's business, values, and reputation. The financial details being requested were unnecessary for SPVH to make an informed decision. The delay in approval was unreasonable, as the information requested was irrelevant to Impact's ongoing performance under the agreement.

An unreasonable delay in responding to a request for consent may amount to a refusal to give consent, or an unreasonable withholding of consent (following Re Sun Cable Pty Ltd [2023] NSWSC 1037).

The Court emphasised that what may be considered “reasonable” or “unreasonable” depended on the context and subject matter of the agreement, and the relevance or impact of a change in control on the rights or interests of the contracting parties.