UK Supreme Court overrules 'Deemed Fulfilment' Principle – What does this mean for Hong Kong contractual obligations

Introduction

The UK Supreme Court in King Crude Carriers SA v Ridgebury November LLC [2025] UKSC 39 clarified that the “deemed fulfilment” principle from Mackay v Dick is not part of English law. The Court emphasized that contractual remedies are determined by the express terms of the contract, not by legal fictions or broad equitable doctrines. Where a contractual payment obligation is subject to pre-condition(s), and the paying party's own breach prevents fulfilment of that condition, the condition is not deemed to be fulfilled. The innocent party cannot claim the sum as a debt; its remedy lies in damages for breach of contract only. While the “prevention principle” - which means that a party cannot benefit from its own wrongdoing - remains relevant, it is limited and does not override clear contract wording. 

Background

The Buyers and Sellers entered into three ship sale agreements in the Norwegian Saleform 2012 standard form for three tanker vessels. Under the agreements, the Buyer was obliged to lodge a deposit when an escrow account had been opened and was ready to receive funds. The Buyer was obliged to, but failed to, provide the required documentation to open the escrow account. The Buyer asserted that the deposit holder had not confirmed that an escrow account was ready to receive funds, and that the Sellers' only remedy was a claim in damages. The Sellers sought to claim the deposits as debts, relying on the “deemed fulfilment” principle from Mackay v Dick. The Supreme Court rejected this approach on the basis of the following reasons:

1. The "deemed fulfilment" principle is rooted in civil law, not English law.
2. English authorities are inconsistent in their approach to this principle. 
3. Applying the principle would fundamentally undermine the well-established law on contracts for the sale of goods and land.
4. The principle is fictional and there is no convincing explanation for the "deemed fulfilment" principle to be a principle of law.
5. Contractual certainty and contractual terms (express and implied) prevail.
6. Damages are adequate to compensate the innocent party.

Implications

The UK Supreme Court decision has several practical implications for contracting parties.

Contract drafting:

Parties should ensure that conditions precedent and remedies for breach are clearly stated in sale agreements and escrow arrangements. Express terms will govern, and courts are generally reluctant to imply equitable doctrines to override them.

Risk allocation: 

Deposits will only accrue when all contractual conditions are satisfied; parties cannot rely on legal fictions or broad equitable principles to bypass express terms.

Efficient breach and profiting from wrongdoing: 

While English law retains the maxim that a party should not benefit from its own wrongdoing, this is not an absolute rule. The UK Supreme Court clarified that the principle mainly prevents a party from relying on its own breach to terminate a contract or claim a benefit. However, English contract law permits “efficient breach”—meaning a contract-breaker may, in some cases, profit from their breach if the contract so provides, as long as the innocent party is compensated by damages. The law’s focus is on enforcing the bargain and compensating for loss, not on penalizing the wrongdoer or stripping all profits unless expressly stated in the contract.

Commercial certainty: 

The judgment reinforces the importance of contractual certainty and the primacy of the parties’ bargain. The UK Supreme Court stated that if the business community is dissatisfied with the outcome, standard forms (such as the Norwegian Saleform) should be amended.

Hong Kong law – Uncertainty remains:  

Hong Kong courts have consistently applied the “prevention principle” – that a party cannot take advantage of its own breach to enforce a contractual right or remedy that arises only because of that breach. This principle was central in both the Court of Final Appeal case Kensland Realty Ltd. v. Whale View Investment Ltd. & Anor [2002] HKCU 77 and the Court of First Instance case Ng Lai Kwan Fanny v Vico Infant & Gift Products Company Ltd & Anor [2015] HKCU 1076.

• Kensland Realty case: The vendor gave late payment instructions, making it impossible for the purchaser to complete on time. The CFA held that the vendor could not rely on the purchaser’s late tender (caused by its own breach) to rescind the contract or forfeit the deposit. The CFA discussed various ways the prevention principle could be given effect, whether as a substantive principle of law or as a principle of construction, but did not expressly adopt the “deemed fulfilment” doctrine from Mackay v Dick.
• Ng Lai Kwan Fanny case: The defendants’ conduct (including failing to provide documents, transferring a permit, and reporting the vehicle lost) prevented the plaintiff from performing her obligations under a settlement agreement. The CFI applied the prevention principle, citing Mackay v Dick and Chitty on Contract, and held the defendants liable for damages. The Court recognized that the "deemed fulfilment" principle is not automatic and its application depends on the facts.

While both cases referenced Mackay v Dick and the concept of “deemed fulfilment”, neither case explicitly held that “deemed fulfilment” is a principle of law in Hong Kong common law. Instead, Hong Kong courts have focused on the broader prevention principle and have left open the question of whether the Mackay v Dick doctrine applies as a general rule. The UK Supreme Court has now explicitly ruled that the “deemed fulfilment” principle in Mackay v Dick is a legal fiction and does not form part of English law. It remains uncertain whether Hong Kong courts will follow this approach. Parties contracting under Hong Kong law should be aware that the outcome may depend on the specific facts and the Hong Kong court’s approach to the prevention principle. As noted in Chitty on Contract (and cited by the Hong Kong courts), “deemed fulfilment” is “by no means always applicable” and its application will depend on the circumstances of each case. Clear drafting and express allocation of risk in contracts remain essential.