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Missed deadlines for the exercise of contractual rights: is there anything you can do?

Overview

Many contracts require contractual rights to be exercised within a particular timeframe. What if you miss the deadline, but there was some justification for your delay? Should you be allowed extra time?

The Court of Appeal recently looked at these issues in the case of Joseph v Deloitte. Although Mr Joseph didn't manage to persuade the Court that he should have had longer to exercise his rights, the arguments he used are likely to be relevant to other cases involving missed deadlines and very slightly different facts could have led to a wholly different outcome.

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The facts

The case arose from the decision by Deloitte NSE LLP ("Deloitte"), in July 2019, to serve a notice of retirement on David Joseph, a forensic services partner in the Big 4 firm's Zurich office. The notice was to take effect from 31 January 2020. Mr Joseph contested Deloitte's decision.

The procedure for doing so under the LLP agreement involved two stages. First, Mr Joseph could ask the LLP board to reconsider; second, Mr Joseph had the right to put his case to a specially convened meeting of the entire partnership (of over 1700 partners in 13 countries). This right had to be exercised within seven days of the date of the LLP board meeting.

The LLP board was held on 2 October 2019 and Mr Joseph was told by email in advance that he would be informed of its decision by no later than 9 October. In the event, Mr Joseph was not told about the board's decision to uphold the notice of retirement until 11 October (nine days after the meeting). When Mr Joseph wrote on 12 October to request a meeting of the entire partnership, Deloitte responded that he was out of time.

The claim

At first instance, Mr Joseph sought damages, as well as specific performance by Deloitte of its obligation to convene a full meeting of the partnership, but the specific performance claim had rather gone by the wayside by the time of the appeal. Mr Joseph therefore sought damages against Deloitte for breach of contract on two bases.


Implied term

Firstly, he argued that the LLP agreement included an implied term that, where there is a delay in communicating the outcome of the board meeting, the time for requesting a meeting of the full partnership should run for seven days from communication of the board's decision.

WHAT IS THE TEST FOR AN IMPLIED TERM?

Case law suggests that a term can be implied into a contract if:

  •  the term is reasonable and equitable;
  • it is either necessary to give efficacy to the contract or so obvious as to go without saying;
  •  it is capable of being expressed clearly; and
  •  it does not contradict any express term of the contract.

Unfortunately for Mr Joseph, the Court of Appeal decided that this test was not met because the implied term would directly conflict with the express provision requiring any appeal to be brought within seven days from the date of the board meeting (not the date on which the decision was communicated). Even though the drafting of the LLP agreement came in for some criticism from the judges, it was not necessary to imply the alleged term in order for the drafting to make sense on this point.


Promissory estoppel

Mr Joseph argued in the alternative that, because he had been assured that he would know the board's decision by 9 October, time should only begin to run from the date on which that decision was actually communicated to him. Deloitte should, he said, be estopped from arguing otherwise.

WHAT ARE THE CONDITIONS FOR PROMISSORY ESTOPPEL?

The judgment helpfully sets out the ingredients which are required in order for a promissory estoppel to arise:

  • a legal relationship giving rise to rights and duties between the parties;
  • a clear and unequivocal promise or representation (whether express or implied) that a person will not strictly enforce their legal rights;
  • an intention on the part of the person making the promise or representation that the other person will rely on it; and
  • the other person altering their position in reliance on that promise or representation, such that it would be inequitable to allow the first person to act inconsistently with it.

Mr Joseph argued that the email contained an implied representation that the seven-day period for calling a full meeting of the partners should run from the date on which he was told of the board's decision. The court disagreed. Deloitte failed to live up to its commitment to inform Mr Joseph of the board's decision by 9 October; however, there was no representation that the contractual time limits would be extended as a result.

Key takeaways

  • Clear drafting: If you want step 2 in any process to be contingent on completion or communication of step 1, the contract needs to say so! Even so, a court might be more willing to imply a term extending a notice period if (for example) step 2 involved various options which a party could only sensibly decide on once it knew the outcome of step 1. Had that been the case here, the outcome could have been different.

  • Get it in writing: If you want to extend the time available to you to perform an obligation or exercise a right, get the counterparty to formally agree to this - or at least make sure you can point to an unequivocal statement giving you more time. For example, in this case, the outcome could have been very different if Mr Joseph had replied to the email and said: "I don't want to convene a meeting of all 1700 Deloitte partners unless it's absolutely necessary – and I'm sure you don't either. So if I haven't been told the outcome of the Board meeting by 9 October, can I have more time?". Deloitte might have shared that concern about avoiding the partners' meeting, in which case it might have replied: "OK, you can have 48 hours from the point at which we've told you the outcome". In that scenario, Mr Joseph would have had a much stronger argument for estoppel.

  • Protective notices: If there is any doubt as to requirements for serving a notice or reserving rights, take the "safety first" approach. Issue a protective notice in time; if necessary, you can always caveat it by saying that you will consider withdrawing it in certain circumstances. Had Mr Joseph done that here, it's difficult to see how Deloitte could have prevented him exercising his right to convene a full partners' meeting.

Key contact

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