Last week, in King Crude Carriers SA and others (Appellants) v Ridgebury November LLC and others (Respondents), the Supreme Court finally answered the 143 year old question of whether the ‘deemed fulfilment’ principle established in Mackay v Dick (1881) 6 App Cas 257 (a Scottish appeal to the House of Lords) – the “Mackay v Dick principle” – existed in English Law.

They concluded that there is no such principle in English Law.

The Principle

The Mackay v Dick principle held that where a party wrongfully prevented the fulfilment of a conditional precedent to a debt, the condition would be deemed fulfilled and the victim could claim for the debt.

The Factual Background

In King Crude,  the ‘deemed fulfilment’ at issue was the (non) provision of KYC information by the prospective buyers of oil tankers. The KYC information was necessary for deposit-holders to open deposit-holding accounts, those accounts being necessary to start the clock under contract to pay the deposit.

The non-provision of the KYC Information was a breach of contract, and the sellers relied on that breach to terminate the relevant contracts and make their claim in debt, relying on the Mackay v Dick principle.

The question was whether the obligation to pay the deposit had fallen due absent the confirmation, by way of the Mackay v Dick principle.

The Decision

The Supreme Court gave six main reasons for their decision rejecting the principle, insodoing reversing the Court of Appeal decision and reinstating the decision at first instance:

1. Lord Watson, in first articulating the principle, did not cite or rely upon any English Law authorities, but rather based his reasoning on “a doctrine borrowed from the civil law”.
2. The English Law authorities do not speak with one voice and, of the main cases cited in support of the principle, the same result could have been achieved through the application of the law on damages for breach of contract rather than the law on debt.
3. Colley v Overseas Exporters [1921] 3 KB 302 contradicted the principle in the context of the law on contracts for the sale of goods on the basis that it would fundamentally undermine that body of law and result in ‘extraordinary’ and ‘far reaching consequences’. It follows that the ambit of the principle would have to cut back. That was recognised in the Court of Appeal decision, but the application and rationale of those exceptions are uncertain.
4. The formulations and explanations of the principle are all fictional which are to be avoided wherever possible.
5. The proper approach in contract is to proceed on the basis of the express and implied terms of the contract and their proper interpretation, rather than by way of fictional fulfilment of a condition precedent.
6. There is no injustice from rejecting the principle. Any injured party to a breach can bring a claim in damages.

The Court also confirmed that the same outcome could not, on this case, be achieved by contractual interpretation or an implied term.

Impact

With the demise of the Mackay v Dick principle, commercial parties should take heed of the Supreme Court’s warning at [78] and [79] that the maxim that a party cannot take advantage of his own wrong is not a principle of universal application. There may be ways where a contract-breaker can set up a legitimate defence to a debt claim based upon their own failure to fulfil a condition precedent. Indeed, as the Supreme Court recognised this includes under the current Standard Saleform in the shipping community, and the Supreme Court invited that community to amend it if they were unsatisfied with their outcome.

More generally, parties should take care when drafting conditions precedent and would do well to adopt the Supreme Court’s own advice at [82], that it is open for 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”.