CONTRACTS: TIME IS OF THE ESSENCE

(A) WHAT DOES ‘TIME IS OF THE ESSENCE’ MEAN? The phrase ‘time is of the essence’ appears as a type of condition in many contracts. It is a ‘term of art’ which is interpreted by the courts as having a particular meaning. A literal translation of the phrase is something like ‘time is of absolute importance in using rights or fulfilling obligations’. This could refer to just one provision, or maybe even to the whole contract. However, this modern phrase does not have the same legal meaning. If one party to a contract insists that ‘time is of the essence’ with reference to the other party using a right or fulfilling an obligation, a breach can have extreme consequences. If a party does not use a right within the set time, that right may be lost. If an obligation is not performed within the set time, it is very likely to be grounds for the other party to terminate, claim damages, or even rescind the contract. This means to ‘unmake’ the contract between the parties and, as far as possible, return them to their pre-contractual position. This can apply to obligations that are carried out too early as well as too late.

(B) A LEADING CASE The case of Union Eagle Ltd v Golden Achievement Ltd (1997) was about the purchase of an apartment for the price of $4.2 million in Hong Kong. An asset worth this amount can be classified as a ‘volatile asset’, meaning that its value can rise and fall dramatically according to the stability of the economy and other factors. The buyer of the property paid a 10% deposit of $420,000, with the rest to be paid “on or before 5.pm on 30 September 1991”. The buyer’s representative arrived to make payment 10 minutes late and at 5.11pm on 30 September the buyer’s solicitors were informed that the agreement was rescinded. The buyer started legal action, seeking the remedy of specific performance. The court examined the contract in detail and found that clauses 3, 4 and 12 stated the following:

3. Completion shall take place at the office of Messrs Robert C.K. Tsui & Co., Solicitors on or before the date set out in Part III of the Second Schedule hereto (hereinafter referred to as ‘the Completion Date’) and before 5.00 p.m. on that day if it is a weekday or before 12:00 noon on that day if it is a Saturday when the residue of the purchase money shall be fully paid and the Vendor and all other necessary parties (if any) will execute a proper assignment in favour of the Purchaser.

4. Time shall in every respect be of the essence of this Agreement.

12. If the Purchaser shall fail to comply with any of the terms and conditions of this Agreement the deposit money and any part payment of purchase price so paid shall be absolutely forfeited to the Vendor who may rescind this Agreement and either retain the Property which is the subject of this Agreement or any part or parts thereof or resell the same, either as a whole or in lots, and either by public auction or by private contract, or partly by the one and partly by the other, and subject to such conditions and stipulations as to title or otherwise as the Vendor may think fit.

The court of first instance in Hong Kong found in favour of the seller and the buyer appealed to the Hong Kong Court of Appeal. The higher court upheld the decision. The buyer then made a final appeal to the Judicial Committee of the Privy Council (JCPC) in London, which describes itself as “the court of final appeal for the UK overseas territories and Crown dependencies”. This court also allowed the seller to rely on the ‘time is of the essence’ provision, in part because it recognised that the seller of a volatile asset must have certainty or risk losing a significant amount of money. As one of the judges who heard the appeal at the JCPC said: “The fact is that the purchaser was late. Any suggestion that relief can be obtained on the ground that he was only slightly late is bound to lead to arguments over how late is too late, which can only be resolved by litigation”.