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UK: "Breach Of Any Material Term" Means Same As "Material Breach Of A Term": And Illustration Of Importance Of Including A Term Requiring Compliance With Laws
Soccer Savings (Scotland) Ltd v Scottish Building
Society [2013] ScotCSCSOH
51
Soccer Savings Limited (NB not the claimant) established a
football affinity savings scheme with Dunfermline Building Society
under which SSL undertook with DBS to make introductions to members
of the Scottish Football Association in return for commission. At
its peak, the scheme had nearly 16,000 account holders and 22
partner football clubs. DBS ran into financial difficulties and was
taken over by the Nationwide Building Society, which was perceived
by SSL as having less interest in the scheme.
As a result, SSL entered into discussions with the Scottish
Building Society to set up an alternative scheme. SBS had concerns
about being in dispute with DBS, so SSL set up a new shelf company,
the claimant here SSSL, "to operate at arms' length from
the existing scheme". On that basis, SSSL and SBS signed an
agreement for a new scheme. The agreement between SSSL and SBS
provided that either party could terminate if the other committed a
breach of any material term of the agreement. There was also
provision that the parties would use reasonable endeavours to
comply with the Data Protection Act and that they would take
appropriate technical and organisational measures against
unauthorised or unlawful processing of personal data (clause
13).
It was key to success of the new scheme that a significant
proportion of DBS accounts transferred to SBS. SSSL eventually
signed contracts with a few clubs, but was disappointed with the
lack of new accounts and account transfers. To remedy this, SSL
wrote to some DBS scheme account holders enclosing promotional
materials and inviting them to transfer their accounts to SBS. This
resulted in DBS terminating its agreement with SSL for flagrant
breach. Nationwide pointed out that DBS customers had not consented
to use of their personal data for the marketing of a similar
product by another financial services provider. Fearing that the
account holders would be transferred elsewhere, SSSL then persuaded
two clubs to write letters to their fans promoting the new scheme,
claiming to SBS that it and the football clubs were joint data
controllers of fan details.
Eventually SBS also terminated its agreement with SSSL. In the
litigation that ensued, two of the points for consideration were
when a party could terminate under the clause which permitted
termination if the other party committed a breach of any material
term of the agreement and whether SBS could terminate for
SSSL's non-compliance with the Data Protection Act.
The Outer Court of the Scottish Court of Session (broadly
equivalent to the Court of Appeal) held that:
"Breach of any material term" ought to be equated
with material breach. If the parties were intending to
"innovate" on the common law rule that a contracting
party needs substantial material breach, they would have chosen
much clearer words. It would give rise to considerable uncertainty
if a party were entitled to terminate the agreement on the basis
that the other party committed any breach, however minor, of any
term that was of significance. How would the courts determine which
were the terms that both parties considered significant and which
were not? The Court also approved the view that a clause providing
for termination on the occurrence of any breach of contract applied
only to repudiatory breach.
SSSL's breaches of clause 13 in relation to data protection
went to the heart of the contract because SSSL was obliged to offer
SBS a service with a major component being the transfer of a
significant number of accountholders to the new scheme and entitled
SBS to terminate. Constraints of data protection legislation
undermined SSSL's business plan and contributed materially to
failure of the new scheme. SSL did not have consent of the data
subjects to make data available to football clubs or to promote
SBS. For these purposes, SSSL and SSL were treated as the same
person.
Comment
The case shows that the courts are unwilling to allow a party to
terminate for any breach, unless the contract very clearly says so
- the courts do not wish to permit a contracting party to escape
its obligations for trifling breach by the other party. The breach
of data protection rules consequences shows the desirability of
including in contracts an obligation to comply with all laws - if
the provision had not been in the contract, then it would have been
more difficult for SBS to terminate (and the same would go for
claiming damages).
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