When suppliers fail to meet their obligations, contract terms hold the key to your options
What can you do when a contract has not been performed on time? Delay can happen as the result of many factors, ranging from goods being stuck further up the supply chain, through to deliberate tardiness on the part of the contractor.
The starting point as always is to look at the contract. What does it say about the timeframe for performance? It will generally say either:
- That the obligation (for example, the delivery of goods) will be performed by a certain date and that time is of the essence; or
- That the obligation will be performed by a certain date (but with no express stipulation that time is of the essence); or
- That the parties will use their reasonable endeavours to perform the contract within a reasonable time; or
- Nothing at all about the timeframe for performance.
From this, you can deduce how strictly the timeframe needs to be complied with and what your options are if that timeframe is not met.
Contract terms and their meanings
Each of the contract situations above gives you, as the buyer, different rights, which are explored below.
Within a specified timeframe and of the essence
If a timeframe is given and is expressly stated to be ‘of the essence’, that timeframe must be strictly complied with. The effect of using the words ‘time is of the essence’ means that any delay will be a breach of contract. Such a breach will entitle the innocent party to accept that breach and terminate the contract and claim damages, even if the delay is very short.
Within a specified timeframe
Where there is a specific timeframe in the contract, but it is not stated to be ‘of the essence’, then a failure to perform the obligation by that time will still be a breach of contract but it will not give the innocent party the right to terminate.
Such a breach is unlikely to be regarded by the Court as a repudiatory breach (i.e a breach which is so serious that it goes right to the very root of the contract and for which the contract can be terminated). Instead, the innocent party will be entitled to claim damages for any loss caused by the delay.
Within a reasonable time
If the obligation is to be performed within a reasonable time, then there will usually be a debate as to what is or is not reasonable, which will be fact dependent. For example, a reasonable timeframe for the delivery of a perishable item will be shorter than for a non-perishable item. Again, a delay here is unlikely to be repudiatory so the remedy will be to claim damages for any loss, not a termination of the contract.
No timeframe is mentioned
If the contract is silent, the Sale of Goods Act 1979 implies a term in a business-to-business contract that the seller is bound to deliver goods within a reasonable time.
When one of the parties to the contract is a consumer, the Consumer Rights Act 2015 implies a term that goods must be delivered without undue delay and in any event not more than 30 days after the day on which the contract is entered into.
For contracts for the supply of services (whether to a business or to a consumer), the Supply of Goods and Services Act 1982 (for businesses) and the Consumer Rights Act 2015 (for consumers) both say that the services must be performed within a reasonable time, with what is reasonable being a question of fact in each case.
What are your options?
Where a ‘time of the essence’ term is not included in your contract, here are still some steps you can take if there has been a delay and you would prefer to terminate the contract – for example, when you have been able to secure the goods or services in question from another supplier who can deliver more speedily. Your options are:
- You can serve a notice on the other party to make ‘time of the essence’ for performance. Should the supplier fail to comply, and the delay persists after the timeframe set out in the notice has expired, that will then be a repudiatory breach which you can then accept to bring the contract to an end. Take care to comply with any express notice provisions in the contract such as where to send the notice to and by what means of communication.
- Express termination provisions in contracts commonly include a term that entitles you to terminate if notice has been served to cure a material breach (which is capable of being remedied) and that does not happen. A material breach is one which is substantial and serious, and the contract may define which breaches are deemed to be material. Again, make sure that any contractual notice provisions are strictly complied with. You should also check whether you need to serve a further notice to terminate the contract if the breach is not remedied or whether such termination happens automatically if the breach persists at the end of the notice period.
- If you need a little time to reflect and decide whether you want to continue with or terminate the contract, communicate this to the other contracting party and expressly state that all of your rights and remedies under the contract and at common law are strictly reserved. This will avoid you inadvertently waiving the breach or affirming the contract while you decide what to do.
Extra options for consumers
If you are a consumer, the Consumer Rights Act 2015 gives you further rights in the event of a delay.
For contracts for the supply of goods, you can treat the contract at an end and claim a reimbursement of all of the payments you have made if:
- the trader refuses to deliver the goods; or
- delivery at the agreed time is essential taking into account all of the relevant circumstances that existed at the time the contract was made; or
- you told the trader before the contract was entered into that delivery at the agreed time was essential.
If none of these criteria are met, you can give the trader a period within which the goods must be delivered. If the goods are still not delivered within that period, you can then treat the contract as at an end. This is essentially the same effect as serving a notice to make ‘time of the essence’ as explained above.
Where services are not supplied on time, the Consumer Rights Act 2015 confers on consumers an additional remedy of a price reduction.
Are you on solid ground?
Terminating a contract for delay is tricky and can be a high-risk strategy. If you get it wrong and terminate the contract in circumstances where you have no right to do so, that puts you in repudiatory breach and exposes you to a potential claim for damages. If you do want to extricate yourself from a troublesome contract, consider seeking early legal advice to avoid such pitfalls for the unwary and the risk of making a bad situation worse.
By Clare Mackay, Commercial Litigation & Dispute Resolution Team, SA Law