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"The UK Supreme Court has recently held that a ship seller’s claim to an MOA deposit only accrues when the ‘Deposit Holder’ has confirmed the opening of the deposit account into which the deposit is to be paid."
The UK Supreme Court has recently held that a ship seller’s claim to an MOA deposit and therefore the seller’s ability to claim the deposit as a debt, only accrues when the ‘Deposit Holder’ (or escrow agent) has confirmed the opening of the deposit account (or escrow account) into which the deposit is to be paid. In an important and wide-ranging judgment in King Crude Carriers SA & Ors v Ridgebury November LLC & Ors [2025] UKSC 39, the Supreme Court has overturned the earlier judgment of the Court of Appeal (the subject of a WFW briefing note published on 15 July 2024).
Therefore, if the buyer’s failure to provide its KYC documents “without delay” (as the buyer is obliged to do under Clause 3 of Saleform 2012) prevents the deposit holder from giving this confirmation, the buyer’s breach will give the seller a claim in damages for such losses as the seller may suffer, but will not entitle the seller to claim the deposit as a debt.
The difference between a claim for a debt and one for damages in the MOA context may be stark. Indeed, in King Crude Carriers, three affiliated sellers claimed deposits totalling US$5.94m from three affiliated buyers, in circumstances where each ship’s market value had increased since the MOAs were entered into. The sellers therefore had no claim in damages, having suffered no loss. But by claiming the deposits as debts, the sellers looked to receive almost US$6m, on top of which, having terminated the MOAs, they could have re-sold the three ships at a profit, potentially receiving a double windfall.
Previously, the Court of Appeal had found for the sellers by relying on the authority in Mackay v Dick (1881) to hold that the deposit had fallen due because the MOA buyer’s duty to provide its KYC documents without delay was a condition precedent (i.e. to the buyer’s obligation to pay the deposit) that was deemed to have been fulfilled, the buyer having wrongfully prevented its fulfilment. The ‘deemed fulfilment’ principle was first articulated in a speech given by Lord Watson in the House of Lords in Mackay, a case heard on appeal from a Scottish case nearly 150 years ago.
The Supreme Court has now clarified that the principle of the ‘deemed fulfilment’ of a condition precedent is one of Scottish law and does not form part of English law, deriving as it does from civil law principles (Scotland, unlike England, having a hybrid or mixed legal jurisdiction that combines elements of both civil and common law). The Supreme Court reviewed several earlier and apparently conflicting English authorities in which the Mackay principle appeared to have been applied, most of which concerned claims for sums that had not fallen due after the counterparty had prevented issuance of a certificate or similar document entitling payment. For example, in the early shipping case of Hotham v East India Company (1787), the ship owner had been prevented from earning deadfreight because the charterer’s agents had failed to issue a certificate of short loading. The Supreme Court noted that in these cases the loss suffered, whether claimed as a debt or damages, would have been the same and that the losses claimed had all been caused by a breach by the party which had prevented issuance of the certificate. Accordingly, the losses in these cases were all recoverable without any need to deem a condition precedent as fulfilled. The Supreme Court also noted that the Mackay principle had been held not to form part of English law in at least one previous authority (Thompson v ASDA-MFI Group plc (1988)) and that in another authority, the court had held the Mackay principle to apply in the sale of goods context only where property in the goods had passed (Colley v Overseas Exporters (1921)).
"Having decided that the Mackay principle is not one of English law, the Supreme Court went on to consider (and to dismiss) two alternative arguments relied on by the sellers."
Having decided that the Mackay principle is not one of English law, the Supreme Court went on to consider (and to dismiss) two alternative arguments relied on by the sellers.
First, the sellers sought to imply a term into Clause 2 of Saleform 2012 which requires the deposit to be lodged within three Banking Days after: (i) the MOA is signed and; (ii) the deposit holder has confirmed the opening of the account. The sellers attempted various formulations of the term to be implied, all intended to clarify that the condition in (ii) above would not apply where the buyer wrongfully prevented the Deposit Holder from giving its confirmation. But, as the Supreme Court observed, if such a term were implied, the effect would be that there was no deposit account, so the implied term contended for, rather than facilitating performance of the buyer’s obligation to pay the deposit, would be inconsistent with the terms of Clause 2. Nor could a term be implied to require the buyer to pay the deposit directly to the seller, as that would leave the buyer unsecured for its return. Indeed, the whole purpose of an escrow account to hold an MOA deposit is to secure its return in the event of a buyer cancellation for ‘seller’s default’.
Secondly, the sellers sought to rely on the words in Clause 2 of Saleform 2012 to the effect that the deposit stands as “security for the correct fulfilment of …” the MOA to argue that Clause 2 should be construed to mean that the deposit falls due (or accrues) as soon as the MOA is entered into, even though it only becomes payable at the later date when the deposit holder confirms the account opening. Sellers relied on earlier shipping cases in which voyage charters provided for freight to be ‘earned’ at an earlier time than it became payable (Bank of Boston Connecticut v European Grain & Shipping Ltd (“The Dominique”) (1989) and Vagres Compania Maritima SA v Nissho-Iwai American Corporation (“The Karin Vatis”) (1988)).
The Supreme Court noted that, unlike Saleform 2012, the voyage charters in question had clearly and expressly distinguished between the dates on which freights were earned and when they became payable. Nor was the Supreme Court impressed by the argument that an MOA’s commercial purpose requires a seller to be secured by the deposit as soon as the MOA is signed and the ship taken off the market. The Supreme Court observed that this is likely to be only a short interval and one in which the seller, even though no deposit has fallen due, may nevertheless claim damages should the buyer fail to perform. Finally, the Supreme Court observed that its finding drew strong support from the earlier MOA case of The Blankenstein (1985), in which the court had recognised that, under that earlier edition of the BIMCO form (Saleform 66), which provided for the deposit to be paid on signing of the MOA, there might be a period between the parties agreeing a binding sale in a recap and later MOA signature. It nonetheless held that the seller had no entitlement to claim the deposit as a debt before MOA signature.
Lessons learned
"This decision is to be welcomed, as it brings final clarity to the law in this area, even if it has taken over five years to wend its way through the courts since the MOAs in question were entered into in April 2020."
This decision is to be welcomed, as it brings final clarity to the law in this area, even if it has taken over five years to wend its way through the courts since the MOAs in question were entered into in April 2020. But where does it leave MOA sellers concerned about delays in receiving their MOA deposits resulting from buyers’ delays in providing KYC documentation?
Delays of this kind occur with ever increasing frequency in today’s uncertain world in which it is not unknown for buyers to act as fronts for Russian or other sanctioned owning groups, causing deposit holders’ investigation of ownership or source of funds documentation to involve, on occasion, several rounds of questions and answers with buyers. It is therefore not uncommon for MOA escrow accounts to take up to two weeks to open and sometimes even longer. This may be an unacceptably long time for a seller to wait to receive its deposit, especially in a volatile or softening market and where it has other potential buyers waiting in the wings. Until the deposit is paid, the seller’s only recourse will lie against a buyer that may have no, or no easily identifiable, assets.
If the seller is facing such delays and wants to extricate itself from the MOA with a buyer it suspects of drip-feeding KYC documents to the deposit holder, which is then unable to confirm opening of the escrow account, the effect will be to prevent the seller from cancelling the MOA for non-payment of the deposit. The seller could proceed to tender the ship for delivery in order to cancel the MOA if its buyer then fails to pay the full price. However, that may not be easy, especially if some time remains until the ship completes its current employment or if the MOA provides that NOR may not be tendered until a date that is some weeks ahead. Treating the buyer’s delays as repudiatory may also be difficult, especially if the buyer, rather than having failed or refused to provide any KYC documents, has provided a quantity of KYC documentation, albeit not everything requested of it.
For these reasons, sellers are now frequently insisting on the inclusion of wording in the MOA to provide that if the deposit holder has not confirmed to sellers within seven or 14 days of MOA execution that buyers have provided all required KYC documentation, sellers may cancel the MOA for buyer’s default. In this way, the seller can enter into an MOA knowing there to be a hard deadline for its buyer to provide its KYC to the deposit holder’s satisfaction.
