King Crude Carriers SA & Ors v Ridgebury November LLC & Ors

A breach preventing satisfaction of a condition precedent does not generally cause the condition to be fictionally fulfilled under English law. The court may instead construe the contract, imply a term, or apply waiver so that the wrongdoer cannot rely on the non-fulfilment. Where the underlying debt has not accrued, the innocent party’s remedy is ordinarily damages, assessed by reference to the loss actually suffered, including any loss of a chance. An implied term requires necessity and obviousness; potential futility is insufficient. In arbitration proceedings, failure to address a properly pleaded defence may constitute a serious irregularity causing substantial injustice.

The judgment concerned two appeals under the Arbitration Act 1996 arising from four related ship-sale arbitrations on materially identical Norwegian Saleform 2012 contracts. Buyers had not paid the contractual deposits. In three arbitrations, the majority held that Buyers’ breach preventing the opening of the escrow account deemed the condition precedent satisfied and entitled Sellers to recover the deposits as debts. They also awarded the deposit amounts as damages without addressing Buyers’ pleaded case that Sellers’ failure to co-operate would have brought the contracts to an end without loss.

In the fourth arbitration, the majority held that a contractual co-operation clause relieved Buyers of their deposit obligations unless a management agreement or alternative solution had been found. The central questions were whether the deposits were recoverable as debts, whether the awards contained a serious irregularity, and whether the contractual co-operation clause had that effect.

1. Buyers’ appeal on recovery in debt allowed. The doctrine of deemed fulfilment is not part of English law. The reasoning based on it in Mackay v Dick was Scottish and non-binding, and the doctrine had been rejected or disavowed in later English authorities. The established English principles operate through construction, implication, waiver and the maxim that a party cannot benefit from its own wrongdoing.
2. An implied term of co-operation may be recognised where justified by obviousness, necessity and business efficacy. Breach of such a term ordinarily gives rise to damages. Where a debt has already accrued, the wrongdoer may be prevented from relying on a condition precedent to payment or a condition subsequent. Where the debt has not accrued, the claimant is restricted to damages, assessed on ordinary compensatory principles and, where appropriate, on a loss-of-a-chance basis.
3. The escrow confirmation required by clause 2 was a condition precedent to the accrual of the deposit debt. It was not mere machinery of payment. The possibility that the stakeholder might reject the documents, be unable to open the account, or refuse confirmation could be accommodated in damages but could not be ignored in a debt claim. The alternative argument that the debt accrued on signature of the agreements therefore failed.
4. The arbitral majority had failed to address Buyers’ properly pleaded Golden Victory defence. That failure was an error in the reasoning process, not an accidental slip or omission within section 57(3)(a), and the defence was not a “claim” for the purposes of section 57(3)(b). The failure amounted to a serious irregularity under section 68(2)(d), causing substantial injustice because the defence might substantially reduce or extinguish the damages claim.
5. Sellers’ appeal allowed. The obligation of co-operation under clause 21 could be triggered before or after notice of readiness. However, the implied term relieving Buyers from their clause 2 obligations in the absence of a management agreement or alternative solution was neither necessary nor obvious. Potential futility, uncertainty, or the possibility of temporary impossibility did not justify implication. The award was remitted for reconsideration.
6. The relevant awards were set aside in part and/or remitted to the arbitrators for reconsideration in the light of the judgment.

This was a first-instance decision on two appeals under the Arbitration Act 1996, permitted by Foxton J on 20 and 21 October 2022. The awards were remitted to the arbitral tribunals for reconsideration.