by Katy Barnett, Professor of Law, The University of Melbourne[1]
As Alexandra Braun has noted, academic consideration of Scots law has tended to focus either on whether the particular hybrid of Roman law and common law is ideal, or on the ways in which Scots law has been influenced by other jurisdictions. It is less common for scholars to consider whether Scots law has influenced other systems, including English law.[2]
A recent English Court of Appeal case provides an opportunity to shine a light on the ways in which Scots law has influenced (and continues to influence) English law. In King Crude Carriers SA v Ridgebury November LLC,[3] the English Court of Appeal changed tack from earlier English cases, which had allowed a defendant who entered into a contract of sale to avoid forfeiting the deposit by deliberately failing to fulfil the condition precedent necessary to trigger the accrual of the debt. Instead, the Court chose to follow Scots law, and adopted the approach taken by Lord Watson in Mackay v Dick & Stevenson.[4] An appeal from this decision is currently before the United Kingdom Supreme Court.
Previously, in English law, Mackay v Dick stood for the point that, in some instances, a contract could be interpreted as importing a duty to cooperate. As formulated by Lord Blackburn:
I think I may safely say, as a general rule, that where in a written contract it appears that both parties have agreed that something shall be done, which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect. What is the part of each must depend on circumstances.[5]
English law, however, has been far less open to a duty to cooperate (let alone a duty of good faith) and has tended to find a duty to cooperate as arising only in some contracts. Whether this should be the case is another question. In Yam Seng Pte Limited v International Trade Corporation Limited, Leggatt J (as he then was) said, “the traditional English hostility towards a doctrine of good faith in the performance of contracts, to the extent that it still persists, is misplaced.” [6] He has subsequently repeated this view in an extrajudicial context.[7]
Despite its hybrid nature, as Hector MacQueen and Shannon O’Byrne have recently discussed, Scots law does does not have a general duty of good faith, absent an agreement, any more than English law does.[8]
As for what a duty of good faith might mean in a common law context, Jeannie Paterson has said:
Good faith in a common law context is often described as promoting loyalty or fidelity to the contract. This description expresses the simple but fundamental understanding that if parties invoke the law of contract, that institution demands that they conduct themselves in a manner consistent with the obligation they have undertaken.[9]
Interestingly, Australian law is more open to a duty to cooperate, at the least. In Commonwealth Bank of Australia v Barker, French CJ, Bell and Keane JJ of the High Court of Australia said that the duty to cooperate was a universal implication in law, because it was necessary to ensure the effective performance of contracts.[10] Contrary to the English approach, it was said not to be dependent upon the construction of the contract. On the other hand, Paterson has cautioned against regarding Australian law as accepting a duty of good faith wholeheartedly; while a duty to cooperate has been recognised, a more general duty of good faith is currently unclear.[11] By contrast, the Canadian Supreme Court has openly embraced a duty of good faith in Bhasin v Hrynew.[12]
King Crude itself did not raise broad principles about the duty of good faith or duty of cooperation, but the specific issue of whether an obligor can rely on their own deliberate breach of contract to avoid a debt. Nonetheless, it is suggested that the approach taken by the court reflects civilian law notions of pacta sunt servanda, namely that agreements are made to be kept, ultimately derived from Roman law.[13] This can be sourced in Scots law.
King Crude arose when a buyer entered three contracts for the sale of three second-hand tankers, on materially similar terms. Each contract required the buyer pay a 10% deposit into an escrow account, to be held pending completion of the contract. The seller was entitled to claim the 10% deposit from the escrow account if the balance of the purchase price was not paid. It was also entitled to cancel the agreements if the deposit had not been placed in the escrow account according to the contract, in which case it could claim compensation.
In the event, the buyer deliberately failed to supply the bank with the ‘Know Your Customer’ documents which were a precondition to opening the escrow account. The seller regarded the contracts as repudiated and claimed in debt for the 10% deposit. The buyer argued that the opening of the escrow account had been a condition precedent to the payment of the debt, and that the debt had not accrued, but that the seller was entitled to damages. However, the seller did not want damages because the buyer could argue that subsequent events showed that the contracts would have fallen through in any case, and hence, potentially, there was no compensable loss.[14] By contrast, a claim in debt is not subject to limitations such as causation, remoteness and mitigation, as famously illustrated by another Scottish case, White & Carter (Councils) Ltd v McGregor.[15] Therefore, it was in the seller’s interests to make a claim in debt.
It was important in this case that the payment was a deposit. As John Carter has observed, deposits have several concurrent functions: to signal the genuineness of the payer’s intention to perform the contract, to provide the payee with security in the event of default (because of the express or implied right to forfeit), and to compensate for a portion of the price of the subject matter of the contract.[16]
As Dias J, the trial judge in King Crude, noted, it was presumed that in English law, where a condition precedent pertained to the accrual of the debt, the claimant was confined to damages.[17] However, in King Crude, Popplewell LJ relied on Lord Watson’s speech in Mackay v Dick to formulate a principle that:
[A]n obligor is not permitted to rely upon the non-fulfilment of a condition precedent to its debt obligation where it has caused such non-fulfilment by its own breach of contract, at least where such condition is not the performance of a principal obligation by the obligee, nor one which it is necessary for the obligee to plead and prove as an ingredient of its cause of action, and save insofar as a contrary intention is sufficiently clearly expressed, or is implicit because the nature of the condition or the circumstances of the case make it inappropriate.[18]
The Scottish origins of this principle are more evident when one considers the decision of the Court of Session which preceded Mackay v Dick, in Dick & Stevenson v Mackay.[19] Lord Shand said:
The law applicable to this case is stated in section 50 of Bell’s Principles—“If a debtor bound under a certain condition have impeded or prevented the event it is held as accomplished. If the creditor have done all that he can to fulfil a condition which is incumbent on himself it is held sufficient implement.” And that view is supported by Pothier founding upon passages from the Roman law. In the translation by Evans of Pothier’s work on Obligations, sec. 212, the following statement occurs:—“It is the rule common to all conditions of obligations that they be taken to be accomplished when the debtor who is obliged under such condition has prevented its accomplishment”.[20]
The principle expressed by Lord Watson in Mackay v Dick is, therefore, a Scots law principle, derived from Roman law, as acknowledged directly in his speech.[21] The French jurist Robert Joseph Pothier, mentioned by Lord Shand, may be more familiar to English readers as the jurist whose work[22] influenced Baron Alderson in Hadley v Baxendale[23] in his development of principles of remoteness for expectation damages for breach of contract.[24] The use of Roman law principles, filtered into the common law via French jurists, is not as foreign to the English common law as it might appear at first blush. Consequently, any protest that civilian notions of contract law are wholly incompatible with the common law of contract are misplaced, as Leggatt J suggested in Yam Seng.
Parties enter agreements because they intend them to be operational, and it is not anticipated that one party can deliberately “scuttle” the deal. Indeed, Nugee LJ in King Crude noted that the purpose of a deposit would be undermined if the claimant were allowed to deliberately fail to fulfil the condition precedent:
A deposit therefore operates as a powerful disincentive to a buyer from signing a contract unless he both genuinely intends, and is confident of being able, to complete; and an equally powerful disincentive to a buyer who has signed a contract from defaulting on the purchase. For the seller it operates to reassure him that the buyer is serious about completing; and also as a fixed sum which he can keep in the case of the buyer’s default in completing without having to prove what damage he has suffered, and very often without having to take proceedings at all. For a purchase to go off after a contract has been signed can often have a number of practical disadvantages which may be real enough even if they cannot be readily quantified and compensated for in damages. The right to forfeit the deposit is the seller’s protection against being, for want of a better term, messed around by a buyer, and represents a careful allocation of the risks and consequences of the buyer defaulting on the purchase.[25]
In other words, while previous English cases had focused on the role of deposits as providing compensation for breach, in King Crude, the focus of the court shifted towards supporting the other functions of a deposit, namely, to signal an intention to perform and to provide security. Whether the United Kingdom Supreme Court will take a similar approach, and be influenced by Scots law, remains to be seen.
[1] I am grateful to Hector MacQueen for his comments on an earlier version of this post.
[2] A Braun, ‘The Value of Communication Practices for Comparative Law: Exploring the Relationship Between Scotland and England’ (2019) 72(1) Current Legal Problems 315, 316.
[4] (1881) 6 App Cas 251; (1881) 8 R (HL) 37.
[5] Ibid, 263.
[6] [2013] EWHC 111, [153].
[7] Mr Justice Leggatt, ‘Contractual Duties of Good Faith’, lecture to the Commercial Bar Association (18 October 2016), accessed at https://www.judiciary.uk/wp-content/uploads/2016/10/mr-justice-leggatt-lecture-contractual-duties-of-faith.pdf; Sir George Leggatt, ‘Negotiation in Good Faith: Adapting to Changing Circumstances in Contracts and English Contract Law’, Jill Poole Memorial Lecture at Aston University (19 October 2018) accessed at https://www.judiciary.uk/wp-content/uploads/2018/10/leggatt-jill-poole-memorial-lecture-2018.pdf.
[8] H MacQueen and S O’Byrne, ‘The Principle of Good Faith in Contractual Performance: A Scottish-Canadian Comparison’ (2019) 23(3) Edinburgh Law Review 301, 316–326.
[9] JM Paterson, ‘Good Faith Duties in Contract Performance’ (2014) 14 Oxford University Commonwealth Law Journal 283, 285.
[10] [2014] HCA 32, (2014) 253 CLR 169, [25]–[29].
[11] Paterson (n 8) 293.
[12] 2014 SCC 71, discussed above by MacQueen and O’Byrne (n 7) 304–316
[13] R Zimmermann, The Law of Obligations: Roman Foundations of the Civilian Tradition (Oxford: Clarendon Press, 1996) 537–45, 576–79.
[14] Golden Strait Corp v Nippon Yusen Kubishika Kaisha (The Golden Victory) [2007] UKHL 12, [2007] 2 AC 353.
[15] [1962] AC 413.
[16] (1988) 104 LQR 207, 207–8.
[17] [2023] EWHC 3220 (Comm), [95]. See eg, Little v Courage Limited (1994) 70 P & C 469, 474 (Millett LJ); Damon Compania Naviera SA v Hapag-Lloyd International SA (The Blankenstein) [1985] 1 WLR 435; The Griffon [2014] 1 Lloyd’s Rep 471.
[18] [2024] EWCA Civ 719, [85].
[19] (1880) 6 App Cas 778.
[20] Ibid, 787–88.
[21] (1881) 6 App Cas 251, 270 (Lord Watson).
[22] Robert Joseph Pothier, A Treatise on the Law of Obligations or Contracts (W Evans (tr), Strahan 1806).
[23] (1854) 9 Ex 341; 156 ER 145.
[24] See F Faust, ‘Hadley v Baxendale—An understandable miscarriage of justice (1994) 15 Journal of Legal History 41; R Danzig, ‘Hadley v Baxendale: A Study in the Industrialization of Law (1975) 4 Journal of Legal Studies 249; K Barnett, ‘Reflections on the principles of remoteness in contract in comparative law’ (2024) 37(5) International Journal for the Semiotics of Law – Revue internationale de Sémiotique juridique 1587.
[25] [2024] EWCA Civ 719, [102].
