Face masks: ‘time is of the essence’ despite not saying so in an agreement
We at Blake Morgan have discussed the legal fall-out from the coronavirus pandemic at length. In particular, the strain of the ‘unprecedented’ circumstances arising from government mandated closures of businesses and the like, which put immense strain on commercial agreements. The courts are still unwinding the commercial disputes arising from the pandemic and attempting to apportion liability applying established legal principles in a novel scenario. Such cases are likely to continue for some time to come. Here we look at the fall-out from the global clamour for personal protective equipment (PPE), which has been the subject of extensive litigation.
In the recent decision in Pharmapac (U.K) Ltd and HBS Healthcare Ltd [2022] EWHC 23 (Comm), the Liverpool District Registry of the Business and Property Courts came to a finding on a contract for the supply of face masks during the pandemic. In doing so, the court gave some illuminating guidance on the concept of time being ‘of the essence’ which businesses, specifically those involved in the trade of goods, should note with interest.
The facts
The facts were very simple. Just prior to the first lockdown, on 10 March 2020 the Claimant (“C”) and Defendant (“D”) contracted for C to purchase 5 million face masks from D at 30p per mask to be delivered in 10 weekly tranches of 500,000 masks. C was to pay £750,000 plus VAT for the first 2.5million masks (the “initial sum”) with the same amount payable again for the remaining 2.5million once the first 2.5million had been delivered.
C paid the initial sum on 10 March 2020 and received the first tranche of 500,000 masks on 16 March 2020. Thereafter, C received no further deliveries and on 23 April 2020 D offered to return the sum of £720,000 or to continue to hold C’s money until the stock arrived. C asked for its money back but D failed to return the money.
The parties' positions
C’s case was that time was ‘of the essence’ for delivery of the facemasks and that, as D failed to deliver the weekly tranches of 500,000 masks after the initial tranche, D repudiated (brought to an end) the contract.
D’s case was that it had been prevented from supplying the masks as the Government of India, where the masks were manufactured, had prohibited exports of the masks. D’s primary positions were:
- (i) that D had communicated to C’s representative that the Indian Government was the cause of the delay and that C had indicated it was prepared to wait for the deliveries;
- (ii) C had elected to waive any repudiatory breach on the part of the D, so that it was no longer entitled to treat the contract between them as discharged on the basis of D’s failure to deliver at the stipulated time.
D argued that the masks had eventually arrived on 20 June 2020 and that it was incurring storage costs as a result of C’s unlawful failure to take delivery of the masks and counterclaimed for payment of the sum of £750,000 plus VAT, an order that the Claimant must take delivery of the masks, and damages for the storage costs.
Time being 'of the essence'
The law of England and Wales has long recognised the legal concept of time being of the essence. If a term in a contract relating to a time stipulation is deemed to be ‘of the essence’ the legal effect is that breach of that time stipulation allows the party injured by the breach to bring the contract to an end. Therefore, for traders in goods, awareness of the concept of time being of the essence is very important.
A contractual term can be deemed ‘of the essence’ either if: (i) the contract expressly says so, using the wording of time being ‘of the essence’ (ii) where it is stipulated in the contract that a time fixed for performance must be complied with exactly; or (iii) where the circumstances of the contract or the nature of the subject matter indicate that the fixed date must be exactly complied with. It is fairly standard for a Seller’s standard terms and conditions to expressly remove this concept from their contracts so that delays to deliveries are not fatal to the contract.
In his judgment in Pharmapac, HHJ Cadwallader, when reviewing the relevant authorities, clarified that: “There is no presumption of law that stipulations as to the time of delivery are of the essence of a contract. It is said that commercial (mercantile) contracts are frequently so construed, but it remains a matter of construction.” Here, judge Cadwallader dispels a common misconception that just because a contract is a commercial contract, it will be presumed that time is of the essence even if the parties don’t expressly say so. The Judge clarifies that the question as to whether time is ‘of the essence’ for a time stipulation in a commercial contract comes down to the interpretation of the individual agreement in question.
As to the actual facts of Pharmapac, HHJ Cadwallader noted that the agreement between C and D did not explicitly state that time was of the essence for delivery of the facemasks.
However, the Judge went on to find that C’s termination/repudiation of the contract was lawful on the basis that:
As against the background of the developing coronavirus pandemic there was plainly an urgent commercial need to acquire them with a view to selling them on.
The Judge also cited factors such as price volatility in the masks as being a relevant factor. The Judge also found that C had not waived any right to repudiate.
Commentary
Pharmapac is an interesting decision as it could be seen as harsh on the Defendant. The Judge noted that the agreement “specifying the time for the further deliveries as being ‘weekly’ has a certain vagueness“. On that basis, the agreement was arguably not certain as to when performance must be completed exactly. However, despite this acknowledged “vagueness”, the Judge found for C. Of further note, D’s evidence was that it had communicated to C before entering into the agreement that the masks were being manufactured in India which could cause delay. However, the Judge was not persuaded by D’s evidence on this point.
Practical implications
Pharmapac turns on its own facts as set out by the Judge. However, businesses should take note that when entering into agreements quickly and under pressure, it is always best to expressly state in the agreement if they want time to be of the essence, else they leave it to chance with a costly litigation process and the agreement open to be construed by reference to the surrounding circumstances, which is inherently uncertain.
If you need legal advice on ‘time being of the essence’ in commercial agreements or any other potential contractual issues, please contact our Litigation & Dispute Resolution lawyers.
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