Paul Bugden, Bugden + Co., London
King Crude Carriers SA v Ridgebury November LLC [2025] UKSC 39
The focus of this appeal was on the decision of the House of Lords in the Scottish case of Mackay v Dick (1881) 6 App Cas 251. Sitting as a panel of three, there were two leading speeches in the House of Lords in that case. The speech of Lord Blackburn stands as uncontroversial authority for there being an implied duty to co-operate whereby contracting parties are obliged to co-operate to ensure the performance of their bargain. In contrast, the speech of Lord Watson is controversial. That speech indicates that there is a principle (or rule or doctrine) of law that, where a party wrongfully prevents the fulfilment of a condition precedent (i.e. a pre-condition) to that party’s debt obligation (e.g. as in that case, the duty to pay for goods being bought), that condition is treated as being fulfilled. The status of that “deemed fulfilment” principle, or alternative formulations of the same idea such as the condition being “dispensed with” or “deemed waiver” or “quasi-estoppel”, has long been a matter of debate. This appeal raised the issue of whether there is such a principle in English law and the closely related question of whether, even if there is no such principle of law, contractual interpretation or an implied term achieves much the same outcome.
This issue arose here in the context of contracts for the sale of three vessels on the Norwegian Sale form 2012, with amendments and additions. Under the contracts, the Buyers were obliged to lodge a deposit of 10% of the purchase price with a deposit holder. The deposit was required to be paid within three banking days of the deposit holder confirming in writing that the deposit account had been opened. The parties were obliged to provide all necessary documentation for the opening of the account. In breach of contract, the Buyers never did so. The Sellers terminated the three contracts and claimed the deposits in debt, relying on Mackay v Dick. The Buyers contended that the Sellers’ sole remedy was in damages and that no loss had been suffered. They said that to claim in debt the Sellers must show that the pre-conditions set out in the contract in that respect had been satisfied and that was so notwithstanding the failure of the condition precedent was caused by the Buyer’s own breach.
The Sellers’ claim succeeded in arbitration, failed on appeal to the Commercial Court, but succeeded before the Court of Appeal. The Buyers appealed to the Supreme Court arguing, primarily, that there is no Mackay v Dick principle of law in England and Wales and that neither contractual interpretation nor an implied term could assist the Sellers in their debt claim in this case.
In the first place, the court held that as a matter of authority there was no presumption that a party may not take advantage of its own wrong. Indeed it observed that there are many contractual circumstances in which a party may do so. This is most obviously illustrated by the principle that damages for breach of contract are to compensate the claimant and not to punish the defendant and, subject to rare exceptions, damages or an account of profits are not awarded to strip profits made by the defendant’s breach. Contract law permits efficient breach and the defendant may therefore profit from its wrong.
In the second place, the Sellers’ case that a payment obligation subject to a promissory condition requires payment to be made regardless of whether the condition is performed was rejected; if the parties intended it to be paid regardless, they would not have made it conditional. The Sellers’ case effectively struck out the condition and rewrote the terms of the contract. It was stressed that it is always open to the parties to include a term in the contract making clear that a condition precedent to a debt obligation does not apply where the failure of the condition precedent is caused by the debtor’s breach. Likewise rejected was the Seller’s argument that the relevant terms were merely concerned with the machinery of payment for an already accrued debt rather than one for a debt which accrued only upon establishment of the deposit account.
In third place, the obvious difficulty with any implied term (or case based on interpretation rather than implication) was that it was implausible that absent opening a deposit account payment of a deposit had to be made directly from the buyer to the seller by implication. To alter the parties’ bargain in such a fundamental way was neither necessary nor obvious and any such term was inconsistent with the express terms contemplating a third-party deposit holder.
The court observed that there is a major difference between a deposit arrangement which involves the deposit being held in escrow by a trusted intermediary and paying the deposit over to the sellers. The sellers only obtain the deposit funds as a part payment of the contract price on delivery of the vessel or if the deposit is forfeited and the buyers have the right to have the deposit released to them in the event of the sellers’ default.
In this case, the proper interpretation of the contract did not entail, and there is no implied term, that the conditions precedent to the Buyers’ debt obligation are to be ignored because of the Buyers’ breach of contract in respect of those conditions precedent. The Sellers had their remedy in damages for the Buyers’ breach but they did not have a valid debt claim.