Scottish Court of Session Decisions

At advising on 19th March 1982,—

LORD JUSTICE-CLERK (Wheatley).—Despite the extensive controversies canvassed in the pleadings and in the evidence the issue in the reclaiming motion was simply this: It being conceded by the pursuer that the Lord Ordinary's finding that he had been in breach of his contract of service with the defenders in two respects could not be impugned, were these material breaches of the contract sufficient to warrant his dismissal from his job and thus negate his action of damages for breach of contract ? In these circumstances I do not consider it necessary to rehearse the history of events leading up to and surrounding this limited issue, since that history has been fully set out by the Lord Ordinary in his opinion for the purpose of the wider issues with which he had to deal. I accordingly content myself with the Lord Ordinary's narration thereof, most of which can be culled from the agreed documents contained in the Appendix. Insofar as the Lord Ordinary's opinion deals with other matters, these are of significance principally in relation to questions of credibility and impressions and inferences which he drew from the evidence and the documents.

The two instances of admitted breach of contract on the part of the pursuer were (1) despite an express instruction to attend a meeting of the review committee on 8th August 1977 he refused to do so; and (2) despite express instructions from the chairman of the club to take minutes of a meeting of the management committee on 12th September 1977 which he was attending he refused to do so. The Lord Ordinary has held that these were cases of wilful disobedience in important and material respects which entitled the defenders to terminate the pursuer's contract. He accordingly found in favour of the defenders. In order to assess properly the extent of the materiality of these refusals it is necessary to go deeper into their significance than a view of them taken in isolation might suggest. Despite the fact that the defenders had made it abundantly plain that in their view it was part of his contract of service that he was obliged to carry out these duties he steadfastly maintained that these duties were not comprehended in his contract as managing secretary. I do not require to go into this matter because it is now accepted that they were comprehended in his contract. As events had materialised they were virtually the only duties which were left for him to perform in return for the salary which the defenders were obliged to pay to him under the contract. When asked what other tasks the pursuer might then have to perform under his contract, his senior counsel could only suggest forwarding members' mail and seeing to the security of the club premises. As matters stood, the club was still in existence and its affairs were being run by the management committee. How the future of the club could be best determined was the function of the review committee, and it is perhaps not without significance that at an earlier stage in the club's crisis a similar review committee for development had been serviced by the pursuer without question.

In the course of the debate under reference to selected cases various concepts and various phrases were developed to provide a test for materiality of the breach in this context. It seemed to me at times that there was a danger of getting bogged down in a mire of semantics. For present purposes I take the view that the well known test expounded by Lord President Dunedin in Wade v. Waldon 1909 SC 571 at p. 576 and cited in Gloag on Contract (2nd ed.) at p. 602 is the apposite one:

"It is familiar law, and quite well settled by decisions, that in any contract which contains multifarious stipulations there are some which go so to the root of the contract that a breach of those stipulations entitles the party pleading the breach to declare that the contract is at an end. There are others which do not go to the root of the contract, but which are part of the contract and which would give rise, if broken, to an action of damages."

In the state of affairs of the club at the time when the breaches took place I can think of nothing which would strike more at the root of the contract than the refusal by the pursuer to service the review committee and to carry out orders in connection with the affairs of the management committee. Once it is accepted that those were duties which the pursuer was obliged to carry out under his contract, and were virtually the only ones at the time, the Lord Ordinary's finding on the materiality of the breaches is prima facie clearly confirmed.

Pursuer's counsel maintained, however, that the question of materiality had to be considered in the light of all the circumstances of the case. On that approach, it was said, the breaches took on a lesser significance, tapered from major to minor and were insufficient to warrant the pursuer's dismissal. In the very forefront of this line of approach was the contention that the pursuer, albeit mistakenly as it turned out, had proceeded in the bona fide belief that the said work which he was instructed to do did not fall within the four corners of his contract. Reference was made to the cases of Spettabile Consorzio Veneziano de Armamento di Navigazione v. Northumberland Shipbuilding Co. Ltd. 1919 88 L.J. K.B. 1194, Rubel Bronze and Metal Co. v. Vos [1918] 1 K.B. 315, Sweet & Maxwell v. Universal News [1964] 2 Q.B. 699, and Woodar Investment Development Limited v. Wimpey Construction U.K. Limited [1980] 1 WLR 277 (in selected passages) which were claimed to buttress the proposition that in view of this bona fide if mistaken belief the pursuer's refusals although breaches of the contract were not material ones in the circumstances. This was reinforced by the fact that the pursuer was pursuing the line which he took on the scope and limit of his contractual duties fortified by legal advice. I do not propose to go into these cases for the reason that, whatever the position may be in respect of bona fide belief when dealing with an anticipatory breach of contract, there is no room for that doctrine when the breach is an instant and actual one. The position here can be conveniently summarised by reference to a passage in the speech of Lord Keith of Kinkel at p. 296G in Woodwar Ltd. supra where his Lordship said:

"I would accept without hesitation the statement of Lord Denning M.R. in Federal Commerce & Navigation Co. Ltd. v. Molena Alpha Inc. [1978] 1 Q.B. 927, 929 that a party who breaks a contract cannot excuse himself by saying that he did it on the advice of his lawyers, or that he was under an honest misapprehension. If in the present case the time for performance had passed while the appellants were still maintaining these positions based on the erroneous interpretation of condition E (a) (iii), they would have been in breach of contract and liable in damages accordingly."

I appreciate that a refusal to carry out an order may be a question of circumstances and degree—Laws v. London Chronicle (Indicator Newspapers) Ltd. [1959] 1 W.L.R. 698—but when as previously noted the refusals which are now accepted as breaches of contract relate to what was virtually the only duties left for him to do in return for his salary, and the two committees to which they related were the lifelines to the club's then existence and future destiny, I cannot conceive of anything more material in the circumstances. I accordingly reject this contention.

I now turn to consider a number of other matters which were said to support this "minor breach" approach and to give my observations thereon. It was said that these matters clearly showed that the pursuer never had any intention of terminating the contract, as would require to be established if a breach of contract was to be sustained. I feel that these can be dealt with shortly since I have taken the view that where, as here, there is an instant and flagrant breach of contract, attitudes taken at earlier stages might explain but cannot temper an action which instantly strikes at the whole root of the contractual relationship. (1) It was argued that the last thing which the pursuer wanted to do was to repudiate the contract—that it was clear that he wanted the contract to continue, but on his interpretation of it. The comment that this sits strangely with his raising of the present action is tempered by the explanation that this was an expedient to obtain security by way of an inhibition for the damages which he was claiming for breach of contract. But his interpretation of the contract involved the securing of a fresh contract in relation to the work which he erroneously maintained did not fall within the original contract. (2) The pursuer was understandably perturbed about the assurance of employment being restricted to twelve months when he had a five years contract, and his unanswered claim for a further assurance was reasonable. While his anxiety was understandable, he did not legally require any further assurance—he had his contract which he was entitled to enforce. (3) It was argued that the pursuer kept giving way, and was eventually prepared to carry out his disputed work with the review committee if the club would accept this as "without prejudice" to his claim that it did not fall within the contract. There was no need for the pursuer to await the acceptance of this "without prejudice" offer. He could have carried out the work required of him on such a stated basis without breaching the contract if he was wrong and without prejudice to his claim if he was right. (4) It was submitted that if the disputed work did not fall within the contract there was no work to do, and, under reference to several authorities, failure by the employer to provide work for the employee constituted a breach of contract. I do not require to deal with that point of law since that factual situation did not arise. Prior to and at the time of the pursuer's breach of contract there was work for him to do in return for his salary, namely the work which it is now conceded he was required but refused to do. (5) It was then argued that the materiality test had to be considered in the light of all the duties which the pursuer had to perform when he first entered the contract, and should not be restricted to those which remained at the time when the breach occurred. This, in my opinion, is an untenable proposition. The duties which might properly be required from a managing secretary of a club will normally vary according to circumstances. Some additional ones may accrue, others may disappear. The test is whether any new duties fall within the general work of a managing secretary. Virtually all the other duties had disappeared by the time the pursuer's refusals created the breaches, which, as previously mentioned, constituted a refusal to do what was virtually all that he was then being paid to do. (6) It was suggested that the defenders had sought and succeeded in placing the pursuer into a position where he was forced or induced to do something which would entitle them to hold that he had repudiated the contract, thus enabling them to escape the inevitable claim for damages which the pursuer would have against them in respect of any unfulfilled duty during the currency of the five year contract. I have two observations to make on this. In the first place, the parties were admittedly taking up entrenched positions with regard to the scope of the contract. The breaking point was the two matters on which the issue now centres. The defenders were taking the view that these duties fell within the contract, and made this plain repeatedly, both verbally and in correspondence. The pursuer, by the same methods, made it clear that they did not, and indeed he wanted a new and separate contract in respect of them. It is now conceded that the defenders were right and that the pursuer was wrong in refusing to carry out the explicit orders. That being the situation, I cannot see how the pursuer's submissions can be sustained. Secondly, on the question of motive, it is noteworthy that when the Lord Ordinary dealt with this subject his animadversion related not to the defenders but to the pursuer. He observed (at pp. 14–15 of his opinion) that when the pursuer wrote his letter of 3rd June 1977 (no. 98 of Process) to the chairman of the club all that he was interested in was his claim against the club for damages, and that this had been his concern since some time earlier. The Lord Ordinary went on to say:

"By this time, every letter which he wrote and every action which he took was designed to assist him in the prosecution of his claim which he felt he had against the club. I should also add that the letter contains various allegations against the committee which, on the whole, I regard as unjustified."

It is perhaps necessary to note in this regard that when the pursuer, supported by Mr Roberts, asserted in evidence that at the interview at which he was appointed he was assured, in answer to his question, that he would not be expected to take minutes of meetings as that would be the responsibility of the honorary secretary, his evidence was not believed by the Lord Ordinary.

In all these circumstances I am satisfied that nothing that was advanced by the pursuer's counsel has any impact upon or in any way diminishes the effect of the materiality of the breaches of the contract by the pursuer, and that it has not been demonstrated that the Lord Ordinary was not entitled to reach the conclusion which he did. I appreciate the anxiety which the pursuer felt when he realised that the position which he had secured and which he thought would give him security until he reached retirement age was seemingly coming to a premature end. But he had his contract, and he had the inhibition and later the deposited money as a security for any damages to which he was entitled. All he had to do was to keep his side of the contract. Whether through anxiety, stubbornness or impetuosity or all three, he tried to force the issue, and in the process he lost the security which he was so anxious to secure. He no doubt must feel doubly disappointed in view of the fact that his claim for compensation for unfair dismissal was upheld by the industrial tribunal and the Employment Appeal Tribunal and yet his claim for damages for breach of contract has failed in the courts of law. It must be pointed out in fairness that the facts before the respective bodies were different. In this court case it has been established, and was accepted before this Appeal Court, that while the contract was still extant the pursuer was in breach of his contractual duties in two respects which have been held to have been material and struck at the root of his contract. The industrial tribunal's decision under a statutory code was based on a finding that the pursuer's refusal to do what the defenders asked him to do stemmed from their failure to give him a proper assurance about their intentions in relation to his contract, and so acted unreasonably. Different criteria were applied and these produced the different decisions.

Although the Lord Ordinary was dismissing the pursuer's claim for damages, he required for technical reasons to make an assessment of the damages which he would have awarded if required to do so. The assessment which he made was accepted by both parties, with one exception: The pursuer has claimed repetition of the expenses of £1,250 which he alleges he incurred in connection with his application to the industrial tribunal and the subsequent appeal to the Employment Appeal Tribunal. The Lord Ordinary rejected this claim. In view of the decision which has been reached by this Court, that matter does not require determination. I feel compelled to state, however, that for the reason which he gives the Lord Ordinary in my view reached the correct decision on this point.

In all the circumstance I am of the opinion that the reclaiming motion should be refused and that the Lord Ordinary's interlocutor reclaimed against should be affirmed. I so move your Lordships.

LORD DUNPARK .—The reclaimer was engaged by the respondents in 1976 as their managing secretary on a contract which did not terminate until 7th May 1982, his 65th birthday. He raised an action of damages for breach of contract on 9th June 1977, in which he averred that the respondents had wrongfully terminated this contract. The club premises in Princes Street had been closed on 31st March 1977 and the contents sold on 20th April 1977 so that his managerial duties of a club operating in club premises had come to an end. Notwithstanding his claim that the respondents had terminated his contract, he nevertheless continued to draw his full contractual salary until the respondents terminated his contract on 20th September 1977.

The Lord Ordinary has narrated relevant facts in his opinion and I do not repeat them. His findings in fact were not challenged by counsel for the reclaimer. The Lord Ordinary found that the reclaimer's failure to obey an instruction from the club's management committee that he must provide administrative support to a review committee and to attend a meeting of that committee on 8th August 1977 was a material breach of contract by the reclaimer. The Lord Ordinary also found that the reclaimer's refusal to obey a direct instruction given by the chairman of the club to take the minutes of a meeting of the management committee held on 12th September 1977 was a breach of his contract. He found these two instances to be "cases of wilful disobedience in important and material respects," which entitled the respondents to terminate the reclaimer's contract.

Before the Lord Ordinary the principal submission for the reclaimer was that it was no part of the reclaimer's contractual duties to obey these orders and that he was not, therefore, in breach of his contract. Before us, however, counsel for the reclaimer conceded that it was the contractual duty of the reclaimer to obey these orders and that he was, therefore, in breach of contract in respect of these two orders. The contention was that these were minor breaches of contract, sounding only in damages, and that as these breaches, whether viewed separately or together, were not breaches of a material term or material terms of the contract, the respondents were not entitled to treat them as so material as to justify them terminating the contract.

Two questions, in my opinion, arise for our decision, viz:—

1. (1) Viewed objectively, were the reclaimer's refusals to obey these two orders "sufficiently material," as the Lord Ordinary put it, to justify the respondents' termination of the contract ?

2. (2) If they were, did the reclaimer's apparent genuine belief that his contract of employment did not bind him to comply with these two orders have the effect of disentitling the respondents to treat his refusals as material breaches justifying their termination of his contract ?

(1) Materiality of the conceded breaches of contract. I agree with the reasoning of the Lord Ordinary which led him, in my opinion, to the inescapable conclusion that these breaches were material. I would add this. While the managerial content of the original contract virtually disappeared with the closure of the club premises, the administrative content remained. A motion to amend the constitution of the club to enable it to be wound up and dissolved failed to obtain the necessary two-thirds majority of the members present at the Extraordinary Meeting on 13th June. Contrary to the wishes of the reclaimer, the management committee set up a review committee to consider the long term future of the club. By that time the reclaimer was the only paid servant of the club. The Lord Ordinary found that "by this stage every action of the pursuer was dictated by self-interest; he wanted the club to be dissolved so that his employment could be brought to an end and so that he would be entitled to compensation." Apart from routine duties such as keeping an eye on the building for security purposes, admitting authorised persons to the building for particular purposes and forwarding members' mail, the only work left for him to do was to serve the management committee and to obey such reasonable instructions as the club might give him in relation to club business. After the end of June 1977 the only specific instructions which he seems to have received from the club were (1) to attend the review committee meeting on 8th August 1977 and provide that committee with administrative support, and (2) to take the minutes of the management committee meeting on 12th September in the absence of the honorary secretary. Those are the specific instructions which he refused to obey. His refusals were symptomatic of his attitude that any special task which he was called upon to perform in the interests of the club, other than the routine duties above mentioned, was not within the scope of his employment.

The foundation of the argument by counsel for the reclaimer was that these two refusals to obey legitimate orders, even viewed cumulatively, could not properly be regarded as a material breach of contract. Counsels' submission was that a breach of contract could not be material unless the act or conduct giving rise to the breach amounted to a repudiation of the contract by the party in breach. Counsel founded upon a proposition stated by Lord Evershed M.R. in Laws v. London Chronicle Ltd. [1959] 1 W.L.R. 698, at 700:—

"the question must be—if summary dismissal is claimed to be justifiable—whether the conduct complained of is such as to show the servant to have disregarded the essential conditions of the contract of service."

Counsel seemed to read this passage as if it meant that the conduct complained of must demonstrate that the servant had disregarded all the essential conditions of the contract. Reference to a later passage in the opinion of the Master of the Rolls shows this to be an erroneous construction for at p. 701 he said:

"I do, however, think … that one act of disobedience or misconduct can justify dismissal only if it is of a nature … that the servant is repudiating the contract, or one of its essential conditions"

(the emphasis is mine). That statement accords with my own view of the law of Scotland as stated by Lord President Dunedin in Wade v. Waldon 1909 SC 571 at p. 576:

"It is familiar law, and quite well settled by decisions, that in any contract which contains multifarious stipulations there are some which go so to the root of the contract that a breach of those stipulations entitles the party pleading the breach to declare that the contract is at an end. There are others which do not go to the root of the contract, but which are part of the contract, and which would give rise, if broken, to an action of damages."

In every case the question whether a breach of contract is material is one of fact and degree. Having regard to the facts found by the Lord Ordinary, the wilful refusal of the reclaimer to obey two reasonable orders relating to his participation in the business of the club, which it is now conceded that he was contractually bound to obey, amounted, in my opinion, to breach of a contractual duty which went to the root of the contract.

It is of no avail to say, as was said, that the reclaimer wanted his contract to continue until 7th May 1982. His attitude seems to me to have been that he was not prepared to carry out any new duties, which he had not hitherto performed, unless the respondents agreed that he should perform such new duties without prejudice to his contention that he was not bound to perform them under his existing contract, or to guarantee that the club would pay him his full salary up to 7th May 1982 (see the letter dated 20th July from the reclaimer's solicitors to the club's solicitor, No. 59 of Process).

Senior counsel for the reclaimer sought to convince us by copious citation from Scottish and English textbooks on the law of contract that the only proper test of materiality of a breach of contract was that stated by Lord Coleridge C.J. in Freeth v. Burr (1874) L.R. 9 C.P. 208, at p. 213:

"… the true question is whether the acts and conduct of the party evince an intention no longer to be bound by the contract."

That statement, in my opinion, is an accurate statement of the law as applied to the facts of that case, where the defendants wrongly treated the temporary refusal of the plaintiffs to pay for the first instalment of goods in a contract of sale as an abandonment of the contract by the plaintiffs. While it was an appropriate test to apply in that case, it is certainly not the only test of the materiality of a breach of contract. There are any number of cases in which one party has fulfilled, or been willing to fulfil, all his contractual obligations except one, and that one failure has been held to be a material breach of contract. Some of these cases are to be found in the textbook references which counsel submitted supported the quotation from the opinion of Lord Coleridge C.J. as being the only test of materiality.

In my opinion, the basic defect in counsel's submission that a breach of contract cannot be material unless the act or conduct giving rise to the breach evinces an intention no longer to be bound by the contract is that it fails to distinguish between actual repudiation and deemed repudiation. If by word or deed one party to a contract demonstrates that he will no longer be bound by his contract, that is actual repudiation which entitles the other party at once to cancel or rescind the contract. But the remedy of cancellation is also given to a party who is not in breach of contract whenever the other party is in breach of an essential condition going to the root of the contract, even if the party in breach is willing to fulfil all his other contractual obligations. In such a case the innocent party may treat the breach of one essential condition as if the party in breach had repudiated all his unperformed contractual duties. He has not actually repudiated these, but he is deemed to have done so because he is in breach of one material term or condition of his contract.

It is difficult to treat this case as one of actual repudiation because the reclaimer seems to have been waiting for the respondents to terminate his contract so that he would pursue his compensation claim, but, assuming that the reclaimer was prepared to continue, pending termination of his contract, to perform such routine duties as he had been performing since the closure of the club premises, his refusal to obey the two lawful and reasonable instructions which he was given was, in my opinion, a breach of one of the essential conditions of his contract, namely, that as managing secretary of the club he should carry out such duties as the club might reasonably request its managing secretary to perform in the interests of the club. That leads me to consider question (2).

(2) Did the reclaimer's apparent genuine belief that his contract of employment did not bind him to comply with these instructions have the effect of depriving the respondents of their right to terminate his contract on the ground of his failure to obey them?

Like the Lord Ordinary, I find it to be "a startling proposition that a person in breach of contract can avoid the consequences of his breach by contending that he has formed an erroneous view of his legal rights under the contract." It is, in my opinion, a proposition without legal foundation. It is based upon two fallacies. The first is the fallacy that a party cannot be in material breach of contract unless his conduct is such as to evince an intention no longer to be bound by the contract. If that were the only test of materiality, there may be a certain logicality in submitting that the failure to obey an order to perform a task which the employee genuinely believes to be outwith the scope of his employment cannot per se be construed as evincing an intention to throw up the whole contract. But, as I have pointed out, this argument fails because the test of Lord Coleridge is not the only test of the materiality of a breach of contract. That is why, in my opinion, the two cases which were cited to the Lord Ordinary are not in point. These cases were: Spettabile Consorzio Veneziano di Armamento E. Navigazione v. Northumberland Shipbuilding Co. Ltd. (1919) 88 L.J. K.B. 1194, and Sweet & Maxwell Ltd. v. Universal News Services Ltd. [1964] 2 Q.B. 699. In both these cases the question was whether the one party was entitled to treat the conduct of the other party as an actual repudiation of the contract.

Additional cases were cited to us in this point. The first of those was In Re Rubel Bronze and Metal Co. Ltd. v. VOS [1918] 1 K.B. 315. That case is not helpful because all it decided was that an employer, who suspended an employee and absolutely forbade him from carrying out any of his contractual duties, had "wrongfully repudiated" the contract. At this stage I pause to observe that the word "repudiation" may be used in two senses. The first meaning is that one party to a contract has been held by his conduct to have cancelled or terminated continuing obligations in the course of their performance. The other meaning is that used in cases of what is often called "anticipatory breach," where one party indicates to the other before the date when performance is due that he will not perform his contractual obligations when performance becomes due. The next case to which counsel for the reclaimer attached great weight is a case of "anticipatory breach."

In Woodar Investment Development Ltd. v. Wimpey Construction U.K. Ltd. [1980] 1 WLR 277 (H.L.) Wimpey concluded a contract with Woodar for the purchase of land with completion fixed for the earliest of three dates. Before the arrival of any of these dates Wimpey sought to rescind the contract under a special provision for rescission. Woodar brought an action for a declaration that this provision was not applicable to the facts and followed this with a second action claiming damages for breach of contract. The House of Lords, by a bare majority, held that Wimpey were entitled to have the issue of the applicability of the rescission provision decided and that, as they had done nothing else to indicate that they would not proceed with the contract if they were held not entitled to rescind it, they should not be treated as having repudiated the contract.

Counsel's attempts to apply the ratio of Woodar to the facts of this case illustrated what, in my opinion, is the second fallacy in their submission, namely, their failure to distinguish between conduct which demonstrates a refusal to fulfil contractual obligations before the time for performance has arrived and a refusal to perform a contractual duty which the contract requires to be performed at the time of refusal. Counsel referred to a passage from the speech of Lord Keith of Kinkel which, in my opinion, demonstrates the falsity of the submission that the erroneous belief of the reclaimer that the two tasks which he was instructed to perform were outwith the scope of his employment in some way deprives the respondents of the right, which they would otherwise have had, to treat the reclaimer's refusal to perform these tasks as a material breach of contract. At p. 296H Lord Keith said this. "I would accept without hesitation the statement of Lord Denning M.R. in Federal Commerce & Navigation Co. Ltd. v. Molena Alpha Inc. [1978] 1 Q.B. 927, 979 that a party who breaks a contract cannot excuse himself by saying that he did it on the advice of his lawyers, or that he was under an honest misapprehension. If in the present case the time for performance had passed while the appellants were still maintaining their position based on the erroneous interpretation of special condition E (a) (iii), they would have been in breach of contract and liable in damages accordingly." Lord Denning goes on to say ‘Nor can he excuse himself on those grounds from the consequence of a repudiation.’ That may be so, but it is first necessary to determine whether or not there has been a repudiation."

Now in Woodar it was necessary for their Lordships to decide whether the conduct of Wimpey evinced a positive refusal to complete the purchase when the date for completion fell due. In this case the reclaimer failed on two specific occasions to fulfil his existing contractual obligation to comply with the reasonable requests of the management. Whether or not the reclaimer intended to repudiate his contract is not to the point. He had broken his contract and, as Lord Denning said, he "cannot excuse himself by saying that he did it on the advice of his lawyers, or that he was under an honest misapprehension." So the second question which I posed must be answered in the negative.

For the reasons which I have given and for the reasons given by your Lordship in the chair I agree that this reclaiming motion should be refused and the interlocutor of the Lord Ordinary affirmed.

Counsel for the reclaimer accepted the Lord Ordinary's assessment of damages except for his exclusion of the sum of £1,250 incurred by the reclaimer as expenses in his application to the industrial tribunal and the respondents' appeal to the Employment Appeal Tribunal. I refer to this only out of courtesy to the new ground founded on by senior counsel for the reclaimer as a reason for the inclusion of this sum in the assessment of the damages which would have been due to the reclaimer if he had been successful in his action. He submitted that this sum was covered by the second branch of the rule in Hadley v. Baxendale (1854) 9 Ex 341, namely, that the expenses incurred by the reclaimer before these tribunals were "such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach of it" by the respondents. I reject this submission because on my interpretation of the facts the only loss which the respondents could reasonably have contemplated as resulting from a premature termination of the reclaimer's contract of employment was that found by the Lord Ordinary. I do not consider that the decision of the reclaimer to pursue a claim before an industrial tribunal should reasonably be supposed to have been in the contemplation of both parties at the time the contract was made. That was the reclaimer's own decision after his contract had been terminated. As the Lord Ordinary says, the reclaimer could have recovered his whole loss by way of ordinary action, if necessary. In the event of such an action being necessary and successful, the reclaimer would have recovered his judicial expenses from the respondents as expenses, not as damages.

LORD WYLIE .—It is unnecessary for me to narrate in any detail the unhappy sequence of events which stemmed from the decision taken, incompetently in the result, at the annual general meeting of the club on 1st March 1977 that the club should be wound up, the property sold and the free proceeds distributed per capitaamong the members. The decision of the management committee on 7th March to prepare the necessary constitutional machinery for dissolution was a logical sequel, as was the decision that Mr Blyth would leave the club's employment "on the first appropriate date." Indeed, after the closure of the club to members on 31st March his functions as manager/secretary had all but come to an end. It was not appreciated, however, until the meeting of the committee on 10th May that his contract of service ran to 7th May 1982, a fact apparently known at the time only to the chairman, and in view of the financial implications it was then resolved that he would be continued in his employment "for the present." After further consideration of the matter on 19th May it was decided that his contract would be continued "for at least twelve months." It is hardly surprising that the pursuer should be beginning to express concern at these developments, particularly as questions were by this time being raised as to whether the chairman who had negotiated the contract had been acting ultra vires in committing the club to a fixed term contract at all.

It is clear that from this point of time relations between the parties deteriorated rapidly and dramatically. After correspondence between the parties' solicitors the action was raised on 9th June alleging breach of contract by the club although the pursuer was currently still in the club's employment and in receipt of his salary. A conditional offer to purchase the club premises had been made on 9th May and the purpose in raising the action was to obtain security by inhibition for the pursuer's pending damages claim. The decision to accept this offer was in fact subsequently taken on 13th June, although settlement was deferred for some three months.

It is against this background that I think the actings of both parties, as disclosed in the correspondence, has to be considered, because they both appear to have been manoeuvering for position. When the review committee was set up to consider the future of the club as such, and the managing secretary was charged with the responsibility of providing the necessary administrative support, the pursuer maintained that this constituted a new job unconnected with the original contract. The defenders asserted in terms that if he failed to attend on this committee he would be in breach of his contract and when he modified his position to the extent that he would offer to serve the committee on a "without prejudice" basis he was told that he would be required to attend "in terms of his original contract and on no other terms." By letter dated 28th July an assurance was sought in relation to the retention of funds from the proceeds of the sale to meet the claim but no acknowledgment to this letter had been given by 8th August, when the review committee was due to meet. In these circumstances the pursuer declined to attend the meeting. It is unfortunate, to put it no higher, that such deeply entrenched positions were taken up by both sides on this issue, which need not have been elevated to such an issue of principle. In the result the Lord Ordinary has held, as is now conceded, that a perfectly legitimate instruction had been deliberately refused, subject to the contended qualification that this refusal proceeded on a genuine misunderstanding by the pursuer of the true legal position.

The same kind of pattern emerges in relation to the meeting of the management committee on 12th September. The pursuer attended this meeting although not having been required to do so, as the committee had already reached the view that he was in breach of contract and had asked for a written explanation. The honorary secretary who normally took the minutes was absent and the chairman, who by this time was Mr Gray, asked him to take the minutes. The pursuer again raised the issue to one of principle by enquiring whether this was a request or an order. When he was told by the chairman that it was an order he deliberately refused to carry it out. Once again it is now conceded that the Lord Ordinary was entitled to hold that this action constituted a breach of contract.

The primary argument advanced in support of this reclaiming motion was to the effect that these two acts of disobedience did not justify summary dismissal because the conduct was not such as to constitute repudiation by the pursuer of the contract of employment as such. The guiding principle had to be that laid down by Lord Coleridge, C.J. in Freeth and Another v. Burr (1874) L.R. 9 C.P. 208 at p. 213:

"… in cases of this sort, where the question is whether the one party is set free by the action of the other, the real matter for consideration is whether the acts or conduct of the one do or do not amount to an intimation of an intention to abandon and altogether to refuse performance of the contract."

Reference was made, as in the Court below, to Spettabile Consorzio Veneziano di Armamento di Navigazione v. Northumberland Shipbuilding Co. Ltd. (1919) 88 L.J.K.B. 1194, and Sweet & Maxwell Ltd. v. Universal News Services Ltd. [1964] 2 Q.B. 699. These cases, like James Shaffer Ltd. v. Findlay Durham & Brodie (1953) 1 W.L.R. 106, vouch the proposition that the assertion by one party to the other of a genuinely held but mistaken view as to the proper construction of a contract does not infer an intention to repudiate the contract. It was contended that the Lord Ordinary's view that the dictum from Harman L.J. in the Sweet & Maxwell case had no bearing on the present would have been different if the citation of authority had included reference to Woodar Investment Development Ltd. v. Wimpey Construction U.K. Ltd. [1980] 1 WLR 277. The question raised in that case related to whether the purchasers in a land transaction had wrongfully repudiated the contract by invoking a clause which reserved a right to rescind and in the course of his speech Lord Wilberforce, at p. 283, said:

"… it would be a regrettable development of the law of contract to hold that a party who bona fide relies upon an express stipulation in a contract in order to rescind or terminate a contract should, by that fact alone, be treated as having repudiated his contractual obligations if he turns out to be mistaken as to his rights. Repudiation is a drastic conclusion which should only be held to arise in clear cases of a refusal, in a matter going to the root of the contract, to perform contractual obligations."

In the present case, so it was argued, far from repudiating the contract, the pursuer was founding on the terms of the contract, as he genuinely understood them during the relevant period. His position had been set out in his own evidence where, after stating that he was acting on legal advice at the time, he was asked "If you had considered that the work in connection with the review committee was within the scope of your employment as managing secretary would you have undertaken the work ?" Ans. "Certainly." That there was a genuine dispute as to the proper construction of the contract appears to have been conceded by some of the defenders' witnesses, in relation to the review committee, but the pursuer is on less firm ground on the question of minute taking at the management committee. The Lord Ordinary rejected his evidence that at interview he had been informed that the taking of minutes would not fall within his duties.

Standing the tract of authority referred to there would be considerable force in these contentions if the summary dismissal had proceeded on the basis of an alleged repudiation of the contract by the pursuer and accepted as such by the defenders. Termination of a contract following on the repudiation of the contract by one party only arises, however, if this is accepted by the other, exercising the right to rescind. This is a right which he may elect to exercise, but he is not bound to do so. Gloag on Contract, (2nd ed.) pp. 598–600. See also Heyman and Another v. Darwins Ltd. [1942] A.C. 356 per Lord Wright at p. 379:

"… perhaps the commonest application of the word ‘repudiation’ is to what is often called the anticipatory breach of a contract where the party by words or conduct evinces an intention no longer to be bound and the other party accepts the repudiation and rescinds the contract."

The present case, however, does not turn on repudiation or anticipatory breach followed by recission. The contract remained afoot until the time for performance had arrived and dismissal followed after actual breach of contract had taken place. It is in these circumstances that the dicta drawn from the case of Woodar Investment Development Ltd. and other cases cited have no bearing on the present case, where actual breach of contract at the time of performance has arisen.

The issue in this case narrows down to the question as to whether the pursuer's acts of disobedience, now conceded as constituting breach of contract, can properly be regarded as material. In this context the alleged genuine misunderstanding of the true legal position cannot avail the pursuer. "I have yet to learn that a party who breaks a contract can excuse himself by saying that he did it on the advice of his lawyers: or that he was under an honest misapprehension,"per Lord Denning, M.R. in Federal Commerce & Navigation Co. Ltd. v. Molena Alpha Inc (1978) Q.B. 927 at p. 979. This statement of the law was expressly accepted by Lord Keith in Woodar Investment Development Ltd. at p. 296, where his Lordship went on to add:

"If in the present case the time for performance had passed while the appellants were still maintaining their position based on the erroneous interpretation of special condition E (a) (iii), they would have been in breach of contract and liable in damages accordingly."

The wording of this passage fits precisely the circumstances of the present case and the only question which arises relates to the materiality of the breach.

From the very nature of the contract of service the obligation on the servant to carry out the legitimate and reasonable orders of the master is fundamental. It must always of course be a question of fact and degree in each case as to whether or not the refusal was sufficiently serious to justify dismissal. "… it follows that the question must be—if summary dismissal is claimed to be justified—whether the conduct complained of is such as to show the servant to have disregarded the essential conditions of the contract of service. It is, no doubt, therefore, generally true that wilful disobedience of an order will justify summary dismissal, since wilful disobedience of a lawful and reasonable order shows a disregard—a complete disregard—of a condition essential to the contract of service, namely, the condition that the servant must obey the proper orders of the master, and that unless he does so the relationship is, so to speak, struck at fundamentally," per Lord Evershed, M.R. in Laws v. London Chronicle (Indicator Newspapers) Ltd. (1959) 1 W.L.R. 698 at p. 700. I readily accept that statement of the law as applicable to this case and in all the circumstances as disclosed by the evidence in the case I consider that the Lord Ordinary was fully justified in holding material breach of contract established. On each occasion the pursuer's refusal to carry out his instructions was quite deliberate. He was fully aware that his employers regarded any refusal to do so as of significance. He likewise knew that by refusing to carry out these duties he was declining to perform about the only significant functions left open to him, when the other work content of his employment had become minimal, albeit through no fault of his own.

In these circumstances I am of the view that the Lord Ordinary in no way misdirected himself as to the law applicable to the case and was fully justified in holding that the pursuer was in material breach of his contract of service with the defenders, entitling them to treat the contract as at an end. I would accordingly refuse the reclaiming motion.