Debt still due when non-fulfilment of a condition precedent is due to a party’s breach

In the recent case of King Crude Carriers SA v Ridgebury November LLC, the Court of Appeal ruled that a party cannot rely on its own failure to fulfil a condition precedent to a debt to avoid its obligation to pay, in keeping with the English contract law maxim that a party should not be allowed to take advantage of its own wrong.

In this case, the Court held that the condition precedent of setting up a bank account into which the relevant deposits could be paid was deemed to be waived due to the Buyers’ breach of its obligation to provide the necessary documents to open the account.

This meant that the Sellers could claim the relevant deposits as a debt (in other words, a claim to enforce a primary obligation of the Buyers) rather than making a damages claim against the Buyers for breach of contract. In making a debt claim rather than a claim for damages, the Sellers could claim for the full amount of the deposits and did not have to provide their losses or demonstrate mitigation. This was particularly relevant in circumstances where movement in the markets meant that the Sellers had not in fact suffered any loss. 

Factual background

The agreements

• The dispute arose from three Memorandums of Agreement (MOAs) agreed by King Crude Carriers SA (the Sellers) and Ridgebury November LLC (the Buyers) regarding the sale of three vessels. The material terms were identical between each of the three MOAs:
  • Clause 2 of the MOAs obliged the Buyers to lodge a deposit of 10% of the purchase price with Holman Fenwick Wilan Greece (HFW), as escrow holders for the Sellers, and added that the deposit could only be released upon HFW writing to the parties to notify them that the deposit holding accounts were fully open and ready to receive funds. The deposit then fell to be paid within 3 Banking Days after such notification.
  • To enable HFW to make the notification, the parties agreed to provide HFW with all necessary documentation to open and maintain the account without delay. 
• The MOAs were signed, but HFW was unable to confirm that the escrow accounts were open and ready to receive the deposits, because the Buyers were in breach of their Clause 2 obligations to provide HFW (without delay) with the necessary documents to enable it to do so.
• The deposits were therefore not paid by HFW to the Buyers.

Arbitration

• The Sellers terminated the MOAs and commenced arbitration seeking to recover the amounts of the deposits:
  • The claim was advanced in debt, on the grounds that the conditions precedent to the obligation to lodge the deposits had been prevented from being fulfilled by reason of the Buyers’ breach of Clause 2, with the consequence that as a matter of law the Sellers were to be put in the same position as if the conditions had been fulfilled or did not need to be fulfilled.
  • In the alternative, there was a claim for damages, in the same amount, for the breach of Clause 2 in failing to supply the necessary documentation to HFW.
• The Sellers successfully argued that the condition precedent to the debt was deemed satisfied on the basis of the ‘Abacha principle’ that “where (i) a party breaches his contract and (ii) as a result of that breach, a pre-condition to the accrual of a debt that he would otherwise owe to his counterparty is left unsatisfied, then the relevant pre-condition is deemed to be either waived or satisfied” [paragraph 15 of the Court of Appeal Judgment]. 
• This allowed the Sellers to recover the deposits as debts accrued under the MOAs.

High Court Judgment

• The Buyers appealed the arbitral award to the High Court, which overturned the arbitrators’ decision on the basis that there was no authority for a doctrine of ‘deemed fulfilment’ of conditions precedent under English law. Mackay v Dick & Stevenson (1881) 6 App Cas 251, a Scottish case the Sellers had relied on to show that a condition precedent was deemed satisfied when the buyer prevented the condition from being completed (and the origin of the ‘Abacha’ principle), was not binding on the English Courts.
• The Sellers were left with a claim for damages. 

Court of Appeal Judgment 

• The Sellers then appealed to the Court of Appeal, which overturned the High Court’s decision, finding that:
  • Although expressed to be based on Scottish law, the ‘Abacha’ or Mackay v Dick principle equally forms part of English law because: (i) the Judge in Mackay based his reasonings on the more general principle that a party is not allowed to take advantage of their own wrong, which is a part of English law; and (ii) it has been treated as a principle of English law in a consistent body of authorities including Panamena Europea Navigacion (Cia Lda) v Frederick Leyland & Co Ltd [1947] AC 428 and Wm Cory & Son Ltd v London Residuary Body & Western Riverside Waste Authority (unreported 5 November 1990).
  • The legal basis of this rule is that it represents the presumed contractual intention of the parties, because in order for it to apply, there must be:
    1. an agreement capable of giving rise to a debt rather than damages;
    2. an agreement that the debt will accrue and / or be payable subject to fulfilment of a condition precedent; and (crucially)
    3. an agreement that the obligor will not do the thing which prevents the condition precedent being fulfilled so as to prevent the debt accruing and / or becoming payable.
  • The natural presumption arising out of the combination of ingredients described above is that the parties intend that in those circumstances the obligee will have the benefit of the debt for which it has bargained. In other words, “the agreement that the obligor will not engage in the conduct which prevents the debt accruing and / or becoming payable implicitly carries with it an agreement that the consequence should be that the debt accrues and is payable” [paragraph 81 of the Court of Appeal Judgment].
  • If a contrary intention is sufficiently clearly expressed or can be implied from the circumstances of the case, the principle will not apply. Therefore, the principle does not interfere with freedom of contract. 

Supreme Court 

The Buyers were granted permission to appeal to the Supreme Court and this appeal was heard on 9-10 July 2025. Judgment is awaited.

Key points to note 

• Unless there is a clear contrary intention in the contract or the circumstances of the case, a party cannot avoid incurring liability for a debt by relying on its own breach in preventing fulfilment of a condition precedent to the accrual or payment of a debt.
• This is especially significant in cases where there are issues with a potential damages claim in proving loss and / or with mitigation, causation and remoteness. Because debts (unlike damages) are not compensatory, the claimant in a debt claim can sue for the full amount and does not need to prove its losses.

You can read the Court of Appeal Judgment in full here.