‘Contract law permits efficient breach, and a party may therefore profit from its wrong’

The recent Supreme Court case, King Crude Carriers & Ors v Ridgebury November & Ors  [2025] UKSC 39, is relevant to all contracts across all industries. On the principle of efficient breach, the Supreme Court has affirmed:

“…There are many contractual circumstances in which a party may [take advantage of its own wrong]. This is most obviously illustrated by the principle that damages for breach of contract are to compensate the claimant and not to punish the defendant and, subject to rare exceptions, damages or an account of profits are not awarded to strip profits made by the defendant’s breach. Contract law permits efficient breach and the defendant may therefore profit from its wrong.”

Facts of the case

The circumstances giving rise to the above statement were in the context of contracts for the sale of three vessels on the Norwegian Saleform 2012, with amendments (the “Contracts of Sale”).

The Contracts of Sale required the Buyers to lodge a deposit of 10% of the purchase price with a deposit holder. The deposit was required to be paid within three banking days of the deposit holder confirming in writing that the deposit account had been opened. The parties were required to provide all the necessary documentation for the opening of the account. In breach, the Buyers failed to provide the requisite documentation, such that the accounts could not be opened, and deposits could not be made.

The Sellers terminated the Contracts of Sale and claimed the deposits in debt relying on MacKay v Dick to maintain the principle of ‘deemed fulfilment’, that is, where a party in breach of contract prevents the fulfilment of a condition precedent, the condition is deeded to be waived or satisfied to preclude a wrongdoing from taking advantage of its own breach.

In contrast, the Buyers maintained that the Sellers were only entitled to damages for breach of contract.

The Supreme Court’s Decision

The case reached the Supreme Court, where it was decided that the MacKay v Dick principle was not part of English law.  As such, the Supreme Court agreed with the Buyers’ position, that the Sellers were only entitled to damages for breach of contract.

A damages claim aims to compensate an innocent party for losses it has incurred due to a breach of contract. In this instance the increase in the market price of the tankers in comparison to the purchase price had meant that no real loss had been suffered by the Sellers. The Supreme Court was not persuaded by the Sellers’ case on interpretation, as it meant that a payment obligation subject to a promissory condition requires payment to be made regardless of whether the condition is performed.

The Supreme Court evaluated and considered the express and implied terms of the Contracts of Sale and was not swayed by a fictitious fulfilment of a condition precedent that had not in fact occurred. The key reasons adopted by the Supreme Court were as follows:

1. The Mackay v Dick principle is not based on English law but rather a doctrine borrowed from the civil law.
2. English authorities ‘do not speak with one voice’ as to whether deemed fulfilment principle exists, in any event the same result could be achieved through the application of the law of damages for breach of contract rather than the law on debt.
3. The principle of deeded fulfilment would undermine the law of contracts for the sale of goods and the sale of land, if it were to be applied in respect of the failure to fulfil a condition precedent to the passing of property. It would also undermine the established law as to when a debt accrues.
4. The deemed fulfilment principle in its application is fictional and relies on a deemed performance or a deemed waiver that may not in fact have occurred.
5. English law of contract proceeds based on the terms of the contract, express and implied, and their proper interpretation rather than by way of fictional fulfilment of a condition precedent. This is consistent with the importance which English law attaches to freedom of contract, and to the application and enforcement of the terms of the bargain which the parties have made. This promotes certainty and predictability, which are important consideration, especially in the commercial law context.
6. Rejecting the Mackay v Dick principle of deeded fulfilment does not lead to injustice. Where a condition precedent has not been fulfilled because of the debtor’s breach of contract, damages subject to mitigation and remoteness is the appropriate remedy.

Comments

The Supreme Court decision reinforces the overriding principle of freedom of contract.

There are many circumstances where a contracting party could calculate that breaking from its existing contract and being liable to pay damages to the ‘innocent’ party will be less than the gains it could make by engaging in an alternative contract or enterprise elsewhere particularly where markets may be volatile.

Parties considering the prospect of an efficient breach should consider the reputational consequences of such action.

In the event of an efficient breach, parties could consider whether mediation may be more effective to provide a quick and efficient resolution.

This case also reinforces the importance of clear drafting and the parties negotiating and expressly setting out the financial consequences of any failure to fulfil a condition precedent.