The UK Supreme Court Rules that the Mackay v Dick Principle Has no Place in English Law

The main question in this dispute, which should be of interest to parties engaged in the sale and purchase of vessels, centred on whether a legal principle formulated by the House of Lords in 1881, in the Scottish case of Mackay v Dick, formed part of English law so that the sellers of three vessels could pursue their claim for payment of the deposits as accrued debt under three MOAs that had been terminated. King Crude Carriers SA and Ors v Ridgebury November LLC and Ors [2025] UKSC 39.

Background

The buyers in this case had agreed to purchase three tankers, the “MAKRONISSOS”, the “RIDGEBURY ASTARI” and the “RIDGEBURY ALINA L”, under three Memorandum of Agreements (MOAs) based on the Norwegian Saleform 2012 (NSF 2012), with amendments and additions. 

As part of the deal, amended Clause 2 of the MOAs required the buyers to lodge a deposit of 10% of the purchase price with a deposit holder within three banking days of: (i) the MOA  being signed and exchanged between the parties; and (ii)  the deposit holder confirming in writing that the deposit account had been fully opened and was ready to receive funds. Importantly, the MOA provided that the parties were required to submit without delay all necessary documentation for the opening of the account.

Dispute

Following the buyers’ failure to supply any documents to the deposit holder, in breach of Clause 2, the sellers terminated the MOAs and commenced arbitration, intent on recovering the unpaid deposits, maintaining these had accrued as debts. 

To support their argument, the sellers invoked the 19th Century decision of the House of Lords in the Scottish case of Mackay v Dick [1881] 6 App Cas 257, relying specifically on the formulation by Lord Watson of what the Supreme Court referred to as the “Mackay v Dick principle of law”. 

The buyers contested the sellers’ claim, arguing, primarily, that there was no Mackay v Dick principle of law in England and Wales and that, additionally, contractual interpretation or an implied term in the MOAs could not be relied on either to assist the sellers in their debt claim. 

The buyers also contended that the sellers’ sole remedy lay in a claim for damages. No loss had been suffered since the market price for each of the vessels was higher upon termination of the MOAs than the purchase price under each of the MOAs. Only nominal damages should be recoverable by the sellers.

Mackay v Dick principle of law

It is important to understand the principle set out by Lord Watson in Mackay v Dick [1881] in what is deemed a controversial speech. 

Lord Watson held that “there is a principle (or rule or doctrine) of law that, where a party wrongfully prevents the fulfilment of a condition precedent (i.e. a pre-condition) to that party's debt obligation (e.g., as in that case, the duty to pay for goods being bought), that condition is treated as being fulfilled.”

In other words, if a party wrongfully causes the non-fulfilment of a pre-condition which is essential for a debt obligation to crystallise, then the principle holds that the pre-condition will be treated as having been fulfilled so that the debt does arise.

This long-debated principle, also referred to as the “deemed fulfilment” principle, was examined by the Supreme Court alongside the question of whether contractual interpretation or implied terms could achieve the same result. However, before reaching this stage, the arbitration tribunal and lower courts offered their findings on the question of the Mackay v Dick principle of law. 

Arbitration

The Tribunal, accepting the sellers' case based on the Mackay v Dick principle, found in their favour and ordered the buyers to pay the deposits as debts, totalling almost US$5 million in aggregate for all three vessels. 

High Court

Following an appeal, the High Court judge reversed the Tribunal’s award and ruled in favour of the buyers, holding that there was no Mackay v Dick principle under English law and that the sellers’ claim lay in damages. Sellers appealed. 

Court of Appeal

The Court of Appeal went on to unanimously overturn the High Court decision relying on the Mackay v Dick principle. Buyers appealed. 

Supreme Court

In the final stage of the proceedings, the Supreme Court unanimously allowed the buyers’ appeal and rejected the Court of Appeal’s ruling. Reinstating the High Court decision, the Supreme Court confirmed that “There is no Mackay v Dick principle of law in English law”. 

The Supreme Court set out its six main reasons for rejecting the appeal on the Mackay v Dick point.

• The principle stated by Lord Watson in Mackay v Dick did not rely on any English law authorities but rested on “a doctrine borrowed from the civil law”. 
• Later English law authorities, which examined the principle, did “not speak with one voice”, being divided in their views, some in favour, some against.
• The application of such a principle would lead to “extraordinary” and “far reaching” consequences and fundamentally undermine the law on contracts for the sale of goods (and possibly for the sale of land) were it to be applied in cases of failure to fulfil a pre-condition for the passing of property.
• The various explanations for the principle were all fictional and there was “no convincing explanation for Mackay v Dick as a principle of law”.
• English law of contract is based on the terms of the contract and their proper interpretation rather than on the “fictional fulfilment of conditions precedent. The fictional fulfilment of conditions precedent and the fictional non-fulfilment of conditions subsequent may be principles of the civil law, but they are not principles of English law”. This view aligns with the importance English law attaches to freedom of contract and enforcement of the terms agreed by the parties. It also helps promotes commercial certainty. 
• Rejecting the Mackay v Dick principle would not lead to injustice because the aggrieved party had recourse to a remedy in damages. 

The Supreme Court then turned to the terms of the MOAs and considered whether Mackay v Dick could be relied on not as a principle of law but as an aid to contractual interpretation or as based on an implied term. 

Contractual interpretation

The Court of Appeal had reasoned that the juridical basis behind the Mackay v Dick principle rested on presumed contractual intention and the maxim that a party should not be entitled to take advantage of its own wrong. However, the Supreme Court found that the buyers were not relying on their own breach of contract to treat the MOAs as being at an end or to claim a benefit under it. In fact, the buyers' breach exposed them to a liability in damages. Reliance on the terms of clause 2 was instead carried out in a “purely defensive” manner in the context of the buyers’ debt claim.

The Supreme Court also cited the Court of Appeal decision in The Blankenstein [1985] 1 WLR 435, which dealt with a similar issue, and where it was held that signing the MOA was a pre-condition to the deposit being payable. The Supreme Court emphasized the point that the sellers in the present case had themselves accepted terms where they were also without the security of the deposits until the pre-conditions they had agreed were satisfied. 

Implied term

The sellers sought to formulate an appropriate implied term to insert into clause 2 to create a debt obligation, but the different options suggested were found to either render the clause unworkable or to result in the rewriting of the contract in a manner that would tip the balance of risk so much against the interests of the buyers that they would most likely not have wanted to enter such a bargain. 

The Supreme Court concluded that it was not possible to ignore the pre-conditions to the buyers’ debt obligation on the basis of either the proper interpretation of the contract or an implied term. 

Accrued debt

As an alternative argument, the sellers submitted that as soon as the MOAs were concluded the deposits had accrued as a debt and that the pre-conditions set out in clause 2 only constituted “machinery of payment” stipulating the time for payment of said debt. However, the Supreme Court rejected the argument, aligning with the reasoning of the High Court, holding that under the NSF 2012 the right to the deposit did not accrue when the MOA was concluded (nor when it was signed nor three banking days after signature). 

Comment

Through its decision, the Supreme Court finally addresses a “fundamental and long-debated point of principle in the English law of contract” and determines that the Mackay v Dick principle does not form part of English law. The accrual of a debt obligation in the present case could not be achieved through contractual interpretation or an implied term either. The terms of clause 2 were confirmed as pre-conditions for the accrual of the debt and not simply  payment machinery for the same so that the sellers’ debt claim failed.

The Supreme Court’s decision brings clarity to a previously confusing area of law. However, referring to The Blankstein 1985 decision that there could be no claim in debt for the deposit until the MOA had been signed (and in the present case until all clause 2 pre-conditions had been fulfilled), the Court went a little further. Although the judges agreed with the decision, the Supreme Court did invite the business community to consider altering the standard form NSF 2012 if it was not satisfied with the current position, commenting that they themselves would be very reluctant to reverse a decision made 40 years ago.   

Where there are concerns that the buyer will not provide the necessary documents to the deposit holder in a timely manner (“without delay”), the seller may wish to include a backstop date and amend the NSF2012 to provide that if the deposit account has not been opened by the deposit holder within the timeframe stipulated, the agreement will automatically become null and void. 

As an aside, it is noteworthy that the speech of Lord Blackburn in Mackay v Dick [1881], for there being an implied duty to co-operate whereby contracting parties are obliged to collaborate to ensure the performance of their bargain, was left to stand as uncontroversial authority.