The Supreme Court has today handed down judgment in King Crude SA v Ridgebury November LLC [2025] UKSC 39. Dave Barnard acted for the successful Appellants in the High Court, in the Court of Appeal and in the Supreme Court, and Dave orally argued procedural issues before the Supreme Court. Dave was led by Nigel Eaton KC of Essex Court Chambers.
Background
The Appellants (the “Buyers”) were the buyers and the Respondents (the “Sellers”) were the sellers under Memoranda of Agreement for three tanker vessels, the “Makronissos”, the “Ridgebury Astari” and the “Ridgebury Alina L” (the “MoAs”). The MoAs were each on the well-known Norwegian Saleform 2012 standard form, with amendments and additions. By amended clause 2 of the MoAs, the Buyers were obliged to lodge a deposit with a third-party Deposit Holder within three banking days after (i) the MoAs were signed and exchanged and (ii) the Deposit Holder had confirmed that an escrow account had been opened and was ready to receive funds. In order to enable the account to be opened, clause 2 further provided that both the Buyers and the Sellers were to provide know-your-client documents to the Deposit Holder without delay.
In breach of clause 2, the Buyers failed to provide any documents to the Deposit Holder. The Sellers purported to cancel the MoAs under clause 13 (which was in its standard form) and commenced arbitration against the Buyers seeking to recover, amongst other things, the deposits as accrued debts. The Buyers disputed those claims on the basis that the Deposit Holder had not confirmed that an account was ready to receive funds, by reason of which the deposits had not accrued, and asserted that the Sellers’ only remedy was a claim in damages. In turn, the Sellers relied upon the decision of the House of Lords in Mackay v Dick (1881) 6 App Cas 257, a Scottish appeal, and in particular the speech of Lord Watson, who had decided that case based upon a concept of deemed fulfilment of a condition precedent to the accrual of a debt where fulfilment had been prevented by a breach of contract. Mackay v Dick is also significant to English lawyers for Lord Blackburn’s statement of the implied duty of co-operation in contracts which require input from both parties. It is Lord Watson’s principle that is referred to by the Supreme Court as “the Mackay v Dick principle of law”.
Decisions below
Determining various preliminary issues, the Tribunal ruled in the Sellers’ favour by majority and ordered payment of the deposits. The Buyers appealed to the High Court under sections 68 and 69 of the Arbitration Act 1996, which appeals were allowed by Dias J, who held that there was no Mackay v Dick principle in English law: [2023] EWHC 3220 (Comm), particularly at [95]. Dias J’s decision was overturned by a unanimous Court of Appeal (Popplewell, Nugee, Falk LJJ). Giving the leading judgment in the Court of Appeal, Popplewell LJ formulated a principle in English law based upon Mackay v Dick, and other authorities, to the effect that an obligor could not rely upon the non-fulfilment of a condition precedent where it had caused such non-fulfilment, “at least where such condition is not the performance of a principal obligation by the obligee, nor one which it is necessary for the obligee to plead and prove as an ingredient of its cause of action, and save insofar as a contrary intention is … expressed, or is implicit …”: [2024] EWCA Civ 719 at [85].
The Supreme Court
The Supreme Court unanimously allowed the Buyers’ appeal and restored the decision of Dias J. Rejecting the principle formulated by the Court of Appeal, Lord Hamblen and Lord Burrows, with whom Lord Reed, Lord Hodge and Lord Stephens agreed, held that the principle set out by Lord Watson in Mackay v Dick forms no part of English law, and that English law proceeds based upon the terms of the contract, the construction of those terms, and implied terms. The numerous reasons for rejecting a principle based upon Mackay v Dick included that: the principle stated by Lord Watson in Mackay v Dick was based upon civil law principles and not English authorities; the English authorities do not speak with one voice; such a principle would have exceptional effects in some contexts (particularly the sale of goods or land) and it was not possible to formulate a workable principle; and the principle is based upon fictions, which are to be avoided in modern law (at [62]-[66]). Ultimately, and importantly, the Supreme Court held that rejecting the principle would not cause injustice, because the innocent party had an accrued claim in damages for its loss of bargain (at [68]).
Having rejected the Mackay v Dick principle, Lord Hamblen and Lord Burrows turned to the terms of the MoAs. First, Sellers’ proposed construction arguments were rejected. The Court reasoned that the Buyers were not relying upon their own breach of contract to bring the MoAs to an end or to claim a benefit under it, such that the principle of construction that a party cannot take advantage of their own wrong was inapplicable; the Buyers’ reliance upon the clause was “purely defensive” (at [79]). The Supreme Court further held that, if the Sellers’ absurdity argument were accepted, the parties could not have meant what they said in clause 2, which set out the circumstances in which the deposits accrued (at [81]). Second, the Court rejected the implied terms suggested by the Sellers (at [90], [92]). The Court held that the suggested terms would be entirely unworkable (since the Buyers could never pay the deposit unless the account had in fact been opened) or would change the parties’ bargain in an unjustified way (as with the suggestion that the deposit should be paid to the Sellers instead): [91], [93]. The result of these conclusions was that the deposits had not accrued.
In the alternative, the Sellers contended that the deposits accrued immediately upon the MoA being agreed, and that the provisions in clause 2 were only ‘machinery for payment’, such that they could be recovered. Lord Hamblen and Lord Burrows rejected this argument concluding, amongst other things, that a deposit only acted as security in the circumstances provided by the terms of the agreement: [111]-[121]. In so concluding, the Court approved the decision of the Court of Appeal in The “Blankenstein” [1985] 1 WLR 435.
The Buyers’ appeal was allowed accordingly.
Comment
The Supreme Court’s unanimous judgment is the latest and final decision in the King Crude saga and it determines a “fundamental and long-debated point of principle in the English law of contract”, as described at hand-down. Contrary to recent support that the Court of Appeal’s decision has received in academic commentary, in a restatement of orthodox principles familiar to English lawyers, the Supreme Court has concluded that there is no Mackay v Dick principle in English law, and that construction and implied terms are the relevant legal mechanisms to ascertain the circumstances in which a debt accrues.
However, as King Crude shows, there are limits to the circumstances in which those mechanisms can intervene. If, as in King Crude, it is not possible on the wording of the agreement to construe the words or to imply a term against a contract-breaker or in favour of the innocent party, a contract-breaker can legitimately set up a defence to a debt claim based upon the non-fulfilment of a condition precedent, even if the contract-breaker’s breach had caused the non-fulfilment. In the words of Lord Hamblen and Lord Burrows, “Contract law permits efficient breach and the defendant may therefore profit from its wrong.” (at [78]).
Shipping practitioners and market participants will also find interest in the approval of the Court of Appeal’s decision in The “Blankenstein” [1985] 1 WLR 435, which has stood for over four decades, and the Supreme Court’s invitation to change the standard form if the business community is dissatisfied with that decision (at [122]).
Dave Barnard acted for the successful Buyers in the High Court, in the Court of Appeal, and in the Supreme Court. Dave was instructed by Charles Weller of Reed Smith LLP.
