Blyth v Scottish Liberal Club

Factual and Procedural Background

This opinion concerns a dispute arising from the termination of a contract of employment between the Plaintiff and the Defendant, a club. After the club premises closed, the Plaintiff remained the only paid employee, with primarily administrative duties. The Defendant instructed the Plaintiff to attend a review committee meeting and to take minutes at a management committee meeting, both reasonable orders related to club business. The Plaintiff refused to comply with these instructions, asserting that such tasks were outside the scope of his original contract. The Defendant treated these refusals as material breaches justifying termination of the contract. The Plaintiff brought an action claiming wrongful dismissal and damages, which the Defendant contested. The court was tasked with determining whether the refusals constituted material breaches and whether the Plaintiff’s genuine belief about his contractual obligations affected the Defendant’s right to terminate.

Legal Issues Presented

1. Whether the Plaintiff's refusals to obey the two orders were "sufficiently material" to justify the Defendant’s termination of the contract.
2. If so, whether the Plaintiff’s genuine belief that he was not contractually bound to comply with these orders disentitled the Defendant from treating the refusals as material breaches justifying termination.

Arguments of the Parties

Appellant's Arguments

• The Plaintiff argued that the two refusals to obey legitimate orders, even cumulatively, did not amount to a material breach of contract.
• It was submitted that a breach is material only if it amounts to repudiation of the contract or its essential conditions.
• The Plaintiff relied on the principle that the conduct must evince an intention no longer to be bound by the contract to justify dismissal.
• The Plaintiff contended that his refusals were based on a genuine, albeit mistaken, belief regarding the scope of his contractual duties.
• It was further argued that the Plaintiff’s genuine misunderstanding of his legal rights should prevent the Defendant from treating his conduct as material breach.
• On damages, the Plaintiff sought inclusion of expenses incurred in industrial tribunal proceedings, arguing these were foreseeable consequences of breach under the rule in Hadley v. Baxendale.

Respondent's Arguments

• The Defendant maintained that the Plaintiff was contractually bound to obey reasonable instructions related to club business, including the two orders refused.
• The Defendant argued that the refusals constituted breaches going to the root of the contract, justifying termination.
• It was submitted that a genuine but erroneous belief about contractual obligations does not excuse breach or prevent the Defendant from terminating the contract.
• The Defendant rejected the claim for inclusion of industrial tribunal expenses in damages, contending such expenses were not reasonably foreseeable at contract formation.

Table of Precedents Cited

Court's Reasoning and Analysis

The court first addressed whether the Plaintiff’s refusals to obey two specific orders were sufficiently material breaches to justify termination. It agreed with the lower court’s finding that these breaches were material, as they went to the root of the contract. Although the managerial duties had largely ceased, the Plaintiff remained contractually obliged to obey reasonable instructions related to the club’s business. The refusals were deliberate and symptomatic of the Plaintiff’s attitude that new tasks were outside his contractual scope.

Legal authority was examined, particularly the test of materiality. The court rejected the submission that material breach requires actual repudiation or an intention to abandon the contract entirely. It distinguished between actual repudiation and deemed repudiation, explaining that breach of an essential term entitles the innocent party to treat the contract as terminated, even if the breaching party is willing to perform other obligations.

On the second issue, the court rejected the argument that the Plaintiff’s genuine but mistaken belief about his contractual duties excused the breach or prevented termination. It held there is no legal foundation for a party to avoid consequences of breach on the basis of an erroneous view of legal rights. The court relied on authoritative precedent that a party cannot excuse breach by legal advice or honest misapprehension.

The court further distinguished cases concerning anticipatory breach or repudiation from the present case involving actual breach at the time of performance. The Plaintiff’s conduct was deliberate refusal to perform existing contractual obligations, not an anticipatory breach.

Regarding damages, the court rejected the Plaintiff’s claim for inclusion of industrial tribunal expenses, holding such losses were not reasonably foreseeable at the time the contract was made.

Overall, the court found the lower court’s legal reasoning sound and the factual findings justified, confirming that the Plaintiff was in material breach entitling the Defendant to terminate the contract.

Holding and Implications

The court’s final decision was to REFUSE the Plaintiff’s reclaiming motion and to affirm the interlocutor of the lower court.

The direct effect of this decision is that the Defendant was entitled to terminate the Plaintiff’s contract of employment on the grounds of material breach due to refusal to obey reasonable instructions. The Plaintiff’s genuine misunderstanding of his contractual duties did not prevent termination. The court did not establish any new precedent but applied established principles distinguishing material breach from repudiation and rejecting excuse based on mistaken legal belief. The Plaintiff’s claim for additional damages relating to tribunal expenses was also dismissed.