“Time is of the essence” is a strange little phrase which often rears its head in negotiations. It is not as innocuous as it might seem. It does have legal significance, which we explain below from the perspective of the supplier.
If in relation to a contractual obligation, timescales are stated to be “of the essence” then a failure to do things within that timescale means that the customer can terminate the contract as well as sue you for contractual damages. If time is not of the essence, then there is no right to terminate for failure to meet the relevant timescale (but the customer can still claim damages in line with the contract).
Generally, there are three levels to look out for in the contract. (It is possible that different levels might apply to different obligations).
Time is of the essence in relation to a contractual obligation. This means that not meeting the relevant timescales allows the customer to sue you for damages AND terminate the contract.
Carrying out a contractual obligation within a certain timescale, but time is not of the essence. This means that the customer can sue you for damages in line with the contract if you do not perform the relevant obligation in time, but the customer cannot terminate the contract for this reason.
All timescales are estimates only. This means that if you do not carry out services within any specified timescales, there is no breach of contract and therefore the customer has no claim for damages and no right to terminate for this reason. This is because they are estimates, (there cannot be a breach if there is no obligation to deliver by a certain timescale in the first place).
There are some cases that set out rules on certain obligations where time might or might not normally be of the essence. For example, timing of payments is generally not deemed to be of the essence, unless the contract expressly says otherwise (in other words, if the contract is silent it would be very hard for you to terminate for late payment by the customer). Conversely, there are cases that have established that the date by which delivery of perishable goods must be made is normally of the essence.
The general rule (apart from some specific exceptions e.g. perishable goods above) is that if the contract is silent, time is NOT of the essence, i.e. you may still have an obligation to do something by a certain time, but if you don’t, it can lead to a damages claim from the customer, but the customer cannot terminate the contract for this reason.
Very often a lawyer for the customer:
will try to turn a provision where timescales are estimates only into an obligation to actually do something by a certain date, so at the very least the customer can claim damages if the timescales are not met.
may also take it a step further AND make time of the essence, so that the customer can also terminate if you do not do what you are supposed to by the relevant time.
They might try and do this by focussing on provisions in relation to specific obligations such as timescales for delivery of certain goods or deliverables, or they might include one generic provision relating to all obligations under the agreement.
You should think very hard about:
a move away from timescales being estimates only as there may be exposures to damages claims that would not otherwise be payable
a move to a “time is of the essence” obligation as it is often an easy route out of the contract for the customer!
If you agree to either of the above then you must be sure that you identify all of the risk factors that could affect your failure to meet those deadlines as you will need to manage them.
If you want to discuss this in more detail, please call Tracey on 01202 729444 or e-mail tracey@law-point.co.uk.
