CL-2022-000025 - [2025] EWHC 2331 (Comm)

Mr Kerr contends that the time for settlement under the SPA was of the essence, in other words that the term of the SPA that settlement occur within 30 business days was a condition of the contract, such that a failure to comply with it by one party in principle entitled the other party to terminate further performance of the contract.

As explained in Chitty on Contracts (35^th ed.) at paragraph 28-029:

“Time is of the essence:

(1)

Where the parties have expressly stipulated in their contract that the time fixed for performance must be exactly complied with, or that time is to be “of the essence”.

(2)

Where the circumstances of the contract or the nature of the subject matter indicate that the fixed date must be exactly complied with, e.g. [examples are given] ... Whether a time limit is of the essence of a contractual provision is a question of interpretation of the provision in the context of the contract as a whole. The question is whether the time specified in the particular clause was (expressly or by necessary implication) intended by the parties to be essential, e.g. because they needed to know precisely what were their respective obligations...”

Here, there was no express provision in the SPA making time of the essence. However, among the list of examples given in Chitty where the circumstances of the contract or the nature of the subject matter indicate that the fixed date must exactly be complied with are “mercantile contracts” such as those “for the sale of shares liable to fluctuate in value (where the contract stipulated a time for payment).” A number of cases are referred to in the footnote to this passage in Chitty, including Hare v Nicoll [1966] 2 QB 130, where a claimant sought to exercise a repurchase option under a share purchase agreement but did not make payment within the period specified by the agreement. The Court of Appeal held that, on the true construction of the agreement, the term as to the date had to be strictly complied with, otherwise the option ceased. Although Willmer LJ concluded that the wording of the agreement showed that the time stipulation was a condition, he added at p.142:

“As to the nature of the property, the subject-matter of the option consisted of shares of a highly speculative nature, liable to considerable fluctuation in value. Even without the assistance of authority, I should have been disposed to say that that of itself was a reason for holding that time was of the essence of the contract.”

Similarly, in Re Schwabacher (1908) 98 LT 127 at 129, Parker J said:

“With regard to contracts for the sale of shares, I think that time is of the essence of the contract both at law and in equity. Shares continually vary in price from day to day, and that is precisely why courts of equity considered such a contract to be one in which time is of the essence of the contract, and not like a contract for the sale and purchase of real estate, in which time is not of the essence of the contract.”

The breadth of both of those statements was questioned by Judge Weeks QC in Grant v Lapid Developments [1996] BCC 410 at 415:

“These dicta may be too wide, and a property company may be different from a trading company, and a company in one line of business may be different from a company trading in another less dynamic market.”

Ultimately, whether time is of the essence in respect of any particular obligation in a contract is a question of construction of the particular contract. It is not a question of a fixed rule in either direction. As Davis J explained in MSAS Global Logistics Ltd v Power Packaging Inc [2003] EWHC 1393 (Ch) at paragraph 43, in a case dealing with the sale of shares, the question is one of the interpretation of the particular contract, “the words used being set in the factual context in which the contract is made and regard being had to the subject matter of the contract.” The same view was also taken by HHJ Hodge KC (sitting as a Judge of the High Court) in Aymes International Ltd v Nutrition 4U BV [2023] EWHC 1452 (Ch) at paragraph 104, a case where the Judge held that time was not of the essence in relation to a call option agreement (see paragraphs 105-108).

The SPA here referred to the “Settlement term” being “30 business days”. That, in the context of the agreement, set out a term of the SPA that the transaction would settle (i.e. that the shares would be transferred and the purchase price be paid) within 30 business days of the trade date. The issue is whether time was “of the essence” in respect of those obligations, such that if one party failed to complete within that period of time, in breach of that term, the other party would have an automatic right to terminate the agreement. In the context of this agreement, it seems to me it was not:

Mr Kerr contended (in his pleading) that one of the reasons time was of the essence was because the contract was for the sale of shares in a publicly listed company subject to regulatory control including by way of restrictions on trading during prohibited periods. I can see why such a point may show the parties must have intended that time be of the essence on other cases, however in the circumstances and on the facts of this case it does not assist Mr Kerr. On his case, the effect of the Model Code was that the trade could not be settled in a prohibited period (whenever the parties had contractually committed themselves to the trade) and that the 30 business days ended in a prohibited period. If, as I have held, there was a binding contract, Mr Kerr’s case therefore is that it could not be settled on the 30^th business day at all (or, at least, if it could be that would constitute an immediate breach of the Model Code), something which it is unlikely the parties intended when making the SPA. Accordingly, the point Mr Kerr makes about the application of the Model Code, if he is right about its application to the SPA in the circumstances of this case, in fact supports the argument that time was not of the essence in relation to the settlement obligations in the SPA. In fact, as I note towards the end of this judgment, the Model Code did not work in the way Mr Kerr suggested in relation to the SPA, and would not have prevented settlement of the transaction in a prohibited period (assuming the SPA had been entered into outside a prohibited period), and so it does not seem to me to bear either way on the question of whether time was of the essence in relation to the settlement obligations in the SPA.