The sellers entered into three standard form contracts with the buyers for the sale of three oil tankers. Clause 2 of each contract required the buyer to lodge a deposit of 10% of the purchase price in an escrow account and to provide the escrow holder with all documentation necessary to open the account. The buyers failed to provide the necessary documentation, in breach of clause 2, with the consequence that the escrow accounts could not be opened and the deposits were never paid. The sellers terminated the contracts and commenced arbitration proceedings to recover the total amounts of the deposits which had been due under clause 2, advancing their claims in debt and, alternatively, damages. The arbitral tribunal held that the buyers were liable in debt, holding that although under each contract the opening of the escrow account was a condition precedent to the accrual of the buyers’ obligation to pay the deposit, the buyers could not rely on their own breach of contract to prevent the fulfilment of that condition precedent, which would be deemed to have been fulfilled pursuant to the “Mackay v Dick principle” established by a 19th century Scottish decision. The judge allowed the buyers’ appeal, but that decision was reversed by the Court of Appeal.
On the buyers’ appeal—
Held, appeal allowed. (1) There was no Mackay v Dick principle of law in English law for six main reasons. First, no English authority had been cited or relied on in support of the principle when it was established in 1881. Rather, it had been derived from a doctrine borrowed from civil law. Second, the subsequent English case law did not speak with one voice as to the application of the principle, and even in the main supporting authorities, the same outcomes might have been reached without relying on the Mackay v Dick principle. Third, it would fundamentally undermine the law on contracts for the sale of goods (and it would appear also for the sale of land) if the Mackay v Dick principle were to be applied in respect of a failure to fulfil a condition precedent to the passing of property. Fourth, the various formulations or explanations of the Mackay v Dick principle were all fictional, for example “deemed performance”, or “deemed waiver”, or “quasi-estoppel”. In reality, there had been no performance, and the ingredients of a true waiver or true estoppel had not been satisfied. Fifth, the English law of contract in this area proceeded on the basis of the terms of the contract, express and implied, and their interpretation, rather than by way of a fictional fulfilment of a condition precedent. Sixth, the consequences of rejecting the Mackay v Dick principle as a principle of English law did not lead to injustice. Subject to terms to the contrary, where a condition precedent had not been fulfilled because of the debtor’s breach of contract, that breach was appropriately and adequately dealt with through the claimant’s remedy in damages. There was no good reason to strain to uphold a claim for debt where, as in the present case, that involved disregarding the terms of the contract and where, in contrast to damages, allowing the debt claim might exceed the claimant’s net loss. Further, the Mackay v Dick principle was not an aid to contractual interpretation, nor was it based on an implied term. The proper interpretation of the contracts in the present case did not entail, and there were no implied terms to the effect, that the conditions precedent to the buyers’ debt obligations should here be ignored because of the buyers’ breach of contract in respect of those conditions. Accordingly, the sellers could pursue their remedy in damages for the buyers’ breach but they did not have a valid debt claim (paras 41–42, 49–50, 55, 61–69, 79, 81–85, 96–97, 99, 100–101, 125–126).
(2) Under the contracts in the present case, the right to the deposits did not accrue until after the signing of the contracts in question, since there were two distinct obligations on the buyers: to sign the contracts and to pay the deposits. Further, the terms laid down in relation to the setting up of the deposit accounts were conditions precedent to the accrual of the debt and were not merely concerned with the machinery of payment for an already accrued debt. Accordingly, the sellers had a valid claim in damages for the loss of their bargain, but not for the amount of the deposit as a debt claim (paras 111, 115–118, 121, 125–126).
Nigel Eaton KC and David Barnard (instructed by Reed Smith LLP) for the buyers.
Julian Kenny KC and Michal Hain (instructed by Wikborg Rein LLP) for the sellers.