OUTER HOUSE, COURT OF SESSION [2013] CSOH 51
CA114/11	OPINION OF LORD HODGE in the cause SOCCER SAVINGS (SCOTLAND) LIMITED Pursuers; against SCOTTISH BUILDING SOCIETY Defenders: ________________

Pursuer: Dean of Faculty, McColl; MacRoberts LLP

Defender: Hanretty QC, E Robertson; DWF Biggart Baillie

2 April 2013

[1] This is an action for damages for breach of contract. The proof which I have heard covered all matters except the quantification of the defender's counterclaim.

[2] The action arises out of a contract between the pursuer ("SSSL") and the defender ("SBS") dated 26 June 2010 relating to the promotion and operation of a football affinity savings scheme. A football affinity savings scheme is an arrangement by which a financial institution offers a savings account which has a football club's brand. The savings book bears the logo of the football club. The football club supports the marketing of the branded accounts and receives a commission from the promoter.

[3] The events that gave rise to this action can be summarised briefly. SSSL contracted with SBS to promote affinity accounts with Scottish football clubs in return for a fixed annual commission. SSSL achieved much less success than it or SBS had expected. The contract as a result was uneconomic for SBS, which terminated it by letter dated 21 June 2011. SSSL challenged the grounds of termination but accepted SBS's termination as a repudiation of contract. It now sues for damages.

Credibility and reliability

[4] I heard evidence from Mr Alan Wardrop, a director of the financial consultants, Johnston, Gray & Wardrop Ltd ("JGW") and the managing director of SSSL, Mr Leslie Gray, the managing director of JGW, a director of SSSL, and chairman and co-owner of Hamilton Athletic Football Club ("HAFC"), and Mark Moran, who was formerly the marketing and business director of Soccer Savings Limited ("SSL"), which was the predecessor of SSSL. Mr Keith Campbell, the partnership manager of Rangers Football Club, Mr James Kennedy, the commercial manager of St Mirren Football Club, Mr John Reid, a solicitor with MacRoberts LLP, Lynn Godfrey, an office administrator with JGW, and Neil Lovatt, the sales and marketing director of the Scottish Friendly Assurance Society, also gave evidence. The written witness statement of Tracey Martin, the marketing director of Dunfermline Athletic Football Club ("DAFC") was agreed. SBS led the evidence of its chief executive, Mr Gerry Kay, its head of marketing and PR, Ms Linda Young, and also Mr David Gibb, who is retired but formerly worked for the Dunfermline Building Society ("DBS").

[5] The case does not turn on credibility and reliability as the contemporary documents disclose most of the material facts. The witnesses generally tried to recall events in a straightforward manner. But I have to record my reservations about some of the evidence that was adduced. In particular, I was not satisfied with evidence of Mr Wardrop and Mr Gray in several respects. On occasion both sought to deny the obvious. For example, Mr Wardrop sought to deny that the letter that SSL sent to the holders of the Rangers Saver accounts (para [29] below) was promoting the business of SBS. That was an untenable position. I also do not accept Mr Wardrop's attempt to deny that a comment attributed to him in the minutes of a meeting dated 13 June 2011, that the minutes of the meetings with SBS were accurate, related to the minutes of earlier meetings. The minutes of the earlier meetings contained some entries that he sought to deny. But his position was not credible. I also do not accept his evidence that he was unclear whether SBS had branches or agencies in Dunfermline as the other evidence made it clear that SBS had not set up a presence in that town and that that was evident on SBS's website. Mr Gray was similarly reluctant to accept that the HAFC letter of 16 November 2010 (para [31] below) promoted SBS's product. I was also not impressed by his explanation of a statement in para 39 of his witness statement that "SBS was aware that there were some issues with DBS." He initially suggested that that related to whether the balances deposited were increasing or decreasing. But, when pressed, he accepted that it related to the threat of legal action in November 2010 (para [30] below).

[6] I was not able to accept as reliable the evidence of Mr Gibb in relation to the dates when events occurred as it was clear that his recollection of dates was mistaken. He was not otherwise an unreliable witness.

[7] Mr Kay gave evidence about alleged misrepresentations which he said induced the contract. It was clear from his evidence that he had rationalised what he had been told and had convinced himself that there was a business case for the venture. I do not question his credibility but I do not accept that his recollection of the discussions was reliable. I consider that over time he came to believe that SSSL had made representations that it would achieve certain results. Ms Young's recollection of events was more limited than her written witness statements suggested. She accepted that she had relied on minutes of meetings to reconstruct her memory. In so far as her written evidence suggested that SSSL had made representations of fact, I do not accept that evidence. I do not think that the presentations on behalf of SSL and later SSSL amounted to representations of fact or promises of future performance (paras [13], [14] and [16] below). Similarly in so far as Mr Kay and Ms Young gave evidence that SSSL rather than SBS set performance targets, I reject that evidence, which is not supported by contemporary documents, as inaccurate. Otherwise I found the witnesses to be generally credible and reliable.

Factual background

(i) SSL and DBS

[8] Mr Wardrop and Mr Gray were directors of JGW. Mr Wardrop and others set up SSL in 2005 to develop a football affinity savings scheme, which was known as the soccer savings scheme. SSL entered into a five-year contract with DBS on 7 and 14 July 2006 by which SSL undertook to operate as an introducer on behalf of DBS to members of the Scottish Football Association. DBS undertook to pay SSL a commission for its services which amounted on an annual basis to 1% of the average investment balance in the "soccersaver" accounts.

[9] The business relationship between SSL and DBS was successful for several years. Starting with ten partner clubs, SSL built up relationships with other football clubs and by May 2010 had twenty two partner clubs. At the peak of the scheme's performance in January 2008 people had opened 15,837 "soccersaver" accounts and SBS held £38.2 million on deposit. Of that sum about £13 million were held by DAFC supporters. Unfortunately for the scheme, DBS got into serious financial difficulty and was put into special administration. In March 2009 the Nationwide Building Society ("NBS") took over DBS. In the difficult economic circumstances which followed the financial crisis of 2008 depositors withdrew funds from the scheme. By 29 March 2010 the funds that NBS held on deposit under the scheme had fallen to £22 million. Mr Wardrop and his colleagues were concerned at the reduction in the deposits, which reduced SSL's income proportionately.

[10] Mr Wardrop thought that NBS lacked interest in the scheme. He thought that NBS wanted to end the agreement. He and his colleagues sought to replace DBS with another financial institution to develop football savings accounts. As I narrate below, they interested SBS in the concept. They also used a separate company and changed its name to SSSL to minimise the risk that DBS would use its contractual rights to prevent the competition which they proposed to create.

(ii) The recruitment of SBS
[11] Mr Wardrop first had contact with SBS when he applied to become a non-executive director of the building society. Although he did not gain appointment, he developed a good relationship with SBS's senior management, including Mr Kay and Ms Young. In late 2008 he discussed with SBS the possibility of a savings scheme. Mr Wardrop prepared a business proposal which Mr Moran sent to SBS on 29 March 2010. In describing the opportunity the report stated:

"Soccer Savings is joint data owners and has details of all current and previous Soccer Saver account holders, representing 17,000 customers. ...

We have access to all the clubs' websites and data for marketing purposes.

All our club contracts are independent of the Building Society. The contracts are between Soccer Savings and the clubs, allowing transfer to a new provider/deposit taker.

We believe there is an excellent opportunity to attract these customers to the Scottish Building Society via a number of marketing initiatives including:

· Launch the partnership during the June to August football transfer window, promoting it as "the biggest transfer in Scottish Football!"

· Promoting the Scottish Building Society's drive to support youth football ...

·

If we re-launch with a reasonable rate of interest we would be able to move existing Soccersaver account holders to Scottish Building Society as well as conduct a concerted campaign to attract back those customers who closed their Soccersaver accounts after the demise of DBS in March 2009.

In addition we have established that about 30% of Soccersavers also have further funds on deposit with Dunfermline Building Society which could also be targeted"

[12] The Powerpoint slide presentation, which accompanied the report, recorded SSL's history since its launch in October 2005, its success in building up deposits for DBS, the methods of marketing the accounts, and the benefits to the clubs. It listed the benefits that SBS might obtain from involvement in a scheme, including new members and a change in the age profile of its members. The listed benefits included "access to club databases - in excess of 3 million people." The marketing plan slide proposed a "phased roll out of partner clubs" and "Celtic & Rangers as lead clubs". It also proposed a "transfer window initiative" and a PR campaign. A slide addressed the question "Why Soccer Savings?" by four answers, namely (i) proven sales and marketing expertise, (ii) proven success in the affinity savings market, (iii) an understanding of football clubs and fans, and (iv) dedicated club support.

[13] On 9 April 2010 Mr Wardrop and Mr Moran had a lunch meeting with Mr Kay at the Urban Brasserie in Glasgow to discuss the proposal. Mr Wardrop suggested that he would need a minimum annual commission of £300,000 to replace the earnings from DBS and to provide a marketing budget to launch the scheme with a new provider. Mr Kay asked how many people might move their accounts from DBS to SBS. Mr Moran suggested that about 75% ought to do so as SBS was offering an interest rate of 1% compared with DBS's rate of 0.1% and as DBS was no longer giving support to the football teams. In my view the presentation by Mr Wardrop and Mr Moran amounted to an enthusiastic sales pitch that stressed SSL's success with DBS and expressed confidence that that success could be repeated with SBS, if the latter offered a competitive rate of interest, principally through the transfer of deposits from DBS to SBS. There was also a discussion of the importance of an adequate branch network to provide a service to account holders. When they shook hands at the end of lunch, Mr Wardrop thought that they had a deal in principle and that he had secured a minimum commission of £300,000.

[14] Mr Wardrop, Mr Gray and Mr Moran met Mr Kay and Ms Young at JGW's offices on 14 April 2010. Mr Kay explained that his board would not approve the proposed minimum commission. The parties agreed a minimum commission of £250,000 per year.

[15] Thereafter, each party instructed their solicitors to prepare an agreement. MacRoberts LLP advised SSL and Biggart Baillie LLP advised SBS. MacRoberts suggested to Mr Wardrop that he should use a separate company for the arrangement with SBS in order not to involve SSL in a breach of its contract with DBS. An off-the-shelf company was therefore re-named as SSSL on 26 May 2010. Mr Wardrop and Mr Gray were the directors and shareholders of SSSL.

[16] At further meeting on 14 May 2010 Mr Kay presented a list of points that SBS wished to raise concerning the contract. They included concerns about becoming involved in a dispute with DBS and a request that the commission that SBS was to pay be related to the number of referrals which it received. Mr Wardrop refused to have the commission related to performance as he wished to replace the income that SSL received from DBS. He arranged for MacRoberts to respond to the list of points. In an email dated 21 May 2010 Mr John Reid, an associate solicitor with MacRoberts, explained that SSL's agreement with DBS would continue and that the venture with SBS, which would be run by a new vehicle, SSSL, would "operate on an arm's length basis from the existing scheme." That, he suggested, would reduce the risk of a dispute with DBS. Mr Wardrop passed Mr Reid's email to Mr Kay.

[17] On 26 May 2010 Mr Wardrop and Mr Moran presented their proposals to Mr David Chalmers and Mr Robert Golbourn, members of the board of SBS, and to Mr Kay at a meeting in JWG's offices. Mr Moran presented the business proposal of 29 March in slide format. None of the witnesses who attended the meeting recalled many questions being asked.

(iii) The contract

[18] The parties' solicitors prepared the agreement between SSSL and SBS which was signed on 28 June 2010. Its material provisions were as follows. It began by narrating the background in these terms:

"A. The Company has developed and operates the Scheme (as defined below).

B. The Society is a provider of savings accounts in Scotland; and

C. The Company wishes to appoint the Society to provide, hold and operate the accounts which are established pursuant to the Scheme and will endeavour to identify potential Customers for referral to the Society, all subject to the terms of this Agreement."

In its definition clause (clause 1.1) it stated that:

"Commencement date means 1^st July 2010; ...

"Scheme means the provision in Scotland of savings accounts which are branded with the name and branding of a Scottish Premier League or Scottish Football League club with which the Company has an agreement for such use of the club's name and branding."

Clause 3 defined SSSL's obligations as follows:

"3.1 The Company shall, with effect from the Commencement Date:-

3.1.1 market and promote the Scheme in accordance with clause 6, below;

3.1.2 operate the Website;

3.1.3 use all reasonable endeavours to generate referrals of potential Customers to the Society;

3.1.4 respond to and deal with enquiries about the Scheme which it receives directly from potential Customers;

3.1.5 refer any request for an Account information pack to the Society within three business days of receiving such request;

3.1.6 take reasonable steps to ensure that the potential Customer is aware that his or her personal information will be provided to the Society, which will use this information for the purposes of sending the potential Customer the Account information pack; and

3.1.7 act in good faith in its dealings with the Society and the performance of its obligations under this Agreement.

3.2 The Company shall not take any action or engage in any behaviour which may damage the reputation and goodwill of the Society."

Clause 6.1, which governed marketing and promotion, provided:

"The Company shall market and promote the Scheme through such means and to such extent it considers appropriate. The Company will obtain the Society's approval (which approval shall not be unreasonably withheld or delayed) of new material or literature which features or displays the Society's branding prior to its use of such new material or literature; provided that, there shall be no requirement to obtain the Society's approval where the new material or literature is derived from or based on existing material which has been approved by the Society or otherwise provided by it to the Company."

[19] Clause 4.1.7 provided that SBS was to pay commission to SSSL in accordance with clause 5, which in turn provided:

"5.1 The Society shall pay to the Company a guaranteed minimum commission of £250,000 per year and this shall be payable for each of the five years of this Agreement. Such minimum commission in respect of each year shall be payable Quarterly in advance to an account nominated by the Company, with the first such Quarterly instalment to be paid to the Company on or before the Commencement Date.

5.2 In addition, in the event that the total balance held in all Accounts in a Quarter exceeds £25 million, the Society shall also pay to the Company an additional commission at the rate of 0/25% on the amount by which the total balance so held exceeds £25 million. Such additional commission shall be paid Quarterly and shall be due no later than one month after the end of the Quarter to which it relates.

.....

5.4 For the avoidance of doubt, nothing in clauses 5.2. or 5.3 above shall relieve the Society of the obligation, or qualify, restrict or reduce that obligation, to pay the minimum commission described in clause 5.1 above."

[20] Clause 7 was an exclusivity clause. Sub-clause 7.1 provided:

"The Company may not, for the duration of the Agreement, appoint any other financial services institution to provide the Scheme in Scotland."

[21] Clause 9.1 provided that either party may terminate the agreement immediately by written notice and without liability to the other party if the other party:

"commits a breach of any material term of this Agreement ..."

Clause 15.7 provided that the agreement represented the entire agreement between the parties in relation to its subject matter.

[22] Finally, because it has played an important role in the proof and is central to the outcome of the case, I set out in full clause 13 which concerns data protection.

"13.1 The Parties shall use their respective reasonable endeavours to comply with the Data Protection Act 1998 ("the Act"), any regulations made thereunder or pursuant thereto and any statutory amendments or re-enactments made.

13.2 The Parties acknowledge that both parties may be data controllers in their own right for the purpose of collecting data.

13.3 Both Parties shall take appropriate technical and organisational measures against unauthorised or unlawful processing of personal data [and] against accidental loss or destruction of, or damage to, personal data."

(iv) The recruitment of the football clubs

[23] On the commencement date of 1 July 2010 SSSL did not have any written contracts with Scottish Premier League clubs or Scottish Football League clubs. In an earlier opinion in this case ([2012] CSOH 104) I held that that amounted to a breach of contract but pointed out that that would not have entitled SBS to rescind the contract unless it amounted to a material breach. The Dean of Faculty for SSSL did not challenge the finding of a breach of contract; but as he argued that it was not a material breach, I set out briefly the history of the recruitment of the clubs.

[24] Because Mr Wardrop and his colleagues had good contacts in the clubs which had contracted with SSL, they were able to approach the clubs to gain support for the new venture. On 18 May 2010 Mr Wardrop emailed Mr Kay to inform him that he had met officials of Rangers Football Club plc ("Rangers"), who had agreed to participate in a new contract with SSSL and were happy to launch in July. In his evidence Mr Wardrop accepted that this was only an agreement in principle. SSSL and Rangers signed a written agreement only on 25 and 26 August 2010. SSSL entered into a written contract with Celtic FC Ltd ("Celtic") on 17 and 20 September 2010 and with Heart of Midlothian Football Club plc ("Hearts") on 29 November and 8 December 2010. There was no written agreement between SSSL and HAFC, but because of Mr Gray's close involvement with each of the parties, SSSL enjoyed HAFC's cooperation. Mr Wardrop stated that Mr Gray had agreed on behalf of HAFC that it would agree to offer SSSL's scheme on the same terms as in its agreement with SSL.

[25] There is no doubt that there was a delay in the introduction of the scheme. The contract had envisaged a 1 July 2010 start but by 23 July SSSL and SBS agreed at a meeting that "football savers would go live on 1^st September". Mr Wardrop attempted to suggest in his evidence that it had always been the parties' intention that the scheme would commence on 1 September. But that is contradicted by the 29 March presentation which spoke of using the transfer window, by an email which Mr Wardrop sent to Mr Kay on 30 April and also by the terms of the contract itself.

[26] SSSL initially focused on Rangers, Celtic, HAFC, and Hearts. It also entered into an oral agreement with St Mirren Football Club ("St Mirren") in October 2010 and spent money supporting marketing and promotions of the scheme at their ground. It spent substantial sums on advertising at HAFC. SSSL also entered into discussions with DAFC in the autumn of 2010 and had an agreement in principle by March 2011. It proposed to open discussions with St Johnstone in May 2011. SSSL spent substantial sums on marketing the scheme through online promotions, stadium promotions and events, programme advertising, leaflets, stadium hoardings and radio advertising.

(v) Unsuccessful performance

[27] From early in the relationship between SSSL and SBS, the board of SBS was very concerned to achieve a rapid growth in the number of accounts under the scheme in order to fund the minimum commission which it was paying to SSSL. Mr Kay pressed SSSL for projections and a marketing plan in correspondence in May and at a meeting on 23 July 2010. When SSSL did not give him projections, he committed himself at a meeting of the board of SBS to achieving £5 million in balances by 31 January 2011. The precise date of the meeting was not clear from the evidence, but it must have been in late July or early August 2010. As a result of Mr Kay's commitment, at a meeting between SSSL and SBS on 13 August 2010 Ms Young instructed Mr Wardrop to "fast forward club signings to achieve this target", while she undertook to arrange the design of pass books for Dundee, Dundee United, Dunfermline, Aberdeen, HAFC, Partick Thistle and St Mirren.

[28] In the meetings that followed, the parties discussed the use of promotional material including advertising posters at club grounds and posters in SBS branches, the distribution of flyers and radio advertising. SBS expressed concern at the low level of investment in the new SBS accounts and the failure to obtain transfers of funds from DBS. Arrangements were made to stimulate such transfers.

[29] In October 2010 Mr Wardrop wrote on SSL headed notepaper to holders of the Rangers Saver Accounts under the title "Re: Scottish Footballs Biggest Transfer". He stated:

"We are writing to advise you that the Rangers Saver Accounts are no longer available from [DBS] and Rangers new provider is [SBS].

The rate with [SBS] is 10 times better than your existing account at a competitive 1% AER!

As a Rangers Saver account holder and valued supporter we are inviting you to transfer your Rangers Saver account to [SBS] and receive a FREE RANGERS SHIRT. This is a limited offer so please act quickly.

It couldn't be easier to transfer. Simply return your passbook together with the enclosed yellow transfer form, duly signed, in the FREEPOST envelope provided along with your new application form and we will do the rest.

We will open your new [SBS] Rangers Football Saver Account and post out your new passbook with a shirt order form (if applicable). ..."

He enclosed with the letter the relevant promotional material and application form. Mr Wardrop records in his supplementary statement that SSL sent a similar letter to Celtic fans on its soccersaver database.

[30] This elicited a strong response from NBS. On 10 November 2010, it wrote to SSL enclosing redacted copies of the letter to the Rangers fans, promotional material and form. NBS referred to clauses in the agreement between SSL and DBS and terminated the agreement for what it styled as a "flagrant breach" of its terms. One of the clauses that NBS founded on was clause 12 which regulated data protection and was in similar terms to the clause set out in paragraph [22] above. NBS pointed out that customers had not consented on their DBS application forms to the use of their data for the marketing of a similar product by another financial services provider. It warned SSL that it would claim damages and gave notice that it would seek an injunction if SSL contacted any of DBS's customers in future.

[31] NBS's challenge caused SSSL to change tack. On 16 November 2010 Mr Gray, in his capacity as vice-chairman of HAFC, wrote to fans of the club on HAFC headed notepaper. Mr Wardrop prepared the letter which bore Mr Gray's electronic signature. Mr Wardrop obtained the details of the addressees of the letter from the data base, which SSL held, of fans who had opened soccer saver accounts through SSL with DBS. The letter was an invitation to a football saver evening with Billy Reid and the Paixo twins on 25 November 2010. It stated:

"As a valued supporter of [HAFC] we write to invite you to our "Transfer" evening.

We have historically had a supporters savings scheme with [DBS] but due to their current rate of interest we have been actively seeking a new provider.

We have found a new provider in the [SBS] who are offering a rate of interest which is 10 times better than the existing scheme.

If you have an existing Dunfermline Soccer Saver Account please accept our invitation to "transfer" to the new Hamilton FC Football Saver scheme with [SBS] on the above evening.

All you have to do is bring your existing passbook along on the above evening and the transfer team will do the rest.

If you are not already a Hamilton Saver why not take the opportunity to open an account on the above evening and support the Accies! ...."

[32] NBS's understandable reaction to SSL's behaviour alarmed SBS, which had sought in the pre-contractual negotiations a comfort letter from SSSL's solicitors that SSL's contract with DBS would not prevent the proposed arrangement. At a meeting on 19 November 2010 Mr Wardrop, Mr Gray, Mr Kay and Ms Young discussed the situation at length. NBS had written to all clubs cancelling the soccer savings product. Mr Kay feared that NBS would offer all soccer saver account holders another product. It was minuted that Football Savers letters were now being sent out on specific club headed paper. The parties discussed the legal letters that NBS had sent to SSL and SBS. SSL's defence was that it was a joint data holder with DBS and that it was using the data for an "affinity savings account purpose". Mr Kay expressed concern that the low balances achieved by the scheme and NBS's letter would cause him difficulty with the SBS board. Mr Wardrop responded by suggesting that SBS's limited branch network and in particular the absence of a branch in Dunfermline was causing the problem. He produced a projection which suggested that £1.5 million might be raised by 31 January 2011. Mr Kay suggested that the commission arrangement should be replaced by a lower basic monthly commission with a top up based on the achievement of target balances. Mr Wardrop refused but undertook to re-visit the terms of the contract in December 2011 if the parties did not achieve their targets. All agreed that sales had been disappointing. The minutes recorded that Mr Wardrop confirmed that six clubs would be signed up by the end of 2010. Sometime towards the end of 2010 SBS adopted a target of achieving £10 million in deposits in 2011. While the minutes of a meeting on 28 January 2011 suggested that Mr Wardrop had set the target, there was no direct evidence that he had done so. It is much more likely that Mr Kay set the target for the coming year to placate his board and that SSSL went along with that. I accept SSSL's position that it was SBS that set that target.

[33] At a meeting of the same people on 12 January 2011 Mr Kay again expressed the concerns of the SBS board at the performance of the scheme. He suggested that the contract should be amended to allow six months' notice of termination. They discussed DBS's actions to transfer soccer saver funds to other accounts. Mr Wardrop had attempted to counter this by suggesting to football clubs that letters be sent out on club letter heading. He thought that it should be legal as SSL was a joint data holder and it had been done with DAFC. They discussed the lack of success of the football saver initiative and agreed to involve more clubs as quickly as possible. They discussed marketing activity and Mr Kay suggested that SBS was in the final stages of preparation of an agency in Dunfermline.

[34] The same four people met on 28 January 2011. The minutes recorded that the football clubs had agreed that club headed notepaper could be used to send out transfer letters. Mr Kay again expressed the concerns of the SBS board that the levels of transfer were too low. SBS had agreed to pay commission of £250,000 on the assertion that 75% of DBS's balances would be transferred to SBS within eighteen months. He questioned the strategy of extending the scheme to other clubs when the balances from Rangers and Celtic fans were so low. He expressed similar concerns at a meeting on 25 February 2011. He wondered if NBS had denied SSSL access to its customer database by transferring its soccer saver customers to new Gold accounts. Mr Wardrop responded that the way to get round that was to write to supporters on club-headed notepaper to introduce them to the new savings scheme.

[35] By March 2011 SSSL had negotiated a deal in principle with DAFC but was hampered by SBS's failure to establish an agency in Dunfermline. DAFC was prepared to allow the use of its letterhead for letters to DBS account holders. Efforts were principally focused on issuing letters on Rangers and Celtic letterheads. Celtic was obtaining legal advice on the proposal. But relations between SBS and SSSL were becoming strained. At a meeting on 25 March Mr Kay expressed concerns about SSSL's tactic of writing to DBS soccer savers account holders by using club headed notepaper. Mr Wardrop sought to reassure him that it was an effective way of preventing NBS from disrupting their scheme by interdict. Mr Kay also suggested that SSSL should concentrate on Rangers and Celtic, which had large numbers of fans, rather than roll out the concept to smaller clubs. He stated that the low level of transferred balances was not acceptable and expressed a wish to review the contract immediately rather than wait till December. Both sides recognised that the arrangement was not successful. Mr Wardrop offered to terminate the contract in return for compensation but Mr Kay was not prepared to pay for failure.

[36] In April 2011 SSSL corresponded with Mr Keith Campbell to negotiate the text of a letter that Rangers would send to its fans who held DBS soccer saver accounts. The letter was drafted within SSSL and revised by Mr Campbell who also required SSSL to purchase a suitable font to match the one that Rangers used in its correspondence. On 6 May 2011 Rangers sent the agreed letter to about 650 of its fans using the database that SSL and DBS had built up for their soccer saver product. Staff in JGW's offices performed the task of sending the letters. The letter was signed electronically by Mr Sandy Jardine, Rangers' sales and marketing manager. It stated:

"[Rangers] is pleased to announce our new Football Saver Account from Scottish Building Society.

As a Rangers supporter, you can now enjoy a savings account with a competitive rate of interest of 1% Gross/AER, 10 times more than the previous account rate offered of just 0.1% Gross/AER.

The account will also provide you with a Club branded passbook and money can't buy offers including the opportunity to meet current and former players at exclusive Football Savers Rewards days.

In addition, the Club benefits from an annual donation based upon the total average balances of all Rangers Savers Accounts.

For further information on the new savings account, please visit www.rangerssaver.co.uk or call Football Savers on 0800 612 8000."

[37] Celtic took a different view of their legal rights. Having taken legal advice, Celtic declined to give permission for use of their letterhead to write to DBS soccer saver account holders because it considered that to do so was contrary to the Data Protection Act 1998.

[38] At a meeting of the four representatives of SSSL and SBS on 11 May 2011 the parties discussed the continued failure of the scheme. They recognised that the target of £10 million of deposits would not be achieved. SSSL's representatives would not reduce the annual commission of £250,000 because it had spent all of the commission on funding marketing activity and promoting the scheme. Mr Kay responded by saying that SBS could not continue to pay such a large sum unless the level of investment increased dramatically.

[39] There was a final meeting of the four representatives on 13 June 2011. Mr Wardrop and Mr Gray acknowledged that the scheme had not worked and that targets would not be met. Mr Kay expressed frustration that SBS was paying out more than it had received in deposits and asked for the contract to be re-negotiated. Mr Wardrop and Mr Gray refused. Mr Wardrop said that there were three options. The first was to make a success of the scheme; but there was no evidence that that could be achieved. The second was to carry on as before; but that was not acceptable. The third was a compromise to exit the arrangement. That would involve paying SSSL several hundreds of thousands of pounds. Mr Kay suggested a fourth option of renegotiation of the deal. No agreement was reached and the meeting ended without arranging the date of the next meeting.

[40] There was no later meeting because SBS had decided to terminate the contract.

(vi) SBS's termination of the contract and SSSL's response

[41] On 21 June 2011 Biggart Baillie LLP ("BB") wrote on behalf of SBS to terminate the agreement. BB stated that (i) SBS treated the contract as void on the ground of pre-contractual misrepresentation and in any event (ii) SBS was terminating the contract because SSSL was in material breach of its terms. I discuss the allegations of misrepresentation and breach of contract below.

[42] MacRoberts responded on behalf of SSSL by letter dated 29 June. They denied both misrepresentation and breach of contract and stated that SSSL would continue to perform its role under the contract. MacRoberts requested payment of the next instalment of the commission on 7 July 2011. In the correspondence that followed each side re-asserted its position. On 10 August 2011 MacRoberts wrote to confirm that SSSL exercised its right to terminate the agreement because of SBS's breach of contract. This action followed.

Discussion

[43] In its pleaded defence SSSL relied on the assertions in BB's letter of 21 June 2011 and added further grounds of breach of contract. After proof Mr Hanretty QC departed from some of the allegations. I consider first the allegations of misrepresentation before turning to each of the allegations of breach of contract.

(a) Misrepresentation

[44] BB set out the allegations of misrepresentation in the letter of 21 June 2011 as follows:

"From the information presently available to us, representations were made by SSSL during pre-contract negotiations that a large proportion of Dunfermline Building Society account holders would close their accounts and open new accounts with our client. Representations were made by SSSL that approximately 75% of the value of account balances held in Dunfermline Building Society would be effectively transferred to our client within a period of 18 months from signature of the Agreement, to the value of £25m. Indeed this was the basis on which our client agreed a minimum annual commission of £250k (1% of £25m = £250k).

We understand from our client that the sales target set by yourselves for the period from January to December 2011 was £10m of balances. To date SSSL has only procured £440k of cumulative balances which is a mere fraction of the targeted figure. The representations made by SSSL induced our client to enter into the Agreement. For the moment we consider it unnecessary to consider whether the representations made were innocent or negligent. In the event that such were made negligently our clients reserve the right to recover damages in respect of losses occasioned thereby. In any event however, our client treats the contract as void and is not obliged to make any further payments by you. Our client is considering its position in relation to recovery of commission payments already paid under the Agreement.

.....

Representations have been made to our client both before and after signature of the Agreement that a large number of Dunfermline Building Society account holders would close their respective accounts and open new accounts with Scottish Building Society. Our client was assured that Nationwide Building Society had no interest in the arrangements between the Dunfermline and Soccer Savings Limited ("SSL"). However we understand that Nationwide wrote to SSL alleging breach of the exclusivity provisions in that agreement and threatened to commence proceedings against SSL for breach of contract."

[45] I am not persuaded that SSSL's representatives were guilty of misrepresentation. In their presentation dated 29 March 2010 and in their meetings on 9 April and 26 May 2010, they described what SSL had achieved and expressed confidence that they could attract to the SBS a large proportion of holders of the soccersaver product provided by DBS. At the meeting on 9 April 2010 Mr Moran expressed the view that 75% of those savers might transfer their savings because SBS were offering a relatively attractive rate of interest (para [13] above). But in context that was a statement of aspiration or optimism about what was achievable rather than an undertaking or warranty. This is not a case in which it can be confidently said that there was a demonstrable misrepresentation of potential of a business by reference to its current turnover (cf. With v O'Flanagan [1936] 1 Ch 575). It was a prediction of what third parties might do in response to commercial stimuli and thus what a new business might achieve. In so far as it was a statement of fact about present intention, it has not been demonstrated that that statement was untrue.

[46] There is no substance in SBS's allegation that SSSL induced the contract by representing that it would achieve a sale target of £10 million by December 2011. It was Mr Kay who set the target of £5 million by January 2011 (para 27 above) and it was SBS that set the target of £10 million by December 2011 (para 32 above).

[47] Mr Hanretty for SBS did not found on the allegation in the BB letter that SSSL had represented that NBS did not have an interest in the arrangements between DBS and SSL. There was no evidence of such a representation. Mr Wardrop had a belief, based on legal advice, which he communicated to SBS, that the creation of SSSL and its operation at arm's length to SSL would reduce the risk of a dispute with DBS (para [16] above). But that does not support BB's allegation.

[48] The pre-contractual discussions gave Mr Kay and Ms Young the clear impression that the proposed venture was likely to succeed and that SBS would attract a substantial proportion of the money invested in the DBS soccersaver scheme. When Mr Kay reflected on those discussions he satisfied himself that the proposal had sufficient potential to justify the risk of his agreeing to a fixed sum annual commission. It is clear that the venture failed very badly. But that does not make the statements of aspiration by the promoters of SSSL into misrepresentations of fact. Other things may have been said that strengthened Mr Kay's conviction that he had been given representations on which he had relied to recommend the deal to his board, but absent evidence of specific statements of fact, I am satisfied that the defence of misrepresentation fails.

(b) Breach of contract

(i) The construction of clause 9.1

[49] Before considering SBS's individual allegations of breach of contract I have first to deal with Mr Hanretty's submission on the meaning of clause 9.1 of the contract which entitled either party to terminate the agreement if the other "commits a breach of any material term". He submitted, correctly, that parties to a contract were generally free to agree the circumstances in which one or other could terminate their agreement. In this contract, he submitted, the parties in clause 9.1 had agreed that it did not need a material breach of contract to end the agreement. Any breach of a material term would suffice. He defined a material term was one of significance to the parties in regulating their contractual position. He referred to Chitty on Contracts (31^st ed.) Vol. 1 at para 22-048.

[50] I am not persuaded that that submission is a correct construction of the agreement. It is conceivable that by speaking of a "breach of a material term" rather than "a material breach of a term" the parties intended to innovate on the common law that a contracting party needs a substantial or material breach of a contract by the other party before he can terminate the agreement. But I think that if parties were seeking so to innovate 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 had committed any breach, however minor, of any term that was of significance to the parties in regulating their contractual position. How would the court determine which were the terms that both parties considered significant and which were not?

[51] As Chitty records in a footnote to the passage which Mr Hanretty cited, the court has on occasion interpreted a clause that provided for termination on the occurrence of any breach of contract as applying only to a repudiatory breach (Rice (t/a Garden Guardian) v Great Yarmouth Borough Council, The Times, July 26 2000, Dominion Corporate Trustees Ltd v Debenhams Properties Ltd [2010] EWHC 1193). I do not interpret the clause in this contract as manifesting an intention to achieve a different result.

[52] It may not matter whether I am correct in this matter of construction as I am satisfied that SSSL was in material breach of contract and that SBS was entitled to terminate the agreement on that basis.

(ii) The individual allegations of breach of contract

(a) No agreement with a football club on 1 July 2010

[53] The first breach on which Mr Hanretty relied was SSSL's failure to have a signed written agreement with a football club in 1 July 2010. As I have said, in my first opinion in this case ([2012] CSOH 104) I held that that amounted to a breach of contract. Although SSSL averred that it had an agreement in principle with DAFC, the Dean of Faculty accepted in his submissions that such an agreement did not meet the terms of the contract. But he submitted, in my view correctly, that a failure to have one or more clubs signed up at the start of the agreement was not a material breach of contract.

[54] While the parties when they started their negotiations had hoped to promote the scheme in the football "transfer window", there were delays in finalising the agreement. SSSL needed to have an arrangement in place before football clubs were prepared to enter into binding arrangements with it. The parties must have been aware when they signed the agreement on 26 June 2010 that it was unlikely that they could mount a major initiative in July. SBS had to prepare the relevant branded pass books and literature. The parties agreed a start date of 1 September at their meeting on 23 July 2010.

[55] In my view the delayed launch of the scheme did not go to the heart of the contract. It also did not contribute materially to its eventual failure. While the matter was not explored in detail in evidence, it was clear that the economic circumstances in 2010 were materially worse than in the years in which SSL's scheme was successful. It was unsurprising that football supporters were reluctant to put money into the football savers scheme when funds were scarce. The departure of Mr Moran from SSL's employment in June 2010 may also have contributed to the failure of SSSL's scheme. Also significantly, as I discuss below, the constraints of data protection legislation undermined SSSL's business plan and contributed materially to the failure of the scheme. SSSL's failure to have a signed agreement with a football club on 1 July 2010 caused delayed the start of the promotion of the scheme but did not amount to a material breach of contract.

(b) Clause 13: compliance with data protection rules

[56] In clause 13 (which I have set out in para [22] above) the parties undertook (i) to use reasonable endeavours to comply with statutory data protection rules (cl.13.1) and (ii) to take appropriate technical and organisational measures against unauthorised or unlawful processing of personal data. That provision reflected one of the statutory duties of a data controller (Data Protection Act 1998 (the "1998 Act"), section 4(4) and Schedule 1, para 7).

[57] In my view SSSL's breaches of this provision went to the heart of the contract and entitled SBS to terminate it.

[58] It was central to SSSL's plan that it achieved the transfer of a significant proportion of the soccer saver funds from DBS to SBS. Its directors, who also controlled SSL, used SSL's database to contact account holders to promote the new scheme. That was the means by which SSSL wrote to Rangers' account holders (para [29] above), HAFC wrote to its account holders (para [31] above), and Rangers wrote to its accounts holders (para [36] above). SSSL's justification for doing so, which it gave to SBS, was that SSL and the football clubs had entered into agreements with each other under which they were joint data controllers.

[59] The reality was that SSSL and SSL did not operate at arm's length. Instead the directors of SSSL procured SSL to act against its own interest by promoting SSSL's competing product in its letter to the Rangers account holders. When NBS challenged SSL's right so to act in view of its contract with DBS, the directors of SSSL procured Rangers and HAFC to promote its scheme. Mr Wardrop presented this method of targeting account holders as "fail safe"; but when Celtic declined to write a similar letter because it infringed data protection legislation, SSSL did not question its stance.

[60] In my view SSSL was a data controller under the 1998 Act as it was

"a person who determines the purposes for which and the manner in which any personal data are, or are to be, processed."

(section 1(1) of the 1998 Act). It was not registered when it processed data contrary to section 17(1) of the 1998 Act and so committed an offence under section 21 of that Act. I am satisfied that SSSL was not entitled to rely on Regulation 3 of and para 3 of the Schedule to the Data Protection (Notification and Notification Fees) Regulations 2000 (SI 2000 No 188) as it clearly used the data to promote the services of SBS rather than its own "business, activity, goods or services". SSSL applied for registration under section 18 of the 1998 Act only on 1 December 2011, several months after it had purported to terminate the agreement with SBS.

[61] While a failure to register may not of itself have been a material breach of contract, I am satisfied that SSSL's use of the data obtained by SSL under the soccer saver scheme was. SSL did not have the consent of the data subjects (i) to make their data available to the football clubs with which it contracted or (ii) to use their data to promote SBS. Yet SSL had contracted with the football clubs to give them access to the names and addresses of account holders. And SSSL's directors procured SSL to use the data for the latter purpose. It used the football clubs' unauthorised possession of the soccer saver data in an attempt to circumvent the restrictions on SSL's activities in its contract with DBS.

[62] When SSL had obtained the consent of the data subjects in the soccer saver application forms to the use of their data, it was only to pass the forms on to DBS for it to send the data subjects an application pack. DBS stated in its application form, which the data subject had to complete, that the data controllers were it and "Soccer Services (UK) Limited" and that the data would be used "in connection with the operation of your account, marketing research and development of products and services." SSSL had no authority from the data subjects to use that data to promote the football saver scheme and SBS's products.

[63] In my view the materiality of SSSL's breaches of the data protection rules does not lie principally in any reputational damage that SBS may have suffered as a result. SBS was keen to acquire the football affinity business from DBS and left it to SSSL to ensure compliance with the relevant legislation. What takes the breaches to the heart of the contract is that SSSL was offering SBS a business proposal, a major component of which involved achieving the transfer of account holders from DBS to SBS. SSSL proposed to use SSL's data to market SBS's products and to obtain the transfer of accounts from DBS by targeted marketing. That is what it sought to do in SSL's letter to the Rangers account holders. But that provoked NBS correctly to assert both a breach of contract by SSL and also breach of the data protection legislation. NBS carried out the threat in its letter of 10 November 2010 and complained to the Data Commissioner.

[64] HAFC and Rangers were content to allow their names to be used in letters that SSSL created (paras [29] and [34] above). But Celtic refused to do so after taking legal advice. Other clubs were likely to do so if they obtained legal advice. I conclude that an important component of SSSL's performance of its obligations under the contract involved it in the breach of the statutory data protection rules and that that illegality materially impaired that performance. That amounted to a material breach of contract.

{65] I have not overlooked the involvement of MacRoberts in the transaction and SSSL's statements to SBS that it had taken legal advice on data protection. But I am not persuaded that I can infer from those facts that SSSL received informed legal advice in relation to the use of the data, which SSL and DBS controlled, by the football clubs or by SSSL. I do not question the honesty of Mr Wardrop and Mr Gray in their assertion that SSSL obtained legal advice. But they did not explain its content. Nor did I hear from the relevant lawyers. I do not believe that, if the lawyers had been properly informed of the scope of the data subjects' consent, they would have advised that such obvious misuse of their data by SSSL or SSL was legal. It seems to me that Mr Hanretty was justified in describing SSSL's approach as "cavalier". It was a clear breach of clause 13.3 of the agreement and that breach was material.

(c) Consumer Protection from Unfair Trading Regulations 2008

[66] Mr Hanretty submitted that SSSL had broken its contract by breaching regulations 3 and 5 of the Consumer Protection from Unfair Trading Regulations 2008 (the "2008 Regulations") in procuring the sending of the letters on HAFC and Rangers notepaper because the letters misrepresented the identity of the trader. He submitted that it was SSSL and not the football clubs that promoted the SBS financial product.

[67] I am satisfied that that is not so. The football clubs agreed to the issue of the letters in their names and derived financial benefit from the contracts that they entered into with SSSL. While SSSL and the staff of JGW did the work to issue the letters, they were authorised to do so by the football clubs. Each of the HAFC and Rangers letters was signed by a club official. I am satisfied that SSSL in so acting did not breach regulations 3 and 5 of the 2008 Regulations.

(d) Other alleged breaches

[68] SBS advanced other allegations of breach of contract in its pleadings. At the end of the proof Mr Hanretty intimated that he was not insisting on them. They were (i) the use of a domain name that differed from the one referred to in the agreement, (ii) an alleged failure to approach HAFC, (iii) a breach of section 397 of the Financial Services and Markets Act 2000, and (iv) a breach of the exclusivity clause (clause 7). In relation to the latter, I am satisfied (a) that the insurance products that SSSL considered marketing in their contracts with football clubs did not fall within the contractual definition of "the scheme" in clause 1 of the contract and (b) in any event SSSL did not appoint an insurance company to provide the products.

Objections

[69] Counsel took objection in writing to a number of matters. It is not necessary for me to rule on the objections that related to irrelevant evidence as I have not relied on that evidence. Similarly the suggestion that SSSL had an agreement in place before 1 July 2010 is not significant as the Dean of Faculty accepted that that agreement in principle did not meet the terms of the contract. Had it been argued otherwise I would have sustained SBS's objection. Mr Kay and Ms Young gave evidence that suggested that SSSL had breached the contract by failing to act in good faith. Mr Kay criticised SSSL for attempting to ride two horses by contracting with SBS and taking commission from DBS at the same time. He and Ms Young also criticised SSSL for not disclosing in the pre-contractual discussions that Mr Moran was leaving the employment of SSL and for not having the resources to carry out the needed marketing of the scheme in his absence. In the event Mr Hanretty did not found on that evidence. Had he done so, I would have sustained SSSL's objection to its admission.

Quantification of Loss

[70] As I have decided that SBS was entitled to terminate the contract in response to SSSL's material breach, the issue of quantification of SSSL's claim does not need to be determined. But in case a higher court takes another view, I record briefly counsel's arguments and what I would have done if the issue had been live.

[71] SSSL claimed the commission that it would have earned under the contract. It did not deduct from that sum any money that it would have had to spend on performing its side of the contract. The Dean of Faculty submitted that SSSL was entitled to present its claim in that way and that it was for SBS to plead any failure to mitigate loss. In support of his contention that SSSL was entitled to compensation for the loss of its bargain he referred to McGregor on Damages (18^th ed.) paras 2.002, 7.008, 7.011, 7.019 and 29.002, Timeshare Management Services Ltd v Loch Rannoch Highland Club [2011] CSOH 23; Sadler v Reynolds [2005] EWHC 309 (QB); Geys v Société Générale, London Branch [2013] 2 WLR 50; and Deeny v Gooda Walker[1996] 1 WLR 426.

[72] Mr Hanretty submitted that all that SSSL was entitled to claim if it established breach of contract was its future net income stream. Lord Glennie did not hold otherwise in Timeshare Management. While the contract gave SSSL considerable discretion in how it marketed the scheme, the court had to assume that it would have performed the contract reasonably in the future (Paula Lee Ltd v Robert Zehil & Co Ltd [1983] 2 All ER 390, Mustill J at 394-5). In this case SSSL's directors had stated that all its commission had been spent on marketing. There was no basis for awarding the gross amount of the future commission payments as that did not represent SSSL's loss. Mr Hanretty referred also to McBryde, The Law of Contract (3^rd ed.) paras 22.91, 22.92 and 22.111. He invited me to infer that if SSSL had attempted to make the scheme work for the duration of the agreement, it would have made no profit. He referred also to The Mihalis Angelos [1971] 1 QB 164: if SBS were in breach, SSSL had suffered no loss.

[73] If I had concluded that SBS's termination of the agreement was a breach of contract, I would not have been willing to absolve SBS on the basis that SSSL had failed to prove its loss. SBS had not focused the issue in its pleadings or in its note of issues. Correspondence between solicitors over the Christmas period, shortly before the start of the proof and long after the parties had produced their written witness statements, is not an adequate substitute. I would therefore have held over the issue of the quantification of damages and put the case out by order to determine whether parties wished to develop their pleadings on that issue.

The Counterclaim

[74] SBS's counterclaim is a claim for payment based on two grounds, namely (i) damages for loss caused by negligent misrepresentation and (ii) repayment of the commission that SBS had paid on the basis of unjustified enrichment because the agreement was void due to misrepresentation. As I have held that SSSL was not guilty of misrepresentation, the basis of the counterclaim falls away.

Conclusion

[75] I therefore sustain the defender's fourth plea in law to the extent that the pursuers being in material breach of contract are not entitled to decree, repel the pursuer's first, second and third pleas in law and pronounce decree of absolvitor in the principal action. In the counterclaim I sustain the second, third, fourth and fifth pleas in law for the pursuer, repel the pleas in law for the defender and again pronounce decree of absolvitor.

[76] I will have the case put out by order to deal with expenses.