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Time of the essence (or otherwise)

Time of the essence (or otherwise)

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This precedent has been authored by Ilija Vickovich, Lecturer, Macquarie Law School and updated by Dr. Gordon Hughes, Principal, Davies Collison Cave Law.

Introductory note

Where time for performance is stipulated, the question arises whether time is “essential”. The significance of this lies in the fact that a contracting party may prima facie terminate a contract where an essential term (a condition) has been breached.

Following the historical intervention of the courts of equity in this area, the general position is that (see Zaccardi v Caunt (2008) 15 BPR 28,403; [2008] NSWCA 202; BC200807698):

• time stipulations are to be considered intermediate terms; and

• breach may in some circumstances give rise to a right to terminate.

Possibilities of termination for breach of a time stipulation

Termination for breach of a time stipulation will generally be possible only where:

• the contract expressly makes time of the essence (in which event the term will usually be drafted to include words such as “it is an essential term that ... “or” completion will take place on [date] time of the essence”);

• there is a necessary implication that time is of the essence (although specific and unique facts may be required); or

• time is made essential by the serving of a notice to that effect by one of the parties upon the other.

Notable aspects of this issue include the following:

• where a contract provides for time of the essence in respect of a particular obligation, this generally indicates time is not of the essence for the remaining contractual obligations;

• the converse does not necessarily apply - in the absence of a “time of the essence” clause, it is still possible for a court to conclude that the failure to meet a time commitment constitutes the breach of an essential term (see United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904 and Cuscal Ltd v First Data Resources Australia Ltd [2011] NSWSC 1625; BC201110389);

• in general, time of the essence provisions should be agreed to only in exceptional circumstances. Making a time stipulation essential should be made conditional upon the giving of notice;

• where an essential time provision is agreed to, it is usually indicative of greater risk for at least one of the parties. This may well influence negotiations and the price that is paid for the risk; and

• in the past, courts exercising equitable jurisdiction have been prepared to provide relief against forfeiture where a party stood to suffer a pecuniary or proprietary loss as a result of a breach of an essential time stipulation, especially where the other party has acted in an unconscientious way. A typical example is loss of deposit by a defaulting purchaser in a contract for sale of land. However, in more recent times, superior courts have refused relief where the party taking advantage of the breach (such as a vendor claiming the deposit from the stakeholder) has relied simply on their contractual right to do so. (See Stern v McArthur (1988) 165 CLR 489; 81 ALR 463; 62 ALJR 588; BC8802646; Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315; 201 ALR 359; [2003] HCA 57; BC200305798; Union Eagle Ltd v Golden Achievement Ltd [1997] AC 514; [1997] 2 All ER 215; [1997] 2 WLR 341.)