Time is ticking - but is time of the essence?

Following the lifting of many Covid restrictions, including the requirements on facemasks, we are now seeing covid related disputes passing through the courts.

In the recent High Court case of Pharmapac (UK) Ltd v HBS Healthcare Ltd [2022], the Judge considered whether the time for delivery of facemasks during the covid pandemic should be “of the essence”.  Below we explain “time of the essence” and look at the decision in the Pharmapac case.

What does “time of the essence” mean
Parties to a contract can stipulate that time should be of the essence for the completion of certain obligations, for example, the obligation to deliver goods by a specified date.  If time has been made of the essence and performance is not completed by the agreed time and date the innocent party will have the right to terminate the contract and seek damages – even if there has only been a short delay in compliance.

The facts of the Pharmapac case
The contract, in this case, was for the supply of 5 million facemasks by ten weekly instalments.  The first batch of facemasks were to be delivered by a specified date, followed by the nine further weekly shipments.  A specified date for the supply of the further nine weekly shipments was not set out in the contract.  Also, the contract failed to specify the number of facemasks that should be in each shipment and it was silent on whether the time for delivery was of the essence.

Only the first shipment of facemasks was received by Pharmapac.  Pharmapac argued that time was of the essence for delivery of all of the required shipments of facemasks and sought to terminate the contract and seek damages.

The decision in the Pharampac case
The Judge confirmed that in commercial contracts there is no presumption in law that if a date for delivery has been specified, compliance with that date will be deemed to be of the essence. Commercial contracts are often interpreted in this way, but whether the date of delivery is in fact of the essence will be a matter of construction.

In this case, the Judge looked at all of the surrounding circumstances to decide whether time was of the essence for the supply of each of the shipments due from HBS Healthcare.  Taking into consideration the situation with the covid pandemic and the fact that the market for facemasks was volatile – with there being a “scramble for supply”- the Judge concluded that time was in fact of the essence for the delivery of all of the facemasks.  As a result, HBS Healthcare were found to have breached the contract and Pharmapac were entitled to terminate the contract and claim damages.  This was despite the fact that the contract terms around the delivery of the facemasks were vague and the contract did not expressly include a clause making time of the essence in relation to delivery.

This Judgment serves as a reminder that when entering into contracts consideration needs to be given to the date on which obligations should be performed and to ensure that contracts expressly record whether or not time for performance of those obligations will be of the essence.  If you need help with interpreting your contract, please get in touch.