Late deliveries and serving a notice to ‘make time of the essence’

This article looks at serving notices to make ‘time of the essence’ when the contract does not include a ‘time of the essence’ clause.

A risky strategy

Delayed deliveries can have serious implications for the manufacturing process. They can substantially deprive a manufacturer of the benefit of a contract.

The principal way to deal with significant delay is to treat the delay as a repudiatory breach of contract (a breach which is so significant that it gives the aggrieved party the right to choose to end the contract or affirm it). However, unfortunately, it is not always easy to know when a delay has become repudiatory. On the one hand, if the aggrieved party terminates the contract too soon, the aggrieved party risks repudiating the contract itself (and thereby becoming liable for damages). On the other hand, if the aggrieved party acts too slowly, it risks affirming the contract (and thereby losing the right to terminate the contract).

A notice to make time of the essence

If an aggrieved party has any doubt about whether a delay has become repudiatory, that party might strengthen its position by serving a notice to "make time of the essence" on the defaulting party.

The notice may be served as soon as the breach arises. The notice should:

• State clearly what the defaulting party must do.
• Explain that the contract may be terminated for non-compliance.
• Set a reasonable deadline for the defaulting party to comply.

Whether a given deadline is reasonable will depend upon the circumstances of the case, but will probably include, amongst other things, the timetable which the contract originally set for performance and the impact of delay on the aggrieved party.

The effect of a notice

One party cannot unilaterally vary a contract. This means that a notice "making time of the essence" does not vary the original contract in respect of the time of performance or the effect of delay. However, such a notice may help an aggrieved party to substantiate a claim for repudiatory breach in the following ways:

• It provides evidence of the date by which, according to the party serving the notice, failure to perform would be repudiatory.
• It can clarify the position when there is doubt about the right to terminate.
• It can give the defaulting party the chance to remedy the breach.

The notice may open a dialogue between the parties both about the importance of making the delivery on time and the reasons for the delay. That dialogue may disclose details which cast doubt on the grounds for termination and, as a result, may prevent the aggrieved party from making an expensive mistake.

Ending the contract after notice making time of the essence

A notice making time of the essence does not end the contract. Instead, if the defaulting party does not comply with the deadline in the notice, the aggrieved party must communicate its acceptance of the repudiatory breach.

Seeking expert legal advice

As indicated above, it is not always easy to know when a delay has become repudiatory. Even if a notice has been served, there is still a risk that the aggrieved party terminates the contract too soon and thereby exposes itself to a risk of committing a repudiatory breach. The consequences of getting this wrong can be significant. Therefore, we recommend that you contact Holmes & Hills' Manufacturing Team for legal advice before seeking to terminate a contract on the grounds of repudiatory breach.