No ‘deemed fulfilment’ of condition precedent in contract
Businesses should note an important Supreme Court rejecting the notion that there is a legal principle in English law of ‘deemed fulfilment’ or ‘deemed waiver’ of a condition precedent. It follows long-running litigation in which the claimants relied on a principle dating back to a 1881 Scottish decision.
A condition precedent is a contractual term providing that part or all of the agreement will only come into force if and when certain conditions are satisfied. They are often found in business contracts, providing protection for the parties and increasing efficiency in the relationship.
What’s the background?
Three buyers each entered into identical contracts (Memorandum of Agreement) with the three sellers for the sale of three tanker vessels.
The buyers were required under clause 2 to lodge a deposit with a third-party deposit holder within three banking days following exchange of the signed MoAs; and confirmation from the deposit holders that an escrow account was open and ready to receive funds.
The parties had to provide necessary documents without delay for the escrow account to be opened. The buyers failed to produce the documents, the escrow account could not be opened and the buyers did not pay over any deposit.
The sellers sought to terminate the MoAs and claimed the deposit amounts as debts. They argued that the buyers could not rely on their own breach in preventing the opening of the deposit accounts, which was a condition precedent to the payment of the deposits, from being considered satisfied.
At issue was whether there is a legal principle in English law that a condition that gives 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. This known as the Mackay v Dick (1881) principle from the courts in Scotland.
If (as the sellers argued) the principle did not exist, had the deposits already accrued as debts when the MOAs were entered into?
The sellers succeeded at the initial arbitration; failed in the Commercial Court; succeeded in the Court of Appeal – and has now failed in the Supreme Court following a unanimous decision.
Principle
The SC justices ruled that Mackay v Dick is a civil law doctrine unsupported by case law. The said a straightforward application of it would undermine and contradict established law and settled consequences for those contracts - including for the sale of goods.
Further, the various formulations/explanations of the Mackay v Dick principle were fictional; and legal fictions undermine transparency in legal reasoning.
The court reiterated that contract law in this area is concerned with contract terms and their proper interpretation. This provides greater certainty and predictability than a principle relying on a fictional fulfilment of a condition precedent. Rejecting the Mackay v Dick principle would not cause injustice as the claimant would have a remedy in damages.
The SC rejected the claim that there were implied terms in relation to the lodging of a deposit, saying they were flawed and would render clause 2 unworkable. The contractual terms as to setting up the deposit accounts were conditions precedent to the accrual of the debt - not simply part of the machinery of payment. The right to the deposit did not, therefore, accrue at the point the MOA was concluded.
The sellers’ claim was in damages.
What does this mean?
The case is an abject lesson as to the crucial importance of having robust, workable contractual terms in place; and considering the potential risks if any conditional terms are unfilled. Always take specialist advice from experienced commercial solicitors.
1King Crude Carriers SA and others v Ridgebury November LLC and others [2025] UKSC 39
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