Shawton Engineering Ltd v DGP International Ltd (t/a Design Group Partnership) & Anor

Where variations make fixed completion dates inoperable, the obligation to complete within a reasonable time is assessed objectively when the issue arises and in the light of all relevant circumstances. The original contractual periods and the true work content remain relevant, but a party’s sustained acceptance of later performance without insisting on any completion period may leave reasonable time undefined.

A reasonable-time obligation is not ordinarily a condition. Termination for delay therefore requires either a clear and reasonable notice making time of the essence, given when the other party is already in breach, or delay so grave that it deprives the innocent party of substantially the whole contractual benefit.

Shawton engaged DGP to design five packages for a nuclear-waste project. Variations were instructed and the contracts contained no mechanism for extending time. The parties agreed that DGP’s fixed completion dates were consequently replaced by an obligation to complete within a reasonable time.

Shawton terminated the contracts on 26 March 2001 and claimed the cost of engaging a replacement designer and delay losses. The Technology and Construction Court dismissed the claim, holding that Shawton had neither made time of the essence nor proved a repudiatory breach by DGP. DGP’s contingent insurance claim would also have failed.

Shawton appealed. The central questions were whether DGP was in breach of its reasonable-time obligation when Shawton issued its November 2000 letter, whether that correspondence made time of the essence, and whether DGP’s delay was repudiatory when Shawton terminated.

Appeal dismissed. May LJ, with whom Jacob and Lloyd LJJ agreed, upheld the judge’s dismissal of Shawton’s claim.

1. Where the variations had displaced the fixed completion dates, the question was what constituted a reasonable time when the issue arose, viewed objectively and in all the circumstances. The original contractual periods remained relevant, as did the true scope of the work. However, Shawton had accepted revised programmes, was not being pressed by KAT for early delivery, and had not itself insisted on completion by a stated date or period during most of 2000. Those circumstances made reasonable time undefined until Shawton began seeking to define it on 7 November 2000. Shawton had therefore not proved that DGP was then in breach for delay.

2. A reasonable-time obligation was not a condition whose breach automatically entitled Shawton to terminate. Shawton could lawfully terminate for delay only by giving a reasonable notice making time of the essence, or by proving a fundamental breach depriving it of substantially the whole benefit of the contracts. The court explained the distinct waiver-and-notice context of Rickards v Oppenheim [1950] 1 KB 616.

3. Because DGP was not in breach on 7 November 2000, Shawton could not then make time of the essence. In any event, the letter did not clearly state that failure to meet dates subsequently proposed by DGP would result in termination. The January 2001 agreement was that DGP would try to complete by the end of March, not that all drawings would be supplied by then. That was incompatible with time being of the essence.

4. DGP’s delay was not repudiatory. DGP had supplied substantial design material from which Shawton had manufactured a significant part of the equipment, and it released 91 drawings between January and the termination date. Shawton had not shown a deprivation of substantially the whole contractual benefit. Its purported termination was therefore itself repudiatory. The contingent insurance appeal did not arise.

• Court of Appeal (Civil Division): Shawton’s appeal was dismissed: [2005] EWCA Civ 1359.
• Technology and Construction Court, Salford District Registry: HH Judge Gilliland QC dismissed Shawton’s damages claim against DGP on 28 February 2005. He also held contingently that DGP’s claim against Limit (No. 3) Ltd would have failed.