Buyer Liable in Debt – Not Damages – Where in Contractual Breach Due to Wrongful Prevention of Condition Precedent to Payment of Deposit

In King Crude Carriers SA & Ors v Ridgebury November LLC & Ors [2025] 2 WLR 181, the Court of Appeal of England and Wales (Popplewell, Nugee and Falk LJJ) allowed an appeal from Dias J, a judge of the High Court of England and Wales.  The appellate court concluded that a ship buyer’s breach of contract – by dint of contractual breach in providing escrow holders with necessary documentation to open an account for the purpose of paying to the seller a deposit of 10% of the purchase price – did not result in the seller’s right of action being confined to an action in damages – the assessment of which may, for various reasons, have proved de minimis  in amount – but rather founded an entitlement to sue for the deposit in debt on account of the buyer preventing the occurrence of the said condition precedent to deposit payment.  In doing so the court applied the longstanding decision of the House of Lords in Mackay v Dick (1881) 6 App Cas 251, which was followed by the Privy Council in Newmont Property Ltd v Laverton Nickel NL (1982) 44 ALR 508.  Such decision of the Privy Council was written by Sir Harry Gibbs.  The appellate court wrote:

Popplewell LJ

1 This appeal arises out of a dispute between buyers and sellers under three contracts for the sale of second-hand tanker tonnage in materially identical terms. It raises an issue of law as to the existence or scope of what the appellant sellers call “the Abacha principle”, after the decision of Rix LJ at first instance in Cie Noga d’Importation et d’Exportation SA v Abacha (No 3) [2002] CLC 207 (“Abacha”), tracing its modern origins back to the speech of Lord Watson in Mackay v Dick (1881) 6 App Cas 251 (“Mackay v Dick”). I prefer to call it “the Mackay v Dick principle”.

2 In the appellants’ submission, the principle is that where the accrual of a party’s obligation to pay a debt is subject to a condition, and the putative debtor wrongfully prevents that condition from being fulfilled, the condition is treated as dispensed with or fulfilled, with the result that the debt accrues. The principle is said to be the ratio of two cases binding on this court, namely that of the House of Lords in Panamena Europea Navigacion (Cia Ltda) v Frederick Leyland & Co Ltd [1947] AC 428 (“Panamena”), and that of the Court of Appeal in Cory & Son v London Residuary Body (unreported) 5 November 1990 (“Cory v LRB”).

3 The respondent buyers contend, as Dias J held, that there is no such principle, and that where a party prevents the fulfilment of a condition precedent to the accrual of a debt by its breach of contract, the remedy lies in damages for such breach, with the normal principles governing a contractual claim for damages applying, including those of causation, mitigation and remoteness; Panamena and Cory v LRB are examples of the application of a more limited principle which permits dispensation with conditions as to the machinery of payment of accrued debts.

How the issue arises

4 The dispute arises out of three contracts of sale concluded on 28, 29 and 30 April 2020 on an amended 2012 Norwegian Saleform (“the MOAs”). The MOAs differed as to parties, prices, dates and other details, but their material terms were identical, and there is no need to distinguish between them or the individual buyers and sellers. I shall refer to the appellants as ‘”the Sellers” and the respondents as “the Buyers”.

5 The disputes were referred to arbitration in three separate references. The facts, as found in a common set of reasons published in all three references, were as follows.

6 The purchase price for the vessels was US$17.4m, US$19.4m and US$12.6m respectively. By clause 5 of the MOAs delivery was to be by the Sellers tendering notice of readiness following the vessels’ current employment, within dates identified in each MOA. Clause 2 of the MOAs obliged the Buyers to lodge a 10% deposit for the purchase price with Holman Fenwick Willan, Greece (“HFW”) as escrow holders for the Sellers in the following terms:

“As security for the correct fulfilment of this Agreement, the Buyers shall lodge a deposit of 10% (ten per cent) of the Purchase Price (the 186 ‘Deposit’) in an account for the Parties with [HFW] who shall hold the Deposit in escrow for the Parties, and who shall only release same in accordance with and pursuant to the terms of an escrow agreement to be entered into between themselves (acting as escrow agent), the Sellers and the Buyers (the ‘Escrow Agreement’) within three Banking Days after the date that:

“(i) this Agreement has been signed by the Parties and exchanged in original or by e-mail or telefax; and

“(ii) the Deposit Holder has confirmed in writing to the Parties that the account has been fully opened and ready [sic] to receive funds …

“The Parties shall provide to [HFW] all necessary documentation to open and maintain the account without delay.”

7 By clause 3, the Buyers were to remit the 90% balance of the price to HFW the day before delivery, and HFW were to release it, plus the 10% deposit, on the Buyers’ instructions after review of closing documents and within three days after the Sellers tendered Notice of Readiness. Clause 13 gave the Sellers a right to cancel the MOAs if:

(1) the deposit was not lodged in accordance with clause 2, in which case the Sellers were also entitled “to claim compensation for their losses and for all expenses”; or

(2) the 90% balance of the purchase price was not paid in accordance with clause 3, in which case the deposit “shall be released to the Sellers”.

8 Clause 21 provided for the parties to “co-operate and make best endeavours to find a solution” if the Buyers, acting reasonably and in good faith, could not conclude management agreements with the ships’ existing managers by the time the Sellers tendered Notice of Readiness.

9 The MOAs were duly signed, but HFW was unable to confirm that the escrow accounts were open and ready to receive the deposits because the Buyers were in breach of their obligations under clause 2 to provide the necessary documents without delay to enable HFW to do so. In two cases this was a failure by the Buyers to provide HFW with the necessary Know Your Client (“KYC”) documents. In the third case it was a failure by the Buyers to sign the Escrow Agreement. The deposits were not paid to HFW by the Buyers.

10 Having tendered notices of readiness for two of the three vessels, the Sellers gave notices purporting to terminate the MOAs on 22 May and 30 May 2020. They did so on two alternative bases: (a) pursuant to clause 13 relying on non-payment of the deposits; and (b) at common law treating the non-payment of the deposits as a repudiatory breach which was accepted. With regard to the third vessel, the Buyers purported to terminate on 5 June 2020 before a notice of readiness had been tendered. The tribunal held that this was wrongful and that the Sellers were entitled to terminate as they did on 9 June 2020. The Sellers commenced arbitration seeking to recover the amount of the deposits totalling US$4.94m (US$1.74m, US$1.94m and US$1.26m respectively). The claim was advanced in debt, on the grounds that the conditions precedent to the obligation to lodge the deposits had been prevented from being fulfilled by reason of the Buyer’s breach of clause 2 in failing to supply HFW promptly with the KYC documents/signed Escrow Agreement so as to enable them to open the account, with the consequence that as a matter of law the Sellers are to be put in the same position as if the conditions had been fulfilled or did not need to be fulfilled. In the alternative there was a claim for damages, in the same amount, for the breach of clause 2 in failing to supply the necessary documentation to HFW.

11 As to the claim in debt, it is established by the decision of this court in Griffon Shipping LLC v Firodi Shipping Ltd (The Griffon) [2014] 1 All ER (Comm) 593, that had the deposits become due in accordance with clause 2:

(1) they would constitute debts owed by Buyers to Sellers notwithstanding that they were to be paid to a third party stakeholder; and

(2) they would remain due and payable after termination pursuant to clause 13 because (a) at common law, lawful termination does not affect rights which have accrued prior to termination; (b) clause 13 does not circumscribe or remove such common law rights but provides for additional rights to “compensation for [Sellers’] losses”; and in any event (c) the additional right to compensation conferred by clause 13 includes a right to compensation for non-payment of the deposits, which would include the amount of the deposits.

12 The Buyers reserved the right to argue that The Griffon was wrongly decided in a higher court, but accepted that we were bound by it. Accordingly it was not disputed before us that if the Mackay v Dick principle operates to treat the conditions precedent to the accrual of the right to the deposits in clause 2 as fulfilled or dispensed with, the deposits would, following termination, be recoverable in debt (although the Buyers had advanced other arguments based on clause 21 which were rejected by the tribunals and not the subject matter of appeal).

13 As to the claim in damages, the Buyers sought to advance a defence that, if they had performed their clause 2 obligations to provide documentation and had lodged the deposits, the contracts would ultimately have fallen through under clause 21 or by frustration, and the deposits would then have been repaid to the Buyers; and that the Sellers had not suffered actual loss in the amounts of the deposits. This was characterised as “the Golden Victory point” after the decision in Golden Strait Corpn v Nippon Yusen Kubishika Kaisha (The Golden Victory) [2007] 2 AC 353.

…

28 I find it convenient to start with the decision of the House of Lords in the Scottish appeal in Mackay v Dick 6 App Cas 251. In that case the sellers sued for the price of a steam excavation machine which they had agreed to sell and deliver to the buyer, who had contracted to construct a railway line which required the excavation of an extensive cutting with Carfin at one end and Garriongill at the other. The contract, concluded by an exchange of letters, provided that the machine was to be capable of excavating and putting into wagons 350 cubic yards of the material at the Carfin end of the cutting in a ten-hour day. The machine was to be erected and tested at the Carfin cutting by the following February. The price was £1,115. The buyer did not make Carfin available for the test and it was delivered to and erected at Garriongill, where it failed to extract the material at the stipulated rate. The Court of Session specified the facts upon which they were proceeding as established in the Sheriff Court, which the House of Lords had no power to review. These were that there had been no agreement to substitute Garriongill as the site for the contractual test; and the buyer was not entitled to say that because the machine had had an opportunity to show its capabilities at Garriongill, and had failed to meet the stipulated rate there, he was not obliged to give it another trial at Carfin; that it was a condition of the contract that the buyer should not be bound to accept and pay for the machine if it failed to meet the capacity stipulation at a trial at Carfin, but that such a trial required a face properly opened up by the buyer; and that the buyer failed to provide such a properly opened up face notwithstanding repeated demands and thus prevented the machine from being tested in accordance with the contract. On that basis the Court of Session held that the sellers were entitled to the price. The House of Lords affirmed the decision. Speeches were given by Lord Watson and Lord Blackburn, with Lord Selborne LC agreeing with both of them.

29 The case is well known for Lord Blackburn’s proposition about implied terms of co-operation: he said at p 263 that as a general rule where parties to a contract agree that something should be done which cannot effectually be done unless both parties concur in doing it, the contract is to be construed as requiring each to do all that is necessary to be done on his part for the thing to be carried out. This was the term of which the buyer was in default in not enabling a test to take place at Carfin. His speech provides no direct assistance in the present context, however, because his analysis that this failure entitled the sellers to the price, at p 264, was one of a condition subsequent: the contract was that the buyer, having received the machine, was to keep it and pay for it unless on a fair test it failed to meet the stipulated rate; the fair test provided for by the contract had not taken place, so that he was bound to keep it and consequently pay for it.

30 Lord Watson’s speech, by contrast, treated the passing of the contractual test at Carfin as a condition precedent to the sellers’ right to the price. At p 270 he said:

“The Respondents were only entitled to receive payment of the price of the machine on the condition that it should be tried at a proper working face provided by the Appellant, and that on trial it should excavate a certain amount of clay or other soft substance within a given time. They have been thwarted in the attempt to fulfil that condition by the neglect or refusal of the Appellant to furnish the means of applying the stipulated test; and their failure being due to his fault, I am of opinion that, as in a question with him, they must be taken to have fulfilled the condition. The passage cited by Lord Shand from Bell’s Principles (para 50) to the effect that, ‘If the debtor bound under a certain condition have impeded or prevented the event, it is held as accomplished. If the creditor had done all that he can to fulfil a condition which is incumbent on himself, it is held sufficient implement,’ expresses a doctrine, borrowed from the civil law, which has long been recognised in the law of Scotland, and I think it ought to be applied to the present case.”

31 Lord Shand had explained that the passage in Bell’s Principles was itself supported by the work of the French jurist Robert Pothier, itself founding upon principles of Roman law.

…

Principle

78 Unlike the judge, and contrary to Mr Eaton’s submissions, I consider that the Mackay v Dick principle, as so formulated, involves no inconsistency with established tenets of contract law, but on the contrary, gives effect to them.

79 It is first helpful to seek to identify a juridical basis for the principle. It arises from the concept that a person should not be permitted to take advantage of their own wrong, but that is a statement of policy, or as the judge described it, a “maxim”, rather than a juridical basis for the rule. It is not a freestanding principle of universal application even in contract law. It may be very profitable for a party to break its contract without inflicting an equivalent loss on a defendant, but generally speaking in such cases the law does permit it to take advantage of its own wrong and to keep the profit: damages are generally compensatory and, save in limited circumstances, do not involve disgorgement of profits.

80 The authorities use a series of different epithets to describe how the principle takes effect. In some cases the language is that of deemed fulfilment of the condition: Lord Watson in Mackay v Dick (the condition is “held as accomplished”); Ashhurst J in Hotham (“equal to performance”); Parker LJ in The Aello (“condition deemed to have been fulfilled”); Lord Sumption JSC in Geys (“deemed performance”). In others it is that the condition is dispensed with: Lord Thankerton in Panamena (“absolved from the necessity of obtaining the surveyor’s certificate”); Goddard LJ in Panamena (“disentitles him from insisting on performance of the condition”). In others it is the language of estoppel or quasi-estoppel or waiver: Lord Donaldson MR in Cory v LRB (“quasi-estoppel”); Devlin J in Tiberghien (“not permitted to assert” non fulfilment of the condition and “in effect waiver”); Millett LJ in Little v Courage Ltd (“precluded from claiming that the condition has not been fulfilled”). These, however, are merely descriptors of the effect of the principle, not by way of identification of a legal doctrine whose ingredients must be fulfilled and are then applied. None of the authorities, with their various descriptions of the effect of the principle, seeks expressly to identify its legal basis.

81 In my view, the legal basis of the rule is that it represents the presumed contractual intention of the parties. That is a principled basis for it, because in order for it to apply there must be (1) an agreement capable of giving rise to a debt rather than damages; (2) an agreement that the debt will accrue and/or be payable subject to fulfilment of a condition precedent; and (crucially) (3) an agreement that the obligor will not do the thing which prevents the condition precedent being fulfilled so as to prevent the debt accruing and/or becoming payable, whether that agreement takes the form of the implied term of co-operation identified by Lord Blackburn in Mackay v Dick, or an express term, as in this case. Unless (3) exists, the principle has no application, as Cheall confirms. The natural presumption arising out of that combination of ingredients is that the parties intend that in those circumstances the obligee will have the benefit of the debt for which it has bargained. The presumption is not, as Mr Eaton would have it, merely that the breach of element (3) should give rise to a claim in damages, because that ignores the bargain that in certain circumstances the obligee should have the benefit of a right in debt, which is recognised by elements (1) and (2). Put another way, the agreement that the obligor will not engage in the conduct which prevents the debt accruing and/or becoming payable implicitly carries with it an agreement that the consequence should be that the debt accrues and is payable.

82 That contractual intention is the juridical basis for the principle was recognised in Newmont Property Ltd v Laverton Nickel NL (1982) 44 ALR 598, a decision of the Privy Council on an Australian appeal about an agreement between provisional liquidators of mining companies which was conditional on approval by the court. It was held that the principle in Mackay v Dick had no application in such circumstances, because the condition was not one for the benefit of the parties only, but by way of statutory supervision whose main purpose was the protection of the contributors and creditors against the background of insolvency; and not one which the provisional liquidators could fulfil or the fulfilment of which they could procure. The opinion of the Board, comprising Lords Diplock, Keith of Kinkel and Roskill, Sir John Megaw and Sir Harry Gibbs was given by Sir Harry Gibbs who said at p 606:

“In argument counsel for the appellant cited cases such as Mackay v Dick 6 App Cas 251 in support of the submission that where one party makes it impossible for a condition of the contract to be fulfilled, the condition is to be taken as satisfied. That is true in some cases, but not in all; whether performance of a condition precedent is excused where a party has prevented its performance must depend upon the nature of the condition and circumstances of the case. In some cases the nature and purposes of the condition will themselves be sufficient to indicate that the parties must have intended that the obligations which are expressed to be dependent on the fulfilment of the condition will come into existence only if the condition is fulfilled, and that it will not be enough that performance of the condition has been prevented by the wrongful act of one of the parties.”

83 For these reasons I am unable to accept Mr Eaton’s argument that the principle interferes with freedom of contract. It is a principle which gives effect to contractual intention, not one which frustrates it. If a contrary intention is sufficiently clearly expressed or can be implied from the circumstances of the case, the principle will not apply.

84 This accords with the approach to the maxim that a party should not be entitled to take advantage of their own wrong in the contractual field more generally. As I have explained, it has regularly been applied as a matter of construction since at least the early 18th century, but it has always been treated as a principle of construction, not of law, and as subject to a sufficiently clearly expressed contrary intention: see, for example, Cheall [1983] 2 AC 180, 188h–189a,  Alghussein Establishment v Eton College [1988] 1 WLR 587, 595g and BDW Trading Ltd v JM Rowe (Investments) Ltd [2011] EWCA Civ 548 at [31].

85 I would therefore formulate the principle as being that an obligor is not permitted to rely upon the non-fulfilment of a condition precedent to its debt obligation where it has caused such non-fulfilment by its own breach of contract, 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 sufficiently clearly expressed, or is implicit because the nature of the condition or the circumstances of the case make it inappropriate.

86 Such a principle does not cut across contractual principles applicable to claims for damages such as causation, remoteness or mitigation. It does not apply principles which are applicable to claims for damages because a claim for damages is not what the parties have bargained for; they have bargained for a right in debt and impliedly agreed that in the circumstances in which the principle applies, the obligee should have the benefit of that bargain, namely a claim in debt.

87 Mr Eaton submitted that the Sellers’ case betrays a confusion of thought between obligations and remedies: primary obligations, such as those in clause 2 to provide documentation, give rise to secondary remedies upon breach, namely remedies in damages; treating the remedy as lying in debt is impermissibly to treat the primary obligation as the remedy. The flaw in this analysis is its focus on the fact that what has prevented the fulfilment of the condition precedent is a breach of contract. Whilst that is indeed a necessary aspect of the Mackay v Dick principle being applicable, based as it is on the principle that a person should not be permitted to take advantage of their own wrong, Mr Eaton’s point does not focus on the relevant aspect of the principle, which is the advantage which the wrongdoer is seeking to take. Where the advantage is the avoidance of the wrongdoer’s liability in debt, it is to such liability that the remedy must be applied, and so it is entirely in accordance with principle that the remedy should be in debt.

88 Some commentators have suggested that the claim should be in damages because that enables the court to take into account the possibility that the condition might not have been fulfilled even if there had been no such breach, which the principle does not; and so the consequence of the principle is to introduce into this branch of the law a punitive element which is inappropriate to a contractual action: see eg Chitty on Contracts, 35th ed, para 4-205. I disagree. The argument supposes that the principle dispenses with the concept of causation, but it does not: the concept of a causative link is contained in the principle itself, namely that the obligor’s conduct must have prevented the condition precedent being fulfilled. So in Mackay v Dick, for example, it would have been sufficient to prevent the principle applying had the buyer sought to plead and prove that the machine would in any event have failed the test at Carfin so that his failure to arrange it had no causative effect on the condition being unfulfilled. That was why the judgments focused so closely on the procedural position which prevented the buyer from raising any such argument. Applying principles of causation can give rise to difficult questions, no doubt in this as in other contexts, but it is not necessary to explore them here: on any view the Buyer’s conduct was what caused the accounts not to be opened by HFW, and the tribunals so found. Mr Eaton submitted that it was not clear whether, if the accounts had been opened, the deposits would not have been paid, but that does not seem to me to be a relevant question. It is enough for the Sellers to prove that but for the breach the accounts would have been opened, in which case the deposits would have become due and been recoverable as a debt in the events which happened, ie non-payment of the deposits.

89 Nor would I accept Mr Eaton’s argument that the application of the principle would work injustice to the Buyers on the facts of the current case. He suggested that it would do so because it would provide a windfall on a rising market, and would allow the Sellers to recover an amount which exceeds any amount which the Sellers could recover in damages. Both aspects (if true) are beside the point. The deposits were required as an earnest of performance of the contract to protect the Sellers from the Buyers’ failure to perform. As Fox LJ explained in Damon Cia Naviera SA v Hapag-Lloyd International SA (The Blankenstein) [1985] 1 WLR 435, 449g–h, the purpose of such a deposit is to protect the buyer against non-performance and to secure the seller, by forfeiture of the deposit, an amount of money which could well exceed the amount of damages recoverable for failure to take delivery and pay the purchase price. That is the bargain, and the application of the Mackay v Dick principle gives effect to it. In this case the deposit fell to be paid as an earnest of performance and with the intention that a failure to pay it would entitle the Sellers to sue for it. In order to enable it to be paid an account had to be opened and the Buyers agreed to do what they needed to do in order to get it opened. They deliberately failed to do this. The parties cannot have intended that they should be able to rely on that breach of contract to avoid the obligation to pay the deposits, or the consequences of their failure to do so as giving rise to a claim in debt in accordance with the nature of the contract, the purpose of the deposits, and the law as explained in The Griffon [2014] 1 All ER (Comm) 593.

90 The result in this case is not that the Sellers obtain a “windfall” US$4.94m on the assumption that their loss caused by the Buyers’ breach of contract in a damages claim would be nothing. The effect of the Buyers’ breach of contract was to avoid a liability to pay US$4.94m in circumstances where it was contractually agreed to be payable as a forfeitable deposit, irrespective of any damages claim or loss quantified by reference to market movement. To require such payment is not a windfall but rather holding the Buyers to their bargain by requiring the Buyers to provide the contractual benefit they agreed to provide, of which they have sought to deprive the Sellers by their wrongful breach of contract. In other words the bargain was for non-compensatory debt in the form of a liquidated forfeitable sum, and a remedy in non-compensatory debt, rather than compensatory damages, reflects the loss of bargain.

91 I agree with the more expansive treatment of this aspect of the argument by Nugee LJ in his judgment.

92 I would also accept Mr Kenny’s submission that there is no logical or principled basis for drawing a distinction, in this context, between conditions as to the accrual of a debt, on the one hand, and on the other, conditions as to payability of an accrued debt, the latter of which Mr Eaton accepts attract the application of a principle which dispenses with fulfilment of the condition.

93 Mr Eaton treated the latter as following from the decisions of the House of Lords in The Dominique [1989] AC 1056 and of this court in The Karin Vatis [1988] 2 Lloyd’s Rep 330. In The Dominique freight was earned on signing bills of lading and payable within five days of surrender of bills of lading. After loading, but before the expiry of five days from surrender of the bills, the vessel was arrested by creditors, and the charterers treated the arrest as a repudiation so as to terminate the charterparty. The plaintiff bank, as assignee of the owners’ earnings, sued the charterers for the freight and succeeded. The freight was held to have been earned upon loading and the debt then accrued; the postponement of payment provided for was not a condition of the acquisition of the right to freight which was treated as having been “unconditionally” acquired prior to the termination: see per Lord Brandon of Oakbrook at pp 1098–1099. That was so as a matter of construction of the clause: see p 1098, treating the conclusion as in accordance with the decision of the Court of Appeal in The Karin Vatis on a comparable clause. In The Karin Vatis , the charterparty provided that freight should be deemed earned on shipment and 95% paid within three days of loading, with the balance of 5% payable within 20 days from completion of discharge. The vessel was lost on the voyage and owners claimed the 5% balance of freight. The claim succeeded. The reasoning of Lloyd LJ, with whom Slade and Croom-Johnson LJJ agreed, was that the full freight was earned upon shipment, and the apparent condition to payment of the balance of 5%, namely discharge, was not a condition at all as a matter of construction of the clause because such a condition would be inconsistent with the main thrust and purpose of the clause providing that the freight was earned in full on shipment: see p 332 (and per Slade LJ at p 336). Lloyd LJ expressly rejected the owner’s argument that “the completion of discharge is a condition precedent to the owners’ right to recover 5 per cent”: see p 333. He said that the reference to 20 days from discharge could be dispensed with as unworkable (see p 333), and payment within a reasonable time substituted as “a gap in the machinery for final settlement of the parties’ mutual claims” in the words of Slade LJ at p 336. He did not purport to be applying the Mackay v Dick principle, which could not have applied because the non-completion of the voyage was not the result of owners’ breach of charter.

94 Neither The Dominique, nor The Karin Vatis, therefore, were cases in which there was a condition precedent to the payment of an accrued debt, but rather ones in which it was held that there was no such condition precedent, applying normal principles of construction. The debts accrued unconditionally and therefore were payable.

95 Where there is such a condition precedent, whether it be to the accrual of a debt, or to its payability, it is necessary for the Mackay v Dick principle to apply in either case if a party is to be prevented from taking advantage of its own wrong, as Lord Donaldson observed in Cory v LRB. Both are conditions but for the fulfilment of which the cause of action does not arise, and therefore but for the fulfilment of which the debt cannot be claimed or recovered.

96 Accordingly the principle in Mackay v Dick, as I have formulated it, is as well grounded in principle as it is in authority.

Conclusion

97 For these reasons I would allow the appeal.

NUGEE LJ

98 I agree, and I am very grateful to Popplewell LJ for his masterly analysis of the authorities.

99 I add a few words on the justice of the outcome in the present case, as Mr Eaton, echoing some remarks by Dias J at the outset of her judgment (see at paras 25–29), submitted that the ordinary remedy for breach of contract was damages, that damages were awarded on the compensatory principle, and that to accept the Appellants’ argument would be to subvert these fundamental principles of the law of contract. I disagree.

100 A buyer agrees to buy a ship, and signs a contract. This requires him to pay a 10% deposit. In order to do that an account has to be opened. The buyer agrees to provide the documentation necessary to open the account without delay. This would I think be implicit anyway, but in the Norwegian Saleform is an express obligation. The buyer fails to do so. It is not now disputed that that was a breach of contract—indeed it seems to me a plain and egregious breach. That means the deposit cannot be paid. Is the buyer in those circumstances liable for the unpaid deposit? Or can he say that because in breach of contract he failed to co-operate in opening the account the deposit never became due and hence he only has to pay such damages as the seller can prove?

101 On these uncomplicated facts I would have thought the answer was straightforward. It cannot have been the parties’ intention that the buyer could avoid his obligation to pay the deposit by the simple expedient of deliberately failing to comply with what is on any view a subsidiary obligation to sign the necessary forms to open the account.

102 The purpose and effect of requiring a buyer to pay a deposit is well known. As it is put in the cases, the deposit is an “earnest of performance” ( The Griffon [2014] 1 All ER (Comm) 593 at para 13 per Tomlinson LJ), or more fully “an earnest of the purchaser’s ability and intention to complete the purchase in due course” ( Myton Ltd v Schwab-Morris [1974] 1 WLR 331, 336b per Goulding J). Or as clause 2 of the MOAs here puts it the deposit is paid as “security for the correct fulfilment of this agreement” (see para 6 above). If the buyer completes it operates as part payment of the price. But if the buyer defaults and the contract is never completed, the seller forfeits the deposit and keeps it. A deposit therefore operates as a powerful disincentive to a buyer from signing a contract unless he both genuinely intends, and is confident of being able, to complete; and an equally powerful disincentive to a buyer who has signed a contract from defaulting on the purchase. For the seller it operates to reassure him that the buyer is serious about completing; and also as a fixed sum which he can keep in the case of the buyer’s default in completing without having to prove what damage he has suffered, and very often without having to take proceedings at all. For a purchase to go off after a contract has been signed can often have a number of practical disadvantages which may be real enough even if they cannot be readily quantified and compensated for in damages. The right to forfeit the deposit is the seller’s protection against being, for want of a better term, messed around by a buyer, and represents a careful allocation of the risks and consequences of the buyer defaulting on the purchase.

103 There is nothing obscure or technical about this. Nor of course is it peculiar to the sale of ships. It has long been standard practice on the sale of land, and I would have thought it was readily understood by almost every vendor and purchaser of ordinary domestic property, where the system usually operates smoothly without any difficulty or the need for litigation.

104 In the case of contracts for the sale of land, the practice is that the deposit is payable on exchange of contracts, so that a vendor will not usually exchange contracts with a purchaser without the deposit being paid. The Norwegian Saleform by contrast does not require payment of the deposit on signature but within three days afterwards. We were not given any explanation why this is so. It may be a reflection of the fact that a ship can be sold more quickly and more simply than the rather protracted and elaborate way in which most conveyancing is conducted. But it is difficult to believe that the parties thereby intended to make a radical alteration in their respective rights.

105 If the buyer defaults in payment after the deposit has become due, he remains liable to pay it: see The Griffon at para 4 per Tomlinson LJ explaining that it was the unanimous conclusion of the court in The Blankenstein [1985] 1 WLR 435 that “had the obligation to pay the deposit fallen due before the contract was terminated, the sellers could, after termination, have simply recovered the deposit as a debt which had accrued due before termination.” Under the current form of the contract, the seller also has an express contractual right to cancel and claim compensation in clause 13. But it has been held by this court in The Griffon that this does not affect his right to claim the unpaid deposit from the buyer. Mr Eaton accepted we were bound by this decision, but reserved the right to challenge it in the Supreme Court. We therefore did not hear any argument on it. As at present advised, however, my own view is that it is correct. The parties intended that the buyer should pay the deposit and I do not myself see any reason to think that they intended that the seller should lose the right to payment by terminating the contract.

106 Against this background, what is the position if the buyer not only does not pay, but does not even do what he is obliged to do to enable the account to be opened? To my mind it is difficult to suppose that the parties intended that this should make all the difference. The obligation to co-operate in opening the account is a minor administrative necessity, but cannot have been intended to give the buyer an opportunity to avoid paying the deposit—what the parties surely intended is that he should open the account as a preliminary to paying it, not that it should give him the option whether to pay or not and leave the seller to sue for such damages as he could prove. It seems to me most unlikely that they intended to alter the balance of risks in this way.

107 So one would expect to find that the law provides that the buyer’s failure to do what he has agreed to do to enable the account to be opened does not affect his liability to pay the deposit. As explained by Popplewell LJ this is precisely what the Mackay v Dick principle achieves in a case like the present by precluding the buyer from relying on the non-fulfilment of the condition precedent that he has brought about by his own breach. For the reasons I have sought to explain this does not to my mind cut across ordinary contractual principles. Rather it gives effect to the parties’ bargain.

108 It is not necessary for me to repeat the analysis which leads to this conclusion. I agree that the appeal should be allowed for the reasons that Popplewell LJ has so well expressed.

FALK LJ

109 I agree with both judgments.

(emphasis added)

A link to the full decision may be found here.