Time of the essence
Pharmapac v HBS Healthcare (High Court) [2022]
As this case illustrates, time can be ‘of the essence’ even though not expressly stated as such in the documentation forming the contract. This can give rise to important rights to terminate but you must be careful not to have waived your rights.
Facts:
The parties concluded a contract by email in March 2020 for the supply of a total of 5 million personal protective masks by ten weekly instalments. Delivery of the first batch was to be by a specified date followed by nine further "weekly" shipments with no stipulation as to by when in each week delivery had to be made. The payment terms seemed to suggest each following shipment would be of 500,000 masks. There was no statement in the contract that the time for delivery was ‘of the essence’ or that time of delivery was a condition of the contract. The contract failed to address the consequences of a failure to deliver on time. Only the first instalment was delivered. When the balance of the masks was eventually delivered in June 2020, the purchaser refused to take delivery. It was noted that the goods in question were not perishable.
Decision:
The High Court held that, as a matter of construction (interpretation), the contract for the supply of facemasks included a term that time for delivery was ‘of the essence’. The customer was therefore entitled to terminate the contract when the supplier failed to deliver on time. The judge reaffirmed that there is no presumption of law that stipulations as to the time for delivery are ‘of the essence’. Whether the time for delivery is of the essence is a matter of construction. In this case, the market for the masks was highly volatile given the context of the developing pandemic and the resulting "scramble for supply". Despite the vagueness of the emails, the judge concluded nevertheless that time for delivery was of the essence. Interestingly, the judge said that if he had come to a different conclusion, he would not have implied a term making time of the essence as the contract would have nevertheless been effective without it. Such a term would not have gone ‘without saying’.
He also rejected the supplier's argument that the customer had delayed too long in accepting the supplier's repudiatory breach and had waived its right to ‘accept’ the repudiation and terminate. A contracting party has a period of time to make up his mind what he is going to do. If it does nothing for too long, it may end up being treated as if it has affirmed the contract; but if it maintains the contract in being for the moment, while reserving the right to treat it as repudiated if the repudiation persists, it has not yet positively affirmed.
The judge quoted various extracts from a leading contract law text. In particular “if the innocent party unreservedly continues to press for performance or accepts performance by the other party after becoming aware of the breach and of his right to elect, he will be held to have affirmed the contract”. The judge then had to consider whether various communications amounted to pressing for performance. In this case, the judge decided the various communications did not amount to ‘pressing for performance’ but instead simply amounted to ‘requests for information’ on the timing of future deliveries.
Points to Note:
- The case highlights the danger of failing to adequately document the consequences of delays and the rights and remedies of the parties.
- Be very clear about reserving your rights to terminate if you are considering your position following a delay in performance. Depending upon the circumstances, you will be entitled to a reasonable period within which to make up your mind. What is ‘reasonable’ will depend upon the facts in each case. However, be very careful about being less than clear about reserving your rights and then continuing with communications. There is a very fine line between pressing for performance amounting to a positive affirmation on the one hand and merely requesting information, on the other.