Proof allowed in contract termination dispute between Edinburgh City Council and former exclusive scrap metal purchaser

About this case:

• Citation:
  [2023] CSOH 4
• Judgment:
  External link
• Court:
  Court of Session Outer House
• Judge:
  Lord Harrower

Dalton Group Ltd had been the council’s exclusive purchaser of scrap metals from October 2017 to October 2020. A preliminary issue arose concerning the effect on assessment of damages of a termination clause in the contract that could have been utilised by the defender at any time during the contract’s duration.

The case was heard by Lord Harrower. Dean of Faculty, Roddy Dunlop KC, appeared for the pursuer and P O’Brien KC for the defender.

Least burdensome method

Under the terms of the contract, the pursuer would purchase from the defender scrap metal deposited by members of the public at its recycling centres. During the course of 2018, a dispute arose as to the degree of contamination of the scrap being purchased by the pursuer, with a specific concern over the presence of pressurised gas containers, and by January 2019 the defender had started processing the scrap from its recycling centres through a third party.

No further deliveries were received by the pursuer following an email exchange between employees of the parties in which the pursuer complained about the delivery of the gas canisters and stated “this must stop”. By email of 28 January 2019 the pursuer’s Mr Dalton asked whether the defender was seeking to terminate the contract but received no reply.

A preliminary issue was raised by the defender concerning the effect of a clause in the contract that allowed it to terminate it at any time by giving three months’ notice. The pursuer sought to recover lost profits over the full remainder of the contractual term on the basis that the defender had wrongfully repudiated the contract. However, the defender averred that any lost profits should be assessed on the basis that it could have exercised the termination provision.

It was submitted for the defender that where the alleged breach consisted in a wrongful repudiation of a contract containing a power to terminate the contract lawfully, damages fell to be assessed by reference to the least burdensome method of lawful termination, which here was the three months’ notice clause. For the pursuer it was submitted that this principle had no application where the relevant contract had not been terminated, and a party faced with a repudiatory breach was entitled to treat the contract as remaining in force.

No lack of clarity

In his decision, Lord Harrower observed: “In an action for damages for breach of contract, the pursuer is entitled to recover damages which would put him in the position that he would have been in had the defender fulfilled its contractual obligations. Where, therefore, the breach of contract consists in a wrongful termination, the pursuer’s damages will be assessed on the basis that the defender would have lawfully terminated the contract.”

He continued: “It does not follow that damages should be assessed by reference to the least burdensome method of terminating the contract where the contract has never been terminated at all, whether lawfully or unlawfully. This might explain why the editors of Chitty On Contracts frame the relevant principle in the way that they do: ‘if the claimant accepts the anticipatory breach of the defendant as a ground for terminating the contract, but the defendant could have exercised his option to terminate the contract so as to extinguish or reduce the loss caused by the anticipatory breach, the court will assess the damages for the breach on the assumption that the defendant would have exercised the option’.”

Applying this to the present facts, Lord Harrower said: “No doubt the defender could have exercised the termination provisions of the contract, but it chose not to. In these circumstances there is simply no room for the principle contended for by the defender, that damages fall to be assessed by reference to the least burdensome method of lawful termination.”

He went on to say: “The contract is not one that provides for either A or B; rather, it provides for A unless B. There is no lack of clarity in what the contract requires of the defender that would prevent the pursuer obtaining specific implement, assuming that such a remedy were otherwise available to it. This is because, properly understood, the contract provides for a single method, rather than alternative methods, of performance.”

Lord Harrower concluded: “On my reading of the authorities, they are consistent with the conclusion that in a case where the contract has not been terminated, damages do not fall to be assessed by reference to the least burdensome method of terminating the contract. It follows that the defender’s attack on the relevancy of the pursuer’s averments of loss must fail.”

The pursuer’s motion to allow a proof before answer was therefore granted.