Supreme Court clarifies no principle of ‘deemed fulfilment’ of a condition precedent to accrual of a debt

King Crude Carriers SA & others -v- Ridgebury November LLC & others [2025] UKSC 39

In a landmark decision, the Supreme Court has clarified that there is no principle of ‘deemed fulfilment’ of a condition precedent to the accrual of a debt under English law and issued important guidance on the interpretation of clause 2 of the Norwegian Saleform 2012. This guidance is particularly topical in a period of tightening regulatory requirements and compliance screening.

The background facts

Each of three Sellers agreed to sell to each of three Buyers a Vessel on memoranda of agreement (MOAs) on the Norwegian Saleform 2012 (NSF 2012), with some amendments.

Clause 2 of the MOAs provided that the Buyers would lodge a deposit (Deposit) within “three (3) Banking Days after the date that … the Deposit Holder has confirmed in writing to the Parties that the account has been fully opened and ready to receive funds”, and that the parties would “provide to the Deposit Holder all necessary documentation to open and maintain the account without delay”.

In breach of their obligations under clause 2 of the MOAs, the Buyers failed to provide the necessary documentation to the Deposit Holder and, as a result, the Deposit Holder never confirmed that the relevant account had been opened and was ready to receive funds. The Sellers purported to terminate the MOAs under clause 13 of the NSF 2012 and commenced arbitration, where they claimed the Deposits on the assertion that the Deposits had fallen due as debt.

Procedural history

The arbitrators, by a majority, found that the Buyers were in breach of contract for failing to provide the necessary documentation to the Deposit Holder, as a result of which the escrow account could not be opened (this finding was not appealed). They then went on to find that it was a general principle that where a defendant’s breach of contract results in the non-fulfilment of a condition precedent to a debt, the condition is deemed to be either waived or satisfied on the basis that a wrongdoer should not be permitted to derive an advantage from his own breach. As a result, the Sellers succeeded in their claim for the Deposits as a debt claim, i.e. without having to prove that they suffered a loss.

The Buyers successfully appealed the award in the High Court, where the trial judge found that the doctrine of deemed fulfilment (or deemed waiver) on which the arbitrators relied does not form part of English law. The trial judge also dismissed the Sellers’ suggestion that the Sellers’ right to the deposit accrued on signing of the MOAs (instead of on confirmation that the accounts were “fully opened and ready to receive funds”). According to the trial judge, the Sellers only had a claim in damages and the matter should be referred back to the arbitrators for consideration of the Buyers’ argument that the Sellers suffered no loss because the MOAs would have been cancelled or frustrated in any event through no fault of the Buyers, which would mean that the deposits would have been returned to the Buyers in any event.

The case went on to the Court of Appeal, which reversed the High Court judgment and unanimously found that the doctrine of deemed fulfilment, originating from the Scottish case of Mackay -v- Dick forms part of English law. Accordingly, since the Deposit Holder could not confirm that the accounts had been opened due to a breach of contract by the Buyers, the requirement for an open account ready to receive funds was deemed fulfilled and the Sellers’ right to the Deposits had accrued.

The Buyers appealed to the Supreme Court.

The Supreme Court decision

The Supreme Court agreed with the trial judge, and reversed the Court of Appeal’s decision on the following grounds.

1. No principle of deemed fulfilment: The principle of deemed fulfilment is not part of English law.

   1. The basis of the principle lies in the Scottish case of Mackay -v- Dick, where it appears that the principle was borrowed from civil law. Thereafter, the principle was not met with unanimous approval in English case law and, where it was applied, the same result could have been reached through the application of the established law on damages.

   2. The strict application of the doctrine would undermine established law as to when a debt accrues in various types of contract. In order to fit the doctrine of deemed fulfilment in with established case law, one would have to ultimately resort to the particular intentions of the parties (which is not permissible under English contract law) and heavily qualify it, weakening the proposition that the doctrine of deemed fulfilment constitutes a general rule.

   3. The doctrine itself relies on legal fictions, and English law is very slow to adopt a principle premised on fictions. Instead, the correct approach is to proceed on the proper interpretation of the express and implied terms of the contract (rather than the deemed fulfilment of terms that were never fulfilled).

   4. There is no substantive injustice because the innocent party retains its claim for damages (which, contrary to a claim in debt, does not allow the innocent party to make a windfall in cases where it has suffered no loss).

2. No application of the prohibition of reliance on an own wrong: While there is a presumption that a party cannot rely on its own wrong to treat a contract as being at an end or to obtain a benefit under that contract, the presumption goes no further than that. In this case, the Buyers did not fit in either class.

3. No implied term: There was no scope for implying a term into clause 2 of the NSF 2012, allowing the Deposit to accrue when the Buyer has been wrongfully preventing the opening of the deposit account. Implying a term compelling payment to the Deposit Holder would render clause 2 of the NSF 2012 unworkable because, without an account with the Deposit Holder, there is nowhere for the Buyer to pay the money. Implying a term compelling the Buyer to pay the Deposit directly to the Seller would be an impermissible attempt to rewrite the contract because the deposit arrangements were an important part of the NSF 2012.

4. The right to the Deposit accrues no earlier than on confirmation that the account is open: The right of the Seller under the NSF 2012 to the Deposit accrues when all pre-conditions in clause 2 of the NSF 2012 are met. If the contract is terminated before that point, the Seller can only claim damages

Comment

1. The efficient breach: The Supreme Court’s decision is a strong wake-up call to contracting parties. “Contract law permits efficient breach and the defendant may therefore profit from its wrong.” This confirms the principled strictness of English contract law which, unfortunately, may sometimes differ from what seems intuitively fair or commercial. Parties should place more focus on getting the contractual wording right instead of hoping that uncommercial practices will be criticised by the courts. Doing so requires a clear understanding of what one wants out of the contract and clear understanding of the risks involved. The right wording is simply the line that joins these two dots.

2. The Griffon: The Supreme Court did not need to address the Buyers’ secondary case on whether the Court of Appeal’s decision in The Griffon [2013] EWHC 593 (Comm) (which held that under the Saleform the deposit was forfeited when the seller terminated the MOA for non-payment of the deposit) was wrong. This means that, once the right to the Deposit accrues, the Sellers can claim it without having to prove a loss, even if the Deposit has not been paid.

3. Circumventing the effect of the Supreme Court judgment: Sellers will now want to make sure that their claim for the deposit is not frustrated by Buyers taking their shot at an “efficient breach”. This can be done by targeted amendments to the wording of the NSF 2012 but, as always, getting the right wording into the contract is fundamentally an issue of bargaining strength.