Crocodile Tears but No Remedy for Equity Partner

Appeal Court judges variously expressed sympathy for the appellant (a former equity partner of Deloitte), believed that he was entitled to feel harshly treated or reluctantly agreed that his appeal must be dismissed against the global giant, but none was able to offer him a remedy: David Joseph v Deloitte NSE LLP [2020] EWCA Civ 1457. (Lewison, Arnold, Nugee LJJ)

Clause 16.2 of the Limited Liability Partnership Agreement conferred power on the Board to expel a partner by issuing a Notice of Retirement.

The partner had a right to ask the Board to reconsider its decision to issue the Notice and also a right to put his case to a special meeting of the 1,700 or so worldwide partners of Deloitte.

The Board issued its retirement notice on 23 July 2019 to take effect on 31 January 2020.

On 1 August Mr Joseph asked the Board to reconsider the decision to issue the Notice of Retirement.

On 18 September 2019, General Counsel informed Mr Joseph that his request would be considered by the Board on 2 October 2019, that he would have the opportunity to attend and that the final Board decision would be communicated by 9 October 2019.  Mr Joseph did not attend but submitted written representations.

On 10 October 2019 Mr Joseph emailed Deloitte that he had not yet been informed of the Board’s decision and requesting that, if it was adverse to him, a partners’ meeting be reconvened.

The Board decided not to withdraw the Notice and that was communicated to Mr Joseph on 11 October 2019.  He repeated his request for a partners’ meeting to be reconvened.

On 17 October 2019 Deloitte’s solicitors wrote to Mr Joseph’s solicitors declining the request on the ground that Mr Joseph’s email dated 10 October 2019 was out of time since clause 16.2 required that any such request be made within seven days of the Board Meeting (i.e. on or before 9 October 2019).

Mr Joseph appealed the trial judge’s dismissal of his claim on the grounds (i) that the judge should have held there was an implied term or, alternatively (ii) Deloitte was estopped.

On appeal it was held that time ran from the date of the Board meeting and not from the date on which the Board’s decision was communicated to the equity partner.  It was a strict deadline which had the advantage of certainty.  However, as was so often the case with strict deadlines, the price of certainty was the potential for complications of unfairness.

It was contended on appeal that the implied term was where either

• the equity partner was told that the Board’s resolution would be communicated to them on a date later than that of the Board meeting or
• communication of the Board’s resolution was delayed beyond the date of the Board meeting, the time period for demanding that a partners’ meeting be convened would be extended so as to be seven days from the date of communication.

Arnold LJ summarised that in order for a term to be implied into a contract, it must

• (i) be reasonable and equitable,
• (ii) be necessary to give business efficacy to the contract or so obvious that it goes without saying,
• (iii) be capable of clear expression and
• (iv) not contradict any express term of the contract.

A term should not be implied into a commercial contract merely because it appeared fair or because one considered that the parties would have agreed to it if it had been suggested to them.

A term was less likely to be implied if the contract was a detailed document which had been entered into by experienced parties and which had been professionally drafted.  The question must be considered as at the date of the contract.  See Marks & Spencer PLC v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72, [2016] AC 742 at [18], 921], [23] and [38] (Lord Neuberger of Abbotsbury).

It was not necessary to reach a decision on this point because, as the trial judge had properly found, the proposed implied term conflicted with the express words of clause 16.2(b) which provided that the equity partner may call for a partners’ meeting ‘within seven days of the date of such Board Meeting’.

As Morgan J put it in Chantry Estates (South East) Ltd v Anderson [2008] EWHC 2457 (Ch), affirmed [2010] EWCA Civ 316:

“The court is not here to re-write the contract and select from an à la carte menu of possibilities the one which the court thinks might have been more even-handed for the parties to have agreed.”

In order to establish promissory estoppel, there must be:

• A legal relationship giving rise to rights and duties between the parties;
• A clear and unequivocal promise or representation by one party that they will not enforce their strict legal rights arising out of that relationship against the other party;
• An intention (actual or as reasonably understood) on the part of the first party that the second party would rely on the promise or representation, and
• The second party must have altered his position in reliance on the promise or representation such that it would be inequitable to allow the first party to act inconsistently with it. See Chitty on Contracts (33^rd ed) at 4-086 to 4-096.

The appeal court upheld the trial judge’s finding that there was no clear and unequivocal representation and that, even if there were and Mr Joseph had relied upon it, his reliance was unreasonable.

Of course, there is a world of difference between the standing of an equity partner in an organisation like Deloitte, who it is hoped also had sound professional advice before entering into this contract, and even a lesser business person, let alone the man in the street.  Nonetheless, there is still an imbalance between such a person and the might of a global giant, and it is to be hoped that the treatment of this former equity partner will be circulated to all existing equity partners so that they are under no illusion about their possible future treatment.