SLB & Ors v PAK & Ors

Whether a contractual time stipulation is a condition is a question of construction, assessed in the contract’s factual and commercial setting. A commercial or mercantile character, or wording such as “no later than”, does not by itself make time of the essence. The court balances commercial certainty against the risk of disproportionate consequences for technical breaches.

Interdependence may strongly support classification as a condition where one party’s timely performance is a condition precedent to the other party’s ability to perform an essential obligation. An express contractual termination option may instead provide the required certainty without making the term a condition. On the contracts in issue, the obligation to provide refund guarantees was innominate.

The claimants appealed under section 69 of the Arbitration Act 1996 against ten arbitral awards arising from shipbuilding contracts for container vessels. The contracts required the sellers to provide refund guarantees within 120 days of novation, or by a later date designated by the buyers. The sellers failed to provide the guarantees, and the buyers cancelled the contracts.

The tribunal held that the obligation was an innominate term. The buyers could therefore cancel under the express contractual mechanism but could not recover loss of bargain damages absent a repudiatory breach. The central issue was whether the tribunal had erred in law by failing to treat the obligation as a condition.

1. The appeals were dismissed. The tribunal had correctly held that the obligation in Article X(A)(f) to provide the refund guarantee was an innominate term, not a condition.

2. The classification of a contractual term is a matter of construction in the light of the contract’s wording, nature, purpose and surrounding circumstances. A term is innominate unless the contract makes clear, expressly or by necessary implication, that it is a condition or a warranty. If a term is a condition, the gravity of the actual breach is immaterial.

3. A commercial or mercantile contract does not create a general presumption that every time stipulation is a condition. Commercial certainty is important, particularly in interdependent contractual sequences, but must be balanced against the disproportionate consequences which a condition may attach to trivial or technical breaches.

4. Interdependence is a significant factor. Where Party A’s timely performance is a condition precedent to Party B’s ability to perform an essential contractual obligation, the time stipulation will generally be a condition. Here, however, the buyers’ obligation to pay the pre-delivery instalments did not arise until the refund guarantee had been provided. The parties’ obligations were therefore not interdependent in the relevant sense.

5. The wording “no later than 120 days” merely fixed the time at which the buyers’ contractual cancellation option arose. The ability of the buyers to extend the date from time to time pointed away from a condition. The absence of express language describing the obligation as a condition was also a material factor.

6. The express contractual termination regime strongly supported the classification as innominate. The buyers could cancel after 120 days, while Article X.3 provided for discharge of the parties’ obligations after the contractual refund. The parties had thereby provided certainty as to future performance without conferring the common-law right to loss of bargain damages for every breach.

7. The contractual scheme also provided for liquidated damages for delayed delivery and cancellation after specified periods. The refund guarantee was security for advance payments, not the primary benefit for which the buyers contracted. Because the buyers were not required to pay the pre-delivery instalments without the guarantee, their funds were not imperilled by delay in providing it.

8. The court could not revisit the tribunal’s factual findings or admitted commercial background. The observations in Teekay Tankers v STX Offshore [2018] 1 All ER 279 concerning the effect of a refund guarantee were obiter and arose in materially different circumstances.

9. A failure to provide the guarantee could nevertheless become repudiatory if, in the circumstances, it went to the root of the contract or evinced an intention not to perform. That issue was distinct from the classification of the term and was not established on the facts found by the tribunal.

The judgment concerned appeals under section 69 of the Arbitration Act 1996 against ten arbitral awards. Permission to appeal had been granted by Foxton J on 9 June 2025. The High Court dismissed the appeals and upheld the tribunal’s conclusion that the refund-guarantee obligation was innominate.