Timing is everything with contract law

Well, not exactly – I am exaggerating of course. But, timing and issues of time are important in most contracts and an essential item to consider when drafting and negotiating. Time of the essence in contract? There are many statutes which apply to business where time stipulations make clear what each party’s rights and responsibilities

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Well, not exactly – I am exaggerating of course. But, timing and issues of time are important in most contracts and an essential item to consider when drafting and negotiating.

Time of the essence in contract?

There are many statutes which apply to business where time stipulations make clear what each party’s rights and responsibilities are. A good example is consumer legislation and credit agreements where there are set timeframes where a consumer or a borrower can either return goods or where there is a statutory cooling off period.

In other areas of law, such as conveyancing, contracts tend to be fairly standardised, adopting Standard Conditions for key areas such as time and what happens if agreed timings are not complied with, such as where a buyer fails to complete on the agreed completion day. In that scenario, there is a further period of leeway, the seller can charge interest and then after that set period expires, the seller would be entitled, on the face of it, to treat the contract as terminated.

However, with most business to business contracts, the issue of time is a matter for the parties and the starting point, in legal terms, is that time is not of the essence. In the real world, the 21st century world, where everything is fast paced, timing is almost always of the essence. Consequently, it is important to specify this if it’s important.

Stating that time is of the essence, on it’s own, may or may not be enough. Not every breach of contract entitles the innocent party to terminate the contract, as of right. If that right is important, the right to terminate based on a time default, it is important to stipulate that clearly in the contract and to be aware that it works both ways. In other words, if time is of the essence, the other party is in breach, and as innocent party you do not terminate as soon as the time limit is not complied with, you may well be given short shrift by a court later if you try to terminate a short time after you are strictly entitled to.

Contractual negotiations over time periods

The ability to impose a stringent time is of the essence clause on the other party is easier said than done – commercial agreements are of course negotiable and it would be a rare scenario, if ever, that I would advise any client to accept such a clause.

Timing is inherently important but there are many situations where an all or nothing approach suits neither party. Many contracts are ongoing. Take for example, an IT services contract. It’s vital from the client perspective to ensure that if there is an IT problem, the supplier is contractually required to respond quickly. On the other hand, a clause which stated that if the supplier does not react within an hour means the contract is terminated would hardly be appropriate for the client. Finding a replacement would take much longer, setting aside the knowledge and information catch up period.

Go for clarity – avoid “reasonable time period” wherever possible

I’ve lost count of the number of contract clauses I’ve seen that state that a party must do something, or remedy something, within a “reasonable time period”. This is sloppy drafting and wording which in my view should be wording of the last resort. It should be obvious that such wording is a recipe for a potential dispute, leaving both parties at the mercy of a Court’s interpretation of what it means in that particular context and factual scenario. Contracts, when well drafted, give both parties as much certainty as possible, not uncertainty.

A comprehensive and well thought out approach to timings in your contract

A compromise position on timing is often best and this is where an experienced lawyer adds real value.

It may well be that a “time is of the essence” clause is appropriate but caveated with a timescale for the other party to remedy the time breach, some clear sanctions, possibly financial, short of termination, but with a right to terminate should the breach not be remedied and strict compliance thereafter. Things will generally need to be thought through and the implications, based on experience.

Be wary also of thinking that, instead of a strict time of essence clause and right to terminate that a very severe liquidated damages clause will do the trick. Penalty damages, disproportionate to the actual loss incurred,  are very problematic under English law.

The clear right to terminate may not be as attractive as it may seem, for some of the reasons outlined above, and also because, termination is not a licence to sit back and do nothing and claim whatever you think you’ve lost because of the breach. Contract law, recoverability of damages, mitigation of loss and causation are all tricky areas which can mean a right becomes a burden becomes a loss.

dswede-sbTalking of time ….. I have to confess, I have over 40 years time experience of advising on contracts. This makes me old but such time does hopefully bring the advantage of time and experience for clients!

commercial law • David Swede • Uncategorized

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