"Time Of The Essence" Clauses Head To The Supreme Court

A "time is of the essence" (TOE) clause may be the most contentious boilerplate provision in Canadian contract law, judging by the volume of Canadian case law that it has generated. As a form of legal shorthand, the clause communicates the parties' agreement that a time limit in a contract is essential and that a breach of that limit (no matter how trivial) will permit the innocent party to terminate the contract. Notwithstanding that its basic legal meaning has long been settled, disputes over its application in particular contracts continue to be litigated. The Supreme Court of Canada (SCC) will now have an opportunity to weigh whether a TOE clause functions well as shorthand for sophisticated parties, or more often sets a trap for the unwary.

On January 22, 2026, the SCC granted leave to appeal the decision of the Court of Appeal of Newfoundland and Labrador in Nova Fish Farms Inc. v Cold Ocean Salmon Inc. The Court of Appeal held that a TOE clause did not apply to contractual obligations that were subject to only an "indefinite time limit" – in this case, obligations to seek regulatory approval for a transaction "as promptly as practicable" and to use "commercially reasonable efforts" to obtain regulatory approval before closing.

The SCC may take the opportunity not only to address this relatively narrow issue, but also to reconsider whether a TOE clause still serves a useful purpose in enhancing contractual certainty. Is the strict application of the clause one of those "artificial rules which, although they may appear to have no underlying rationale, promote efficiency or security in commercial transactions," as the SCC said of the "sealed contract" rule in Friedmann Equity Developments Inc. v Final Note Ltd.? Or does the proliferation of case law signal that the strict application of a TOE clause, regardless of the factual context of the contract in which it is used, no longer coexists peacefully (if it ever did) with the general modern approach to contractual interpretation?¹

Key Takeaway

Even if the SCC affirms the Court of Appeal's decision and the time-honoured meaning of a TOE clause, the essential drafting lesson remains that the boilerplate form of the clause should be used in a contract only where the parties intend that a breach of each and every time-limited obligation, no matter how trivial, will entitle the innocent party to terminate the contract. Whatever transacting parties may assume, a TOE clause is not just a succinct way of saying that "keeping to timelines is important in our deal."

In many cases, parties may be better advised not to include the clause in their contract and instead provide for express termination rights (and cure periods) or other remedies that address breaches of time-based obligations. Alternatively, parties can limit the scope of the TOE clause to specified critical provisions of the contract. This will avoid unintended consequences whereby trivial delays by a party may allow the other party to walk away from the transaction (often for reasons unrelated to such delays).

How Do Time of Essence Clauses Work?

The phrase "time is of the essence" is often used in common parlance to communicate that something is urgent. In law, however, "time shall be of the essence of this Agreement," or similar language, means that "where a time limit is stipulated in a contract ... breach of the time limit will permit the innocent party to terminate the contract" (as stated by the Ontario Court of Appeal in Di Millo v 2099232 Ontario Inc.).

Examples of contractual obligations caught by a TOE clause would be a covenant to submit a request for regulatory approval "within 15 business days of the date of this Agreement," and an obligation in a purchase agreement to tender the purchase price by 5:00 p.m. on the closing date. If the parties do not specify a time for the performance of an obligation, the law generally implies a requirement to perform such obligation within a reasonable time frame. The TOE clause, therefore, does not itself impose any time limits or otherwise obligate the parties to expedite performance of their obligations. Instead, it provides a (potentially draconian) remedy to the innocent party if a stipulated time limit is breached.

The innocent party will generally be permitted to terminate the contract on the basis of a TOE clause only if it is "ready, willing and able" to perform at the stipulated time. This is often evidenced, particularly in the real estate context, by "tendering" on the party in default, or its lawyers, at the closing time.

At common law, time is not presumed to be of the essence of a contract (except in special circumstances). Contracting parties, the SCC held in Sail Labrador Ltd. v Challenge One (The), "must use very precise words if their intention is to make time the essence of a contract." Precise, but not complex, words. As parties committing immaterial defaults have discovered to their surprise, "time shall be of the essence of this Agreement" is enough to render every stipulated deadline essential. Sail Labrador Ltd. v Challenge One (The), "must use very precise words if their intention is to make time the essence of a contract." Precise, but not complex, words. As parties committing immaterial defaults have discovered to their surprise, "time shall be of the essence of this Agreement" is enough to render every stipulated deadline essential.

The case law evidences the harsh reality that a TOE clause can allow a party to take advantage of the other party's trivial delay in performance to terminate the transaction. In 3 Gill Homes Inc. v 5009796 Ontario Inc., the Ontario Court of Appeal held that the vendor of a property was permitted to terminate the deal because the purchaser delivered the closing funds 35 minutes after the deadline specified in the purchase agreement. A nine-minute delay entitled the vendor to walk away from a deal in Correa v Valstar Homes (Oakville Sixth Line) Inc. Although much of the case law relates to closing deadlines in real estate transactions, where market fluctuations between signing and closing can prompt buyers and sellers alike to look for ways to get out of deals, the clause should be used only with caution in all contracts.

Although some courts have recently considered whether they have an equitable discretion to grant relief against the strict enforcement of a breach of a TOE clause, this is likely to apply only where the non-delaying party has in some way contributed to the breach.

Nova Fish Farms Inc. v Cold Ocean Salmon Inc.

Background

In February 2020, Cold Ocean Salmon Inc. (the seller) entered into a purchase agreement with Nova Fish Farms Inc. (the purchaser) pursuant to which the seller agreed to sell several trout farms to the purchaser. The farms were federally and provincially licensed and regulated and so the closing of the sale was conditional on regulatory approval.

The agreement provided that each party "shall as promptly as practicable after execution of this Agreement" take the necessary steps to obtain regulatory approval. In addition, each party covenanted to "use commercially reasonable efforts to obtain" the approval before closing. The agreement contained a standard TOE clause.

Due to the COVID-19 pandemic, the purchaser refrained from taking any steps toward obtaining regulatory approval for 16 months following the execution of the agreement. In fact, neither party took any steps toward closing until June 2021, when the purchaser submitted transfer applications to the government. Regulatory approval followed in October, and in December the purchaser informed the seller's counsel of the approval and that the purchaser wished to proceed with closing. The parties communicated on several occasions through the spring of 2022, but in May 2022, the seller informed the purchaser that it did not intend to proceed with the sale. The purchaser sued for specific performance.

Do time of essence clauses apply to "indefinite time provisions"?

The summary trial judge found that the purchaser's 16-month delay amounted to a breach of the covenant to take the necessary steps to obtain government approval "as promptly as practicable" following signing as well as a breach of the purchaser's obligation to use "commercially reasonable efforts" to obtain the approval before closing. The Newfoundland and Labrador Court of Appeal did not disturb this finding.

The two courts diverged, however, on the question of the consequences of the breach. The summary trial judge found that "as promptly as practicable" and "commercially reasonable efforts" engaged the agreement's TOE clause, since the parties could not have contemplated that doing nothing for 16 months would satisfy these obligations. The breach of such time-based obligations, the trial judge concluded, entitled the seller to terminate the agreement because it contained a TOE clause.

The purchaser pointed to other provisions of the agreement that included precise time stipulations, arguing that the TOE clause applied only to those obligations. The parties fixed the closing date at seven days from the satisfaction of the conditions precedent to closing, and the closing time was set for 3:00 p.m. on the closing date.

The Court of Appeal disagreed with the trial judge, holding that the TOE clause did not apply to "indefinite time provisions." Relying in particular on the Di Millo decision, the Court of Appeal noted that all of the cases cited by the parties in which a TOE clause was enforced "involved precisely stipulated time limits." The Court was also concerned with the effect of the trial judge's decision on commercial and contractual certainty:

The Court of Appeal ordered specific performance of the agreement.

Time of Essence Clauses and the Modern Principles of Contractual Interpretation

As we noted above, the SCC's interest in Nova Fish likely relates to the apparent tension between the formulaic application of TOE clauses and the modern principles of contractual interpretation, which require a fact-specific determination of the parties' intentions when they made their agreement. The seller is likely to challenge whether the Court of Appeal was correct in considering the clause as an extricable question of pure law, rather than determining the parties' intentions in using it – a mixed question of fact and law. The SCC recognized in Ledcor Construction Ltd. v Northbridge Indemnity Insurance Co. "an exception to this Court's holding ... that contractual interpretation is a question of mixed fact and law subject to deferential review on appeal ... where an appeal involves the interpretation of a standard form contract." Should the nine magic words of a TOE clause be analogous to a standard form contract?

The SCC's recent decision in Earthco Soil Mixtures Inc. v Pine Valley Enterprises Inc., in which the Court affirmed that "words alone do not have an immutable or absolute meaning" and that there is no "requirement for magic words" might seem to have set up the TOE clause for judicial reconsideration. However, as the SCC also noted in Earthco, "the meaning of even legal terms may depend on who the contracting parties are, their relationship to each other and whether they are sophisticated at contracting." The SCC used that rationale in Friedmann as part of the basis for retaining the "sealed contract rule." However, the case law on TOE clauses might seem to suggest that they have not always been deployed only by sophisticated parties represented by counsel who fully understood the consequences of using them.

Footnotes

1 That approach was stated by the SCC in Sattva Capital Corp. v Creston Moly Corp. as follows: "contractual interpretation involves issues of mixed fact and law as it is an exercise in which the principles of contractual interpretation are applied to the words of the written contract, considered in light of the factual matrix."

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