A stipulated time period term was not a condition and its breach did not therefore constitute a repudiatory breach entitling recovery for loss of bargain damages

SLB & Others v PAK & Others [2026] EWHC 449 (Comm)

The question

Did an obligation, in a commercial shipbuilding contract, to provide refund guarantees within 120 days amount to a contractual condition, such that breach by failing to provide the refund guarantees entitled the buyers to terminate the contract and claim loss of bargain damages?

The key takeaway

Use of a stipulated time period, including the wording “by no later than 120 days,” might not, without more, be enough to make a term a condition, breach of which would give rise to common law loss of bargain damages. Here, an absence of clear wording, a lack of interdependence of obligations (this was a technical breach in nature) and an express contractual termination clause all pointed to the obligation to provide the refund guarantees within 120 days being an innominate term.

The background

The proceedings arose from a High Court appeal against ten separate, but related, arbitral awards in which it is alleged that the Tribunal erred in law when construing the applicable contract.

Ten of SLB’s special purpose entities (the Buyers) agreed to purchase ten shipping container vessels from three shipyards (the Sellers) pursuant to contracts as novated (the Agreement). Under the Agreement, the contract price was payable in instalments: three instalments prior to delivery and acceptance of the vessels, and one final instalment on delivery and acceptance of the vessels. The three pre-delivery instalments (but not the final, delivery instalment) were all contingent upon the receipt by the Buyers of letters of guarantee within 120 days of the contract novation or such later date as the Buyers may designate (the Refund Guarantees).

Article X(A) set out six events under the heading “Financial Default of the Seller” by which the Sellers would be considered in default, including:

“(f) The [Refund Guarantee] is not delivered to the BUYER in accordance with the terms of this CONTRACT by no later than 120 days after the date this CONTRACT is amended, novated and restated or such later date as the BUYER may designate in writing from time to time.

then and in any such case the BUYER may terminate, rescind or cancel this CONTRACT by notice to the SELLER in writing or by telefax confirmed in writing in accordance with the provisions of Article X hereof.”

Termination in these circumstances triggered the Sellers’ obligation to refund the Buyers and the parties would be discharged from each of their obligations, duties and liabilities. It did not, however, give rise to a right to claim wider loss of bargain damages unless the term was construed to be a condition of the contract.

The Sellers failed to provide the Refund Guarantees within the stipulated 120 days after novation as required and the Agreement was terminated by the Buyers. The Agreement provided for resolution by way of arbitration at which the Buyers sought loss of bargain damages (for the cost of purchasing a substitute vessel, and loss of profits) of approximately $80million USD on the grounds that the obligation to provide the Refund Guarantees amounted to a condition. The key issue put to the Tribunal to determine was whether the failure to provide the Refund Guarantees within 120 days amounted to a “repudiatory breach and/or a breach of condition” of the Agreement.

The Tribunal considered that whether the express obligation on the Sellers to provide the Refund Guarantees within 120 days was a condition (or deemed repudiatory) was a matter of contractual construction. The Tribunal also took into account the commercial background to the Agreement including: (1) the fact of the Sellers’ solvency and their ability to commence construction of the vessels, even if the first instalment was not paid; (2) the fact that the Agreement could survive the Buyers’ failures to pay the first instalment – the practical effect would be only to slow the progress of the build; (3) if the Refund Guarantees were not provided the Sellers were still expected to perform; and (4) the parties had clearly bargained so as to allow the Buyers to terminate and cancel the Agreement after 120 days should the Refund Guarantees not be provided.

In construing the Agreement, the Tribunal rejected the Buyers’ position that the Sellers’ obligation to provide the Refund Guarantees within 120 days was a condition of the Agreement. The Tribunal went on to find that if the obligation was not a condition, then the Sellers’ breach of what should be construed as an innominate term was not so serious as to be repudiatory at common law. The Buyers appealed on the basis that the Tribunal had erred in law in finding that the stipulation as to the time by which the Refund Guarantees must be provided by the Sellers was an innominate term rather than a condition.

The decision

Confirming the approach adopted by the Tribunal, the High Court held that the Sellers’ obligation to provide the Refund Guarantees did not amount to a condition but rather, an innominate term.

As outlined by the House of Lords in Bunge v Tradax ([1981] 1 WLR 711), a term will not be treated as a condition unless “its wording or context indicate otherwise” and this will be considered in light of the wider commercial context. On the facts, the Article X(A) was not expressly stated to be a condition. Use of allegedly time sensitive wording “by no later” than 120 days…was not the express language of a condition. This wording did not make the clause a condition any more than the requirement in the Technical Specification of the vessels for the Sellers to furnish to the Buyers a complete report of the sea trials “no later than 7 days after the sea trials completion date”.

The court held that the parties had given careful thought to the extent of the legal remedies which would be available to each other in the case of their respective defaults under the contract. The contract terms were carefully formulated so as to make clear that the parties did not regard the timing of the delivery of the vessels as being of the essence. For example, the Sellers might be up to 209 days late in delivering the vessels and the Buyers in those circumstances only had a claim for liquidated damages under the Agreement. It made no commercial sense to hold that the parties intended that the Buyers should be able to treat the whole contract as at an end if the Sellers provided the Refund Guarantees, after 121 days (instead of 120 days), whereas a long delay in the primary obligation to build and deliver the vessel itself would not produce that result.

The court agreed with the Tribunal that (unlike in cases like Bunge v Tradax) there was no interdependence between the Buyers’ right to the Refund Guarantees to secure the return of paid instalments, and the Sellers’ obligation to build the vessels. A delay exceeding 120 days in providing the Refund Guarantees, would not derail the actual performance of the Agreement. Practically, it would probably slow down progress but under the Agreement, the vessels would still have to be built. Therefore, there could be no presumption that the time for performance of the obligation to deliver the Refund Guarantees no later than 120 days after novation should be treated as a condition.

The existence of the contractual termination clause in the Agreement was given a great deal of weight by the court in its decision that the obligation to provide the Refund Guarantees within 120 days was an innominate term. Failure to deliver the Refund Guarantees within 120 days after novation gave the Buyers the option to rescind the Agreement by notice in writing to the Sellers “in accordance with the provisions of Article X hereof”. This provided a clear contractual scheme: the parties had agreed at the outset that if the Refund Guarantees had not been provided within 120 days, then the Buyers had the option to extend time or to rescind the Agreement. If they choose to do the latter, then the parties had agreed that all obligations, duties and liabilities of each other shall be completely discharged. In the court’s view, the parties had already agreed that there was no contractual entitlement to recover loss of bargain damages.

Why is this important?

The case provides useful guidance on the courts’ approach to construing clauses containing time stipulations including when such a clause might be treated as a condition or an innominate term. It also shows the courts’ direction of travel on construing terms as conditions – this seems an ever greater mountain to climb with the court here putting considerable weight on the language of the clause (not specified expressly as a condition), the lack of interdependence of obligations and the ability in the Agreement to terminate with complete discharge of all obligations, duties and liabilities.

Any practical tips?

Focus carefully on the language of the clause, using clear wording, where the intention is that a time stipulation is to be treated as a contractual condition (for example, expressly making time of the essence).

Consider that having a clear contractual scheme (such as that triggered in the Agreement following non provision of the Refund Guarantees within 120 days) will not necessarily translate to a breach of that obligation being treated as breach of a condition with the ability to claim loss of bargain damages. It may instead serve to counter such arguments.

Autumn 2026