In brief
- The Supreme Court has confirmed that the Mackay v Dick principle does not form part of English law.
- This means, where a party wrongfully prevents fulfilment of a condition precedent to a debt, the counterparty's remedy is limited to damages, rather than claiming payment of the debt itself.
- A claim for damages requires an assessment of the actual damage suffered – which could be less that of the potential debt claim.
- Parties that want to ensure that a debt claim can be brought if their counterparty fails to comply with a condition precedent should consider adopting the Supreme Court’s guidance that they include an express term to that effect in their contract.
Background
In King Crude Carriers SA & Others v Ridgebury November LLC & Others [2025] UKSC 39, a dispute arose from contracts for the sale of second-hand tanker vessels between the sellers and the buyers.
The contracts provided for payment of deposits (10% of the purchase price for the ships) into an escrow account which was to be opened by a deposit holder. The buyers agreed to provide the deposit holder with "know your client" documents needed to open the account and to pay the deposits within three days after confirmation the account was opened. In breach of contract, the buyers failed to provide the documents. The escrow account was never opened, and the buyers did not pay the deposits.
The sellers claimed the deposits as a debt, but the buyers contended that the obligation to lodge any deposit was conditional on provision of documents and confirmation that the escrow account was open, which did not happen. The sellers terminated and commenced arbitration, relying on a principle derived from the speech of Lord Watson in the 1881 Scottish case of Mackay v Dick. In that case, Lord Watson indicated that, where party A wrongfully prevents the fulfilment of a condition precedent to a debt, the condition should be deemed fulfilled and party B can claim for the debt. However, the buyers asserted that there was no Mackay v Dick principle of law in England and Wales and so the sellers' sole remedy was in damages for breach of contract. This was important, said the buyers, because the sellers had suffered no loss as the market price for each of the ships was actually higher at the date of termination than the purchase price.
The arbitration tribunal ruled in favour of the sellers, and although that decision was overturned by the High Court, it was reinstated by the Court of Appeal. The buyers appealed again to the Supreme Court.
Supreme Court's analysis
The Mackay v Dick principle
The Supreme Court concluded that the Mackay v Dick principle does not form part of English law:
- Lord Watson’s principle in Mackay v Dick did not rely on common law authorities. Instead, he relied on what he understood to be "a doctrine borrowed from the civil law".
- The relevant authorities were not in agreement, and of those cases that did appear supportive of the principle, the Supreme Court considered that the same results could have been reached through application of the law on damages for breach of contract rather than the law on debt.
- The Mackay v Dick principle would appear to fundamentally undermine the law on contracts for the sale of goods or land. If it did exist, its ambit would therefore have to be cut back to avoid extraordinary consequences. However, it was unclear how to do so without resorting to the intention of the parties. The broad exceptions to the principle proposed by the Court of Appeal were too uncertain in both application and rationale.
- The Mackay v Dick principle proceeded on a fiction of 'treating' the condition precedent as waived or fulfilled. The Supreme Court commented that legal fictions tend to obscure clear reasoning and should, wherever possible, be removed.
- Proceeding by reference to the terms of the contract, rather than fictional fulfilment of a condition precedent, was consistent with the importance of freedom of contract, and the enforcement of the bargain made by the parties, promoting certainty and predictability.
- Finally, rejecting the Mackay v Dick principle would not lead to injustice – where a condition precedent has not been fulfilled because of the debtor's breach of contract, that breach is appropriately dealt with through a remedy of damages. Indeed, this case demonstrated that applying a fiction to uphold a claim for debt would exceed the sellers’ net loss.
Contractual interpretation
The Court of Appeal had suggested that the Mackay v Dick principle could be explained by reference to the maxim that a party should not be entitled to take advantage of its own wrong. However, the Supreme Court confirmed that this is not a general presumption of interpretation. The cases which appeared to support such a presumption were best rationalised as ones where the presumption reflected the objective intention of the parties in the relevant context and were, in any event, concerned with a claimed entitlement to treat the contract as at an end or to obtain a benefit under it. By contrast, in this case, the buyers were relying on their own breach in a purely defensive way.
Separately, the Supreme Court rejected the sellers' argument that a term should be implied into the parties' agreement. The sellers' proposed implied terms would either render performance impossible or would transform the deposit arrangements agreed and effectively rewrite the contracts. The Supreme Court preferred the plain meaning of the clause, agreeing with the buyers that there was nothing excessive or unusual about the proposition that a conditional obligation applied according to its terms.
Commercial implications
In rejecting the Mackay v Dick principle, the Supreme Court has once again confirmed the primacy of the terms of the contract over more antiquated principles and presumptions. If a party wishes to ensure that a debt claim can be brought in the event that their counterparty fails to comply with a condition precedent, they should consider adopting the Supreme Court’s guidance that they include an express term to that effect in their contract.