Contract is King: Supreme Court confirms the MacKay v Dick principle does not apply in England & Wales

In King Crude Carriers SA and others (Appellants) v Ridgebury November LLC and others (Respondents) [2025] UKSC 39, the Supreme Court has unanimously reversed the Court of Appeal’s decision on the proposition that the Mackay v Dick (1881) 6 App Cas 251 principle has effect in English law, holding that there is no such English law principle (see our Law-Now on the Court of Appeal decision here). Part of that principle is that a condition in a contract, which would give rise to a debt owed by a party if fulfilled, should be treated as fulfilled (or dispensed with or waived) where that party wrongfully prevents the condition from being satisfied (the other aspect of Mackay v Dick set out by Lord Blackburn - that there is an implied duty to cooperate to ensure performance of a contract - was not subject to appeal and was described by the Supreme Court as “not controversial”).

Factual background

The dispute arose out of a contract whereby King Crude Carriers and others (the Buyers) agreed to purchase three vessels from Ridgebury November LLC and others (the Sellers). The contracts were under three Memoranda of Agreement based on the Norwegian Saleform 2012 contract, with amendments (the MOAs). The MOAs required the Buyers to deposit 10% of the purchase price for the vessels with a third-party deposit holder in deposit accounts shortly after them being opened and to provide all the necessary documentation for this purpose.

The Buyers breached the contract by failing to provide the documentation, thus preventing the accounts from being opened or funds being paid into them. The Sellers proceeded to terminate the MOAs and relied upon the principle in Mackay v Dick to claim the value of the deposits as a debt from the Buyers. The Buyers argued that the Sellers’ remedy was in damages for breach of contract (accepting they had breached the contract). Further they contended that no loss had been occasioned because the market had moved upwards in the meantime, meaning that the Sellers could dispose of the vessels at a higher price to new buyers.

The route to the Supreme Court

The parties went to arbitration where the Sellers were successful. The Buyers successfully appealed to the High Court on this point of law. The Sellers appealed successfully to the Court of Appeal. The Buyers appealed to the Supreme Court on the contention that the Court of Appeal was wrong to find that the Mackay v Dick principle was good law in England & Wales. The Sellers ran a secondary case to the application of the Mackay v Dick principle, whereby even if the Mackay v Dick principle was not available to them, the deposits accrued as a debt when the contracts were made and that the pre-conditions to making the deposits only determined the timing for payment, not the existence of the debt. Therefore, the debt having accrued, the Sellers claimed they were entitled to pursue and succeed in a debt action.

The Supreme Court decision and reasoning

The unanimous decision (given by Lord Hamblen and Lord Burrows with whom Lord Reed, Lord Hodge and Lord Stephens agreed) centred on six reasons for reinstating the first instance decision, as follows:

1. Lord Watson’s principle in Mackay v Dick did not rely on common law authorities, rather he derived the principle from a doctrine borrowed from the civil law;
2. While cases on the subject have inconsistencies, the Supreme Court considered that the same results 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 threatens to fundamentally undermine the law on contracts for the sale of goods and beyond. Applying some sort of limit to the consequences this may cause, would result in unsatisfactory uncertainty;
4. The Mackay v Dick principle proceeds on a fiction of ‘treating’ the condition precedent as waived or fulfilled. The Supreme Court cited authorities deeming legal fictions as, at best, unnecessary, and likely to threaten transparent reasoning, thus best avoided;
5. The importance in the English law of the freedom to contract is consistent with the law of contract proceeding on the basis of the terms of the contract, express and implied, rather than relying on the fictional fulfilment of a condition precedent; and
6. A claimants’ remedy in damages serves justice. This case aptly demonstrates that applying a fiction to uphold a claim for debt would, in fact, exceed the claimants’ net loss.

As regards the Sellers’ secondary claim (Issue 3 in the Supreme Court judgment), that was also dismissed. The Court of Appeal case of Blankenstein [1985] 1 WLR 435 was given as authority for the finding in this case as the form of contracts concerned was substantially the same. As such, deposit holder arrangements cannot be regarded as mere mechanisms for payment. It was necessary (per clause 2 of the MOAs) for the contracts to be signed for the deposits to accrue as due (the accrual and the liability to pay operating concurrently in this contract). As the contracts were not signed, the debts did not accrue and the Sellers’ remedy was in damages for breach of contract.

Comment

The Supreme Court’s decision provides welcome clarity in an area where the case law was inconsistent. The decision and obiter comments provide some important guidance for contracting parties and practitioners.

For example, in the absence of the Mackay v Dick principle, should the parties wish, it remains open to them 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. This would be an express contractual term removing the need for the fictional fulfilment that the Sellers in this case relied on the Mackay v Dick principle for.  In a rising market, as was the case here, this would benefit sellers.  They would then be entitled to the debt regardless as to whether they have suffered any losses as the value of the goods has increased, and can be sold to a third party at a higher price than before. 

In this case, the Sellers did not get that windfall and the Supreme Court recognised that their damages would be nominal. But the Supreme Court was not prepared to depart from the general principle that damages are compensatory and recognised that “contract law permits efficient breach and the defendant may therefore profit from its wrong.”  So although the Sellers were, as the Court of Appeal put it, “messed around” by the Buyers it appears that the breach by them was a risk worth taking as it caused the Sellers no loss, given the market value of the vessels had subsequently risen, and the Buyers were not indebted to the Sellers. 

This decision should be front of mind for parties where, like in shipping, payment and deposits would never be paid directly from buyer to seller, and therefore additional intermediary payment mechanics are necessary and may feed into a breach of the contract.

Parties should also be mindful of potential implied terms in similar contracts. Obiter, the Supreme Court discussed an alternative scenario where on the same facts and terms, the condition precedent to payment of the deposit is not met through the fault of neither party (such as the insolvency of the solicitors’ firm administering the deposit account). In that scenario, the Supreme Court held that there would be an implied term on the parties to make arrangements for an alternative escrow account to enable the contract to proceed.