HOW should the law respond where the accrual of a debt is subject to a condition precedent, but the debtor’s default prevents fulfilment of that condition precedent? Lord Watson’s solution in the Scots appeal of Mackay v Dick (1881) 6 App. Cas. 251 (H.L.) was that the condition precedent should be deemed to have been fulfilled. Does this controversial fiction represent English law today?

In King Crude Carriers S.A. v Ridgebury November L.L.C. [2025] UKSC 39, [2025] 3 W.L.R. 707 (“King Crude Carriers”), the Mackay v Dick fiction of deemed fulfilment was centre stage. Ridgebury November L.L.C. and others (“the Sellers”) and Zenon Crude Carriers S.A. (“the Buyers”) entered into identical contracts for the sale of three oil tankers. The Buyers were obliged to lodge a deposit of 10 per cent of the purchase price with a third-party deposit-holder, within three days of the deposit-holder confirming in writing that the deposit account had been opened. In breach of contract, the Buyers failed to provide necessary documentation for the opening of the account, which was therefore not opened. This meant that “the Buyers (by reason of their own conduct) could not, and did not, lodge the deposit” (at [8]). In response to the Buyers’ breaches, the Sellers opted to terminate the contract and sought to claim the unpaid deposit as a debt (preferable to a claim in damages, where there would be issues of remoteness, mitigation and quantification). The main preliminary issue for the Supreme Court was therefore as follows:

The issue had divided the lower courts. Whilst the arbitrators had applied the Mackay v Dick fiction in the Sellers’ favour, Dias J. in the High Court took a different approach and held that only damages were available ([2023] EWHC 3220 (Comm)). The Court of Appeal had allowed the Sellers’ appeal: it applied the Mackay v Dick fiction but restricted its ambit to subsidiary and not principal obligations ([2024] EWCA Civ 719)–a distinction that the Supreme Court rejected as without any principled justification.

In a unanimous decision, helpfully delivered in a single judgment by Lords Hamblen and Burrows, the Supreme Court decided in favour of the Buyers–the Mackay v Dick fiction did not, and should not, form part of English law. After reviewing numerous authorities, the Court distilled six main reasons for its conclusion. The first three related to the status of the authorities, while the rest were arguments of principle. First, Lord Watson in Mackay v Dick (a Scots appeal) did not rely on any English case law when articulating the fiction of fulfilment, while the reasoning of the other judge, Lord Blackburn, did not rely on that fiction, instead interpreting the contract as subject to a condition subsequent and containing what today would be called an implied duty of cooperation. Second, the English authorities since Mackay v Dick “do not speak with one voice” (at [63]), with more recent cases tending to disapprove of the fiction, while, in those that purport to support it, “the same result could have been reached through the application of the law on damages for breach of contract rather than the law on debt” (ibid.). Third, the application of the fiction in respect of a failure to fulfil a condition precedent to the passing of property would be especially problematic. In Colley v Overseas Exporters (1919) Ltd. [1921] 3 K.B. 302, the defendant’s failure to name an effective ship prevented title to goods from passing and thus the price falling due. McCardie J. declined to apply the fiction to those facts, stating: “To hold that Mackay v Dick applies where the property has not passed would lead to extraordinary results” (310–11). The Supreme Court agreed, and could not discern any principled way to cut back on the ambit of the fiction to avoid such problems and leave it with a coherent field of operation.

The Court’s fourth reason expressed disapproval of the use of fictions generally, as tending “to obscure transparent reasoning” (at [66]). The Court cited Jeremy Bentham’s description of fictions as “a syphilis”, while Lord Nicholls in Douglas v Hello! Ltd. (No. 3) [2007] UKHL 21, [2008] 1 A.C. 1, at [229] expressed the same sentiment less vividly: “I would like to think that, as a mature legal system, English law has outgrown the need for legal fictions.” In particular, explanations of the Mackay v Dick fiction based on deemed performance, deemed waiver or quasi-estoppel only served to emphasise that there had been no actual performance and that the ingredients of true waiver or estoppel were absent. Instead, and fifth, the correct approach is to proceed:

Sixth, rejecting the Mackay v Dick fiction would not lead to injustice, since where a condition precedent has not been fulfilled because of one party’s breach of contract, the innocent party has the normal remedy in damages.

So, could the express and implied terms of the contract assist the Sellers in their argument that the deposit could be claimed as a debt? They argued that the contract should be interpreted to prevent the Buyers benefiting from their own breach of contract and that applying the literal words led to “unreasonable and absurd consequences” that the Buyers could avoid their obligation to pay the deposit by their own breach (at [80]). This argument might well have succeeded in an earlier, more interventionist era, dominated by Lord Hoffmann’s willingness to rewrite even unambiguous wording under the guise of interpreting it: to make it, as Lord Diplock famously said in The Antaios [1985] A.C. 191, 201 (H.L.), “yield to business common sense”. Fortunately the current Supreme Court favours the post-Hoffmann approach of respecting unambiguous wording, articulated by Lord Neuberger in Arnold v Britton [2015] UKSC 36, [2015] A.C. 1619 and rejected the Sellers’ proposed interpretation in simple terms: “The difficulty with this argument is that it means that the parties cannot have intended what they have stated and agreed” (King Crude Carriers, at [81]). Similarly, the Sellers’ suggested implied terms, involving the addition of wording that the condition precedent would not operate if the opening of the deposit account was “wrongfully prevented by the Buyers”, were rightly rejected–such wording was not needed to give the contract business efficacy nor was it obvious that the parties intended it. In passing the Court also noted a basic problem with the implication of such a term, in that it would be inconsistent with an express term that if the deposit was not lodged, the Sellers had the right to terminate and claim compensation.

In addition, the Supreme Court rejected the Sellers’ supplementary plea that the contract should be interpreted so that the deposit accrued on execution of the contract, with the deposit account process merely concerning the mechanics of payment—in short, this is not what the contract said.

Two questions remain, following this exemplary judgment. First, the Court’s comments on the elements of waiver and estoppel give a moment’s pause. Academic commentary supporting the Mackay v Dick fiction as an example of waiver by conduct was rejected, since “[t]here can be no waiver where the person is clearly not giving up those rights but is rather insisting on compliance with them. On the facts of this case, for example, to say that there was waiver of the conditions by the Buyers contradicts their clear insistence that the conditions should be fulfilled” (at [59]).

It is surely artificial to describe the Buyers’ conduct here as insisting that the conditions should be fulfilled, when they were responsible for fulfilling them and did not do so. They were of course now insisting on fulfilment as part of their case in the litigation, but were they doing so at the time when they failed to supply the account documents? Turning to estoppel, the Court noted that the essential elements of true estoppel, a representation followed by reliance, were missing in the Mackay v Dick pattern. This must cast further doubt on the common law explanation of non-reliance clauses as a form of “contractual estoppel” (see e.g. J.P. Morgan Chase Bank v Springwell Navigation Corp. [2010] EWCA Civ 1221, [2010] 2 C.L.C. 705), estopping a misrepresentee from pleading misrepresentation, since there is no genuine reliance by the misrepresentor.

The more fundamental question is whether the Sellers could recover the amount of the deposit as part of their damages from the Buyers. Before Dias J., the Buyers pleaded that, had they not breached the contract, their deal with the Sellers would inevitably have fallen through or been frustrated anyway, these being counter-factual matters which are taken into account following The Golden Victory [2007] UKHL 12, [2007] 2 A.C. 353. Alas this question was beyond the remit of the preliminary issues for the Supreme Court, so the remedial outcome for the Sellers remains tantalisingly unknown.