Introduction
In February 2020, Nova Fish Farms Inc. (Nova Fish) entered into an agreement to purchase several trout farms from Cold Ocean Salmon Inc. (Cold Ocean). The trout farms were situated on provincially leased land and could not be transferred without regulatory approvals from both provincial and federal authorities.
The Agreement of Purchase and Sale (the Agreement) did not specify a fixed or outside closing date. Instead, it provided that closing would occur seven days after certain conditions precedent were satisfied, including the receipt of all required governmental approvals. The Agreement required both parties to take steps to obtain those approvals "as promptly as practicable" and to use "commercially reasonable efforts" in doing so. The Agreement also contained a standard "time shall be of the essence" (the TOE) clause.
Following execution of the Agreement, Nova Fish took no meaningful steps to advance the regulatory approval process for approximately 16 months. Once approvals were obtained, Cold Ocean refused to close, asserting that Nova Fish had breached its obligations and that the TOE clause entitled Cold Ocean to terminate the Agreement. The Newfoundland and Labrador Court of Appeal (NLCA) ultimately held that a TOE clause does not apply to indefinite time provisions such as “as promptly as practicable” or “commercially reasonable efforts.” The decision, which is currently under appeal to the Supreme Court of Canada (SCC), has significant implications for the drafting of timing and termination provisions in commercial real estate contracts.
Issues
Why the NLCA Held TOE Clauses Do Not Apply to Indefinite Time Provisions
The central issue before the NLCA was whether a TOE clause can apply to contractual obligations framed in indefinite temporal language. At trial, the judge found that Nova Fish had breached its obligations to act promptly and use commercially reasonable efforts to obtain regulatory approvals. On that basis, the trial judge held that the TOE clause entitled Cold Ocean to terminate the Agreement.
On appeal, the NLCA drew a clear distinction between contractual provisions that impose fixed or stipulated time limits and those that establish indefinite performance standards. In the Court's view, a TOE clause does not itself create a deadline; rather, it prescribes the consequence of failing to meet a deadline that the parties have expressly stipulated. Because the obligations at issue were framed in open-ended language, the NLCA characterized them as indefinite time provisions. In their view, a TOE clause should only operate where the contract specifies a precise time or deadline.
The NLCA emphasized that TOE clauses are intended to promote certainty in commercial dealings. If applied to vague performance standards, such clauses would leave parties uncertain as to when a breach occurs and when the innocent party must elect whether to terminate. In the NLCA's view, extending TOE clauses to indefinite obligations would undermine the certainty that such clauses are designed to achieve.
The Absence of a Fixed or Outside Closing Date
The Agreement in Nova Fish lacked an express outside closing date. Closing was to occur seven days after certain government approvals were obtained but the Agreement specified no "drop dead" date. No provision was made in the Agreement for its conditions not being met and closing to occur, or for the time within which the parties expected the transaction to be completed. Neither the summary trial judge nor the NLCA pursued this issue and it does not appear in the materials filed in the SCC. Without an outside date, there was no firm contractual endpoint at which the parties would know for certain that their contractual obligations to each other had ended. A firm end date would likely have provided a better yardstick against which to determine whether any delay was reasonable or not. The courts were therefore left to imply a reasonable time for performance, but with no agreed temporal marker capable of supporting reasonableness. Canadian jurisprudence consistently treats outside dates as the mechanism that gives practical effect to TOE clauses in conditional contracts. Where an agreement includes a defined outside date, particularly one expressly linked to satisfaction of conditions, courts are far more willing to enforce strict compliance once that date arrives.
This distinction is implicit in Di Millo v. 2099232 Ontario Inc., where the Ontario Court of Appeal held that a TOE clause could not operate in the absence of a stipulated time for performance. The Court’s reasoning assumes that, had the contract included an outside date for exercising the option, the TOE clause would have been engaged. The Court expressed that in the absence of a specified time to exercise an option, a reasonable time limit is applied. However, without the trigger of an outside date, this does not grant the right to rescission. The problem was not the clause, but the absence of a contractual deadline to which it could attach.
This notion is reaffirmed in the alternate scenario, where a TOE clause is paired with a specified date, as illustrated by 3 Gill Homes Inc. v. 5009796 Ontario Inc. (Kassar Homes). In this case an amended agreement introduced a specific extended closing date and reaffirmed that time was of the essence. Once that date arrived, strict compliance was required and even minimal delay (35 minutes) justified termination. The fixed date functioned as the point at which timing risk crystallized.
The same logic underlies More v. 1362279 Ontario Ltd. (Seiko Homes), where the Ontario Court of Appeal emphasized that a TOE clause is of limited assistance where the contract is otherwise silent on deadlines. The absence of an outside date leaves the court without a contractual signal that timing has become essential rather than flexible.
The absence of an outside date creates ambiguity. The parties never agreed on when delay would justify exit rather than continued performance. While the SCC appeal focuses on the interaction between TOE clauses and indefinite obligations, the inclusion of an outside date or the time for performance of certain obligations in an agreement is an important part of the contractual structure because of the clarity it adds to the performance of the parties' respective obligations in the contractual relationship.
Discussion
The NLCA upheld the trial judge's finding that Nova Fish had breached its contractual obligations by failing to take any steps toward obtaining regulatory approval for approximately 16 months. The Court accepted that such delay was inconsistent with an obligation to act “as promptly as practicable” and to use commercially reasonable efforts. The appeal therefore did not turn on whether a breach had occurred but on the legal consequences flowing from that breach, specifically, whether that breach entitled the counterparty to terminate the Agreement.
In the NLCA's view, the trial judge conflated two distinct analytical steps. The first was the determination that Nova Fish's delay exceeded the reasonable time contemplated by the Agreement. Courts may imply a reasonable time for performance where a contract is silent, and the NLCA accepted that a sixteen (16) month delay fell outside the implied standard. The second question was whether that implied time limit could engage the TOE clause, which the Court held that it could not. An implied reasonable time does not convert an otherwise indefinite obligation into a stipulated deadline for the purpose of a TOE clause.
As the Agreement did not specify an express outside closing date, Cold Ocean was not entitled to rely on the TOE clause to terminate the Agreement. As a result, the NLCA granted specific performance in favour of Nova Fish.
The SCC granted leave to appeal on January 22, 2026, however the case is yet to be scheduled for a hearing. The appeal to the SCC is expected to focus on whether the applicability of TOE clauses should be treated as a pure question of law and whether the NLCA erred in articulating what may be viewed as a categorical rule excluding indefinite obligations from their scope. The SCC may also consider whether commercially reasonable efforts clauses can function as enforceable time stipulations.
For commercial real estate clients, the outcome of the appeal carries meaningful consequences. If the SCC upholds the NLCA's decision, the TOE clauses will operate only in relation to fixed dates and clearly defined deadlines. While breaches of effort-based obligations may still give rise to damages or equitable relief, they will not support automatic termination. Conversely, if the SCC permits the TOE clauses to apply more broadly, termination risk may increase in transactions involving zoning approvals, environmental remediation, financing conditions, and other regulatory contingencies.
Takeaways
Regardless of how the SCC ultimately resolves the appeal, the case underscores the importance of precision in drafting. Where regulatory approvals or other conditions precedent are involved, parties should consider including a clearly defined outside or longstop date and expressly linking termination rights to that date. Effort-based standards such as “commercially reasonable efforts” are ill-suited to allocating timing risk and should not be relied upon as a substitute for defined deadlines.
In sophisticated commercial transactions, boilerplate language rarely substitutes for deliberate allocation of risk. This decision serves as a reminder that courts will closely examine the structure of timing provisions and will not readily allow standard clauses to fill gaps left by imprecise drafting. Regardless of the SCC's ultimate decision, careful and clear articulation of deadlines, extension mechanisms, and termination triggers remain the most effective way to preserve certainty and manage risk in conditional transactions.
