Conditions precedent in commercial contracts

The following Commercial practice note provides comprehensive and up to date legal information covering:

  • Conditions precedent in commercial contracts
  • What are conditions precedent?
  • Typical conditions precedent
  • Approvals/consents
  • Connected agreements
  • Funding
  • Payment
  • Contractual formalities
  • Drafting issues

Conditions precedent in commercial contracts

This Practice Note considers the meaning and use of conditions precedent in commercial arrangements. It also considers typical conditions precedent and drafting issues.

What are conditions precedent?

A condition precedent in a commercial contract details an event which must take place before:

  1. a contract, or

  2. a party’s obligation(s) under a contract

comes into force. The contract, or the relevant obligation, does not become binding until the condition has been satisfied.

In Nautica Marine Ltd v Trafigura Trading LLC, the judge distinguished between a ‘pre-condition’ to contract (which has the effect of preventing a contract coming into existence altogether) and a ‘performance condition’ (which does not prevent a binding contract coming into existence, but which if not satisfied means that performance does not have to be rendered). While each case will depend on its own individual facts and commercial context, an important determining factor is whether satisfaction of the condition depends on the decision of a contracting party or a third party. A condition is more likely to be a pre-condition than a performance condition where it involves the exercise of a personal or commercial judgment by one of the potential parties. See News Analysis: Negotiating contracts—practical points of interest (Nautica Marine Ltd v Trafigura Trading LLC ('The Leonidas')).

A condition precedent should be distinguished from a condition subsequent. A clause that details, in the case

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