The useful Mackay v Dick principle is part of English law – might it apply here?

The useful Mackay v Dick principle is part of English law – might it apply here?

In King Crude Carriers S.A. & Ors v Ridgebury November LLC & Ors, the English and Wales Court of Appeal confirmed the “Mackay v Dick” principle is part of English law.

Mackay v Dick (1881) 6 App Cas 251 was a Scottish case which determined the principle “that an obligor is not permitted to rely upon the non-fulfilment of a condition precedent to its debt obligation where it has caused such non-fulfilment by its own breach of contract”.

The case in question involved a ship sale and purchase dispute but the Court of Appeal’s decision will also have relevance to general commercial contracts, and is likely persuasive authority for the principle’s application in the New Zealand context.

Background

The three appellants (Sellers) agreed to sell to the three respondents (Buyers) a vessel each on identical amended NSF 2012 sale and purchase agreements (MOAs). The MOAs required the Buyers to lodge 10% deposits with the escrow holder within three days after notification had been received that the escrow account was open and to provide all necessary documentation to open and maintain the escrow account “without delay”. The MOAs were signed.  The escrow holder was unable to confirm the escrow accounts were open and able to receive the deposits as the Buyers failed to provide the necessary documentation “without delay” – in one case the Buyer failed to sign the escrow agreement and in the other two they failed to provide the necessary “Know Your Client” documentation.  The deposits were not paid and as a result the Sellers terminated the MOAs and claimed the deposits as a debt, not damages.

Prior Decisions  

The disputes were first heard in arbitration which held that the Sellers were entitled to recover the amounts of the deposits as a debt.  The Buyers appealed and were successful in the Commercial Court which held that the Sellers’ claim lay in damages, not debt, and that the principle in Mackay v Dick was a statement of Scottish law not binding on English Courts. If the Sellers had a claim for the deposit it was accordingly one for damages which are generally compensation, and subject to mitigation, causation and remoteness.

Court of Appeal Ruling

The Court of Appeal has recently overturned the Commercial Court decision, confirming the Mackay v Dick principle does exist as a matter of English law and that a party should not benefit from their own wrong.  As to when Mackay v Dick will apply, there must be:

• An agreement capable of giving rise to a debt rather than damages;
• An agreement that the debt will accrue and/or be payable subject to fulfilment of a condition; and
• An implied or express agreement that the obligor will not do the thing which prevents the condition being fulfilled so as to prevent the debt accruing/and or becoming payable.

The natural presumption is that the parties intend that the obligee will have the benefit of the debt for which it has bargained.

It remains to be seen if the Buyers will appeal to the Supreme Court. 

Mackay v Dick has been historically applied in the Court of Appeal in New Zealand.[1] If given similar factual circumstances, we would expect that the New Zealand Court of Appeal’s decision together with King Crude Carriers S.A. v Ridgebury November LLC will hold significant persuasive authority in the New Zealand courts.

If you have any questions about the Mackay v Dick principle or recovery of claims as debts vs damages, please get in touch with our Trade and Transport Team or your usual contact at Hesketh Henry.

Disclaimer:  The information contained in this article is current at the date of publishing and is of a general nature.  It should be used as a guide only and not as a substitute for obtaining legal advice.  Specific legal advice should be sought where required.