Supreme Court Finds There Is No Principle In English Law That A Condition Precedent To Payment Of A Debt Will Be Deemed Fulfilled If Fulfilment Was Prevented By A Party's Own Breach

The Supreme Court has held that the Court of Appeal was wrong in finding that the sellers of second-hand tanker vessels were entitled to claim in debt for the deposits promised by the buyers, despite a condition precedent to the payment of the deposits not having been fulfilled due to the buyers' own breach of contract: King Crude Carriers SA v Ridgebury November LLC [2025] UKSC 39.

The decision establishes that the principle in the Scottish case of Mackay v Dick & Stevenson (1881) 6 App Cas 251, that a party cannot rely on its own breach to claim that a condition precedent has not been met, does not form part of English law. The Supreme Court noted that the principle is based on a fiction that the condition precedent is deemed to be fulfilled when in reality it hasn't been. The Supreme Court considered that such fictions tend to obscure transparent reasoning and should be removed unless there is a convincing reason for them. It could see no convincing reason for the Mackay v Dick principle, as English law already provided an adequate remedy for the relevant breach of contract through the law of damages.

The Supreme Court emphasised that English contract law is based on the terms of the contract and their proper interpretation, which reflects the importance English law attaches to freedom of contract. This promotes certainty and predictability, which the court said are important considerations, especially in the commercial law context.

In some cases, it may be possible to imply a term to the effect that a condition precedent will not be insisted upon where a party has prevented its fulfilment by its own actions. However, applying the usual test for implied terms, such a term would have to be necessary for business efficacy or so obvious it goes without saying. A term will not be implied if it would render the agreement unworkable or be akin to rewriting the bargain between the parties.

As a practical matter, the decision means that contracting parties should consider carefully the terms of any conditions precedent, particularly where their fulfilment may be affected by the actions (or inaction) of a contracting party. If the intention is that a party should not be able to rely on its own breach to prevent fulfilment of a condition, this should be made clear by appropriate drafting. Similarly, the contract should state expressly if a condition precedent is intended to affect only the mechanics of payment of a debt, rather than its accrual.

Background

The dispute arose from contracts for the sale of second-hand tanker vessels between the claimants (the "Sellers") and the defendants (the "Buyers"). The contracts stipulated that: (i) the Buyers were to pay a 10% deposit in an escrow account managed by Holman Fenwick & Willan Greece (HFW) upon HFW's confirmation that the escrow account had been opened; and (ii) the Buyers were to provide certain documents to HFW to enable it to give such confirmation.

The parties were required to provide the documents to HFW "without delay". However, the Buyers failed to provide the necessary documentation, so HFW was unable to confirm that the escrow accounts were ready to receive the deposits. Consequently, the deposits were not lodged. The Sellers terminated the contracts on the basis of the Buyers' non-compliance and commenced arbitration, claiming the deposits totalling USD 4.94 million as a debt.

The Sellers argued that the Buyers' failure to provide the required documents constituted a breach that prevented the fulfilment of a condition precedent. They contended that under the principle laid down in Mackay v Dick, this wrongful prevention entitled them to treat the condition as dispensed with or fulfilled and to recover the deposits as a debt. The Buyers, however, contended that the proper remedy lay in damages for breach of contract, not in debt.

The arbitration tribunal ruled in favour of the Sellers, applying the Mackay v Dick principle. The High Court (Dias J) overturned this decision, holding that the claim should lie in damages, not debt. The Court of Appeal overturned the first instance decision, finding that the Mackay v Dick principle was part of English law, and was aligned with the maxim that no one can benefit from their own wrong.

On the Buyers' further appeal, the Supreme Court considered three principal issues:

1. Whether the Mackay v Dick principle exists in English law.
2. If not, whether contractual interpretation or an implied term led to the same result.
3. If not, whether the deposits had already accrued as a debt.

Decision

The Supreme Court allowed the appeal, agreeing with the High Court that the Mackay v Dick principle was not part of English law. The court further rejected the Sellers' arguments based on contractual interpretation or an implied term, or that the clause could be read as merely concerned with the machinery of payment for an accrued debt. The court considered that the Sellers had an adequate remedy in damages for the Buyers' breach.

Lord Hamblen and Lord Burrows gave the leading judgment, with which Lord Reed, Lord Hodge and Lord Stephens agreed.

The Mackay v Dick principle

The Supreme Court noted that, in Mackay v Dick, which related to a contract for the sale of a steam-operated digging machine, it was agreed that the buyer would first trial the machine and, if the trial was successful, would pay the agreed price. The trial could not go ahead because of a failure on the buyer's side. The House of Lords held that the seller was entitled to the agreed price, but the reasoning differed between two of the law lords.

• Lord Watson found that payment was subject to a condition precedent, ie the machine satisfying the buyer's specified requirements at the trial, and since the trial did not go ahead because of the buyer's default, that condition should be treated as if it had been fulfilled.
• Lord Blackburn, in contrast, reached his decision on the basis of an implied duty of co-operation. He considered that the obligation to pay for the machine was subject to a condition subsequent, ie the obligation applied unless the machine subsequently failed the trial. That condition (failure of the trial) did not occur, because of the buyer's default. In finding that the seller was entitled to the agreed price, Lord Blackburn therefore did not have to rely on any deemed fulfilment of a condition precedent.

The Supreme Court stated that there was nothing controversial about Lord Blackburn's reasoning. The controversial point, referred to as the Mackay v Dick principle, was Lord Watson's view based on the deemed fulfilment of a condition precedent, where actual fulfilment is prevented by a party's own default.

Having surveyed the relevant case law and academic commentary, the Supreme Court concluded that the Mackay v Dick principle did not form part of English law for six main reasons:

1. Lord Watson did not cite or rely on any English law authorities in support of the principle. Rather, he relied on what he understood to be "a doctrine borrowed from the civil law".
2. The English law authorities did not speak with one voice. While the four main cases relied on by the Buyers supported the principle, other cases expressed persuasive views to the contrary. Further, it was possible that, in the four cases the Buyers relied on, the same result could have been reached through the application of the law on damages for breach of contract rather than the law on debt.
3. The principle was contradicted by Colley v Overseas Exporters [1921] 3 KB 302, which had not applied Mackay v Dick in circumstances where non-fulfilment of a condition precedent meant that property in the relevant goods had not passed. The claimant was therefore entitled to damages but not to the contract price. As the court in Colley recognised, if Mackay v Dick were to be applied in respect of a failure to fulfil a condition precedent to the passing of property, this would have "extraordinary" and "far reaching" consequences and fundamentally undermine the law on contracts for the sale of goods (and potentially the law for the sale of land). The Supreme Court said that, if the Mackay v Dick principle were to apply in English law, its ambit would have to be cut back to avoid those consequences, but it was unclear how that could be done in a principled manner.
4. The various formulations or explanations of the Mackay v Dick principle were all fictional. The language used in the various cases relying on the principle all used language of deemed performance, or a deemed waiver, or a quasi-estoppel, which made clear that in reality there had been no performance, and the ingredients of a true waiver or of a true estoppel (eg a representation plus reliance) had not been satisfied. The court stated that fictions tend to obscure transparent reasoning and, wherever possible, should be removed. At the very least, a fiction has to be properly explained, and there was no convincing explanation for Mackay v Dick as a principle of law.
5. The notion that English contract law proceeds on the basis of the terms of the contract (express and implied) and their proper interpretation, rather than the fictional fulfilment of a condition precedent, is consistent with the importance English law attaches to freedom of contract, and the application and enforcement of the terms of the bargain the parties have made. This promotes certainty and predictability, which are important considerations, especially in the commercial law context.
6. Rejecting Mackay v Dick as a principle of law would not lead to injustice since, where a condition precedent has not been fulfilled because of the defendant's breach of contract, that breach is appropriately and adequately dealt with in English law through the claimant's remedy in damages. There was therefore no good reason to strain to uphold a claim for debt where, as illustrated by this case, that involved disregarding the terms of the contract and where, in contrast to damages, allowing the debt claim may exceed the claimant's net loss.

Contractual interpretation or an implied term

The Sellers' alternative argument was that it should be presumed that it was not the intention of the parties that the Buyers should be entitled to rely on their own breach of duty to avoid their obligations under the contract.

The Supreme Court also rejected this argument. It first noted that the Buyers were not relying on their own breach of contract to treat the contract as being at an end or to claim a benefit under it, but were using it as a defence. That distinguished the facts of the present case from the facts of the cases relied on by the Sellers in this regard.

The Supreme Court also found against the Sellers on their argument that it would be unreasonable and absurd to read the parties' agreement as: (i) requiring the Buyers to pay the deposit upon the HFW's confirmation; and (ii) requiring the Buyers to provide documents to enable HFW to give such confirmation; but (iii) allowing the Buyers to avoid (i) by breaching (ii). The court found that the plain meaning of the clause was to be preferred, agreeing with the Buyers that there was nothing extravagant about the proposition that a conditional obligation applies according to its terms.

The Supreme Court further rejected the Sellers' argument that a term should be implied to the effect that the Buyers could not insist on applying the condition at (i) if they had made it impossible to carry out. This would render the clause unworkable, since the account to receive the funds would not exist, and therefore the Buyers would be unable to pay the deposit. Such a term could not be necessary or obvious, and it also contradicted the express terms agreed.

The Sellers therefore proposed an alternative implied term to the effect that, if the Buyers wrongfully prevented the account from being opened, they must lodge the deposit with the Sellers. The Supreme Court said this would be akin to rewriting the contract and would involve a major rebalancing of risk. There is a major difference between a deposit arrangement which involves the deposit being held in escrow by a trusted intermediary, and one which requires paying the deposit over to the sellers.

When the deposits accrued as a debt

The Supreme Court, finally, found against the Sellers' argument that the conditions precedent were merely concerned with the machinery of payment and did not prevent the accrual of the debt. While some contracts draw a distinction between when the right to a debt accrues and when it becomes payable, the contracts in this case did not do so.

The court rejected the Sellers' argument that the right to the deposit must have accrued when the agreement was concluded because it was described as "security for the correct fulfilment of this Agreement". The court held that it did not consider that this was a necessary inference to be drawn from the wording. A deposit would still be security for the correct fulfilment of the agreement even if it only became so once it was due to be lodged.

The court said it would have expected there to be a clear provision distinguishing between when the right to the deposit accrued and when it was payable if this had been intended by the parties.

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