- Compact Contract
The High Court’s dance with an implied term of natural justice
11 February 2019
In Dymoke v Association for Dance Movement Psychotherapy, the court held that an organisation breached an implied duty of procedural fairness by terminating an individual’s membership without informing them of the substance of criticisms made against them or providing any opportunity to respond or to address the potential termination.
Dymoke taught an MA course which was accredited by the Association (of which she was also a member) and licensed by a separate organisation which she had founded. Dymoke’s teaching contract was not renewed and she informed the Association, as co-director of the licensing organisation, that the course could not be maintained without her. After an investigation into Dymoke’s possible conflicts of interest, the Association terminated her membership.
The court held that the contract, which incorporated an ethics code and complaint procedure, contained an implied term to comply with the rules of natural justice. This term satisfied the test in Marks & Spencer v BNP Paribas and accorded with the principles that govern the exercise of a contractual discretion. The requirements of natural justice were flexible and fact specific. An organisation’s duty to act fairly should also be consistent with its articles of association and its directors’ fiduciary duties, although the court saw no difficulty in shaping the duty in such a way.
As the Association’s decision-making powers were subject to an obligation of procedural fairness, the court emphasised that what fairness required was informed in each case by the interests of (i) the company as a whole and (ii) the particular member, and might differ between organisations depending on their size and resources. Directors could not reach decisions in a way disadvantageous to an individual member without sufficient interest in doing so for the company as a whole.
The Association breached express and implied contractual terms by:
- never clearly articulating the criticisms to Dymoke and/or giving her a fair opportunity to respond;
- reaching the decision to terminate without hearing from Dymoke, as she was not forewarned that termination was a possibility and she was not given any opportunity to address whether her conduct warranted termination;
- reaching the decision without notifying all council members of the vote;
- not keeping Dymoke appropriately informed throughout the process, including the provision of reports; and,
- reaching an irrational decision, which was not based on any process of reasoning and was contrary to express contractual terms setting out criteria for sanctions.
No damages were awarded as Dymoke’s earnings had not fallen and she could not show any failure to obtain work as a result of the termination of her membership. However, this judgment serves as an important reminder that certain decisions may be subject to an implied term of natural justice, potentially requiring organisations to ensure that an unbiased decision-maker notifies the member of any concerns in sufficient detail and provides a reasonable opportunity for response.