When time is not ‘of the essence’ in commercial contracts  

Missing a contractual deadline does not always have the consequences the innocent party expects. Whether a breach entitles a party to terminate, recover its losses, or both, will depend on how the contract has been drafted, and that question is often only tested once a dispute has arisen. 

The case of SLB and others v PAK and others, decided in the Commercial Court earlier this year, arose from a series of shipbuilding contracts. The specific context, involving large container vessels and refund guarantees from Chinese banks, is some distance from most businesses’ day-to-day concerns. The legal principle at its heart, however, applies to commercial contracts of all kinds, and the decision has practical implications for any business that relies on contractual deadlines as a form of protection. 

What the dispute was about 

The contracts required the shipyard to provide financial guarantees within 120 days of the contracts being novated. These guarantees were intended to protect the buyers’ advance payments if the contracts were later terminated. The shipyard failed to meet that deadline. The buyers exercised their contractual right to terminate and then sought to claim substantial damages for their loss of bargain, on the basis that the missed deadline amounted to a fundamental breach of contract. It was at that point that the dispute crystallised: whether the missed deadline carried the legal consequences the buyers assumed. 

The arbitral tribunal, and subsequently the Commercial Court on appeal, rejected that claim. The obligation to provide the guarantees within 120 days was not, the Court held, a strict contractual condition. It was what lawyers call an innominate term. That classification mattered enormously, because it determined what the buyers were actually entitled to when the deadline was missed. 

The difference between a condition and an innominate term 

Not all contractual obligations carry the same weight. Some are conditions, meaning that any breach, however minor, entitles the innocent party to treat the contract as terminated and claim damages for everything they have lost as a result. Others are innominate terms, where the consequences of a breach depend on how serious that breach actually is. A minor or technical breach of an innominate term will not justify termination at common law, and will not give rise to a claim for loss of bargain damages. 

In this case, the buyers had a contractual right to terminate if the guarantees were not provided within 120 days, and the Court confirmed they were entitled to exercise it. What they could not do was claim loss of bargain damages on top, because the breach was not serious enough to amount to a repudiation of the contract at common law. The termination right gave them an exit, but the financial remedy they were seeking required something more. 

The Court’s reasoning is worth understanding. The fact that a deadline is expressed clearly, even in commercial language such as ‘no later than 120 days’, does not automatically make it a condition. The contract as a whole has to be read in context. In this instance, several features pointed away from the obligation being a strict condition. The 120-day period could be extended by agreement, which sat uneasily with the idea of a fixed and immovable deadline. The obligation was not directly tied to the shipyard’s core task of building and delivering the vessels. And crucially, the contract already contained a carefully drafted termination regime with defined consequences. The Court took the view that if the parties had intended a missed deadline to trigger full common law rights, they would not have needed to include an express termination clause at all. 

Why this matters beyond shipbuilding 

The principle established in this case applies wherever a commercial contract includes a deadline that one party regards as critical. In practice, disputes often arise where one party assumes a missed deadline gives it a right to walk away with full compensation, only to find the contract does not go that far. Payment terms, delivery obligations, notice requirements, conditions precedent to completion: all of these can be affected by the same question. Is this a condition, breach of which automatically gives rise to termination and damages? Or is it something less, where the remedy available depends on the seriousness of what actually happened? 

The answer is not always obvious from the contract, and that uncertainty is itself a risk. A business that believes it has a right to terminate and claim its losses may find, as the buyers did here, that the contract gives it an exit but not the financial remedy it was counting on. Conversely, a business on the other side of a dispute may have more protection than it realises if a breach was minor or short-lived. 

This is not an abstract concern. Disputes about what a party is entitled to when a contractual deadline is missed are among the more common forms of commercial litigation, and they frequently arise at exactly the moment when a business relationship has already broken down and both sides are focused on the financial consequences. By that stage, the drafting of the contract is fixed and the scope for argument is determined by what the parties agreed, or failed to agree, at the outset. 

What businesses should take from this decision 

The clearest lesson from this case is that intention and drafting need to align. If a deadline in your contract is genuinely critical, and a breach of it should entitle you to terminate and recover your full losses, that needs to be clearly expressed. Describing something as a deadline, or even using language like ‘no later than’, will not necessarily be enough. The contract should state expressly that the obligation is a condition of the agreement, and that any breach entitles the innocent party to terminate and claim damages accordingly. 

Equally, if your contract already contains an express termination right for a particular breach, consider carefully what that clause does and does not provide for. As this case illustrates, the existence of a carefully drafted termination regime can itself be taken as an indication that the parties did not intend common law rights to apply alongside it. If you want both the contractual right and the common law remedy, the drafting should say so. 

It is also worth reviewing existing contracts where timing obligations are central to the commercial arrangement. If the consequences of a missed deadline have never been clearly defined, there may be less certainty about your position than you assume. Taking advice before a dispute arises is considerably less costly than resolving one once it has. 

Finally, if you are already in a situation where a contractual deadline has been missed and you are considering your options, the classification of the relevant term, and what that means for the remedies available to you, is likely to be one of the first issues to resolve. In many disputes, that question determines not only whether a claim succeeds, but the scale of any recovery. The answer will shape everything that follows. 

How Coodes can help 

Our commercial disputes team advises businesses across Cornwall and Devon on contractual disputes of all kinds, including those involving contested termination rights, missed deadlines and questions about what remedies are available when a contract goes wrong. If you have concerns about a commercial contract or a relationship that is beginning to show signs of strain, we would welcome the opportunity to discuss your position. Please get in touch with our team to arrange an initial conversation. 

About the Author: Kayleigh Whitman heads the Commercial Dispute Resolution team at Coodes Solicitors, leading one of the largest commercial litigation teams in Cornwall. She advises businesses across the county and beyond on a wide range of disputes, including commercial property, contract and construction matters, insolvency litigation, and shareholder, director and partnership disputes. 

Get in touch: kayleigh.whitman@coodes.co.uk  01579 324019