Breach it and weep: deemed fulfilment ain’t fictional

Tanker tussle: documentation drama leads to deposit demand 

The dispute was about the sale of second-hand tankers. As part of the terms of sale, Ridgebury had to provide documentation to an escrow agent. The agent would then open a bank account so that Ridgebury could pay a deposit. In fact, Ridgebury failed to provide the necessary documentation. King Crude terminated the contract and claimed the deposit as a debt, since damages would have been minimal.  

By way of reminder, an action in debt is a claim to enforce a promise to pay a sum of money. A claim for damages, in contrast, is for compensation for loss which arises on breach. Damages are subject to causation, mitigation and remoteness. A debt claim is not.

Damage control: High Court’s remedy ruling

The High Court held that King Crude’s proper remedy for Ridgebury’s failure to provide the documentation – an express requirement under the contract – was damages. As a result, the normal principles, of causation, mitigation and remoteness, applied. In doing so, the High Court rejected the argument that a condition precedent – the opening of the bank account – would be deemed fulfilled. The deposit would not therefore be due as a debt.

Breaching bad: Court of Appeal finds conditions precedent deemed fulfilled

Overturning the High Court’s decision, the Court of Appeal held that Ridgebury could not rely on the non-fulfilment of a condition precedent, for which it was responsible, to avoid paying a debt. In reaching this conclusion, the court found that the doctrine of “deemed fulfilment” of a condition precedent, from the Scottish case Mackay v Dick, does form part of English law. It accords with the maxim that a person should not be permitted to take advantage of their own wrong and is grounded in the presumed contractual intention of the parties. 

The court outlined that three elements must be present for a condition precedent to be “deemed fulfilled”:

1. there must be an agreement capable of giving rise to a debt rather than damages; 
2. there must be an agreement that the debt will accrue or be payable subject to fulfilment of a condition precedent; and 
3. there must be an express or implied agreement that the person obliged to pay will not do the thing which prevents the condition precedent being fulfilled so as to prevent the debt accruing or becoming payable. 

The principle will not apply: (i) where the condition is the performance of a principal obligation; nor (ii) where the parties have expressly or implicitly contracted out of the principle.

Judgment: King Crude Carriers v Ridgebury November