Named after the Scottish case of Mackay v Dick  (1881) 6 App Cas 251 (and also known as the “Abacha principle” (after Compagnie Noga d’Importation et d’Exportation SA v Abacha [2002] CLC 207)), the principle is that where the obligation to pay a debt is subject to a condition and the debtor wrongfully prevents the condition from being fulfilled, the condition is to be treated as dispensed with or fulfilled.

In this case, the three appellants (the Sellers) agreed to sell to each of the three respondents (the Buyers) vessels pursuant to three amended 2012 Norwegian Saleforms (the MOAs) which had materially identical terms. Clause 2 of the MOAs obliged the Buyers (among other things) to lodge a 10% deposit for the purchase price with an 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”. Whilst the MOAs were signed, the escrow holder was unable to confirm that escrow accounts were open and ready to receive the Buyers’ deposits because the Buyers had failed to provide the necessary documents to the escrow holder “without delay”. This included in two cases, the Buyers’ failure to provide the escrow holder with the necessary ‘Know Your Client’ documents and in the third case, a failure to sign the Escrow Agreement.

Subsequently, the deposits were not paid to the Sellers. The Sellers terminated the MOAs and claimed the deposits as a debt, as opposed to damages.

It was held at first instance in the Commercial Court that there is no such Mackay v Dick  principle as a matter of English Law, and that the remedy of a party where a liability under a debt is conditional and the other party wrongfully prevents fulfilment of the condition is in damages for breach of contract. This, unlike a claim in debt, involves elements of causation, remoteness and the duty to mitigate.

The Court of Appeal overturned the Commercial Court’s decision, confirming that the Mackay v Dick  principle does exist as a matter of English Law, and that its underlying rationale is that a party should not be allowed to benefit from their own wrong.

Popplewell LJ (with whom Nugee LJ, who gives a short concurring judgment, and Falk LJ agree), analyses in detail the principles and authorities relating to claims in debt and claims for damages and the Mackay v Dick  principle, holding that a debtor is not entitled to rely on the non-fulfilment of a condition precedent to its debt obligation where it has caused the non-fulfilment by its own breach of contract, at least where the condition is not the performance of a principal obligation of the other party, nor one which it is necessary for the other party to plead and prove as an ingredient of its cause of action (see [85]).

While Harneys does not advise on the laws of England and Wales, the confirmation of the Mackay v Dick  principle as a part of English law will likely have persuasive effect in other common law jurisdictions, such as the BVI, Bermuda and the Cayman Islands.