2.01  One of the most frequently litigated questions with regard to timely performance relates to its importance within the contract as a whole. This is generally expressed by asking whether time is or is not ‘of the essence’. This concept has been used in a number of different senses,¹ but what it boils down to is this. Where time is of the essence, the promisee² can terminate performance, or treat the contract as repudiated, in the event of any delay in performance by the promisor, be it long or short. But where time is not of the essence, the promisee can only terminate performance if the delay is a ‘frustrating’ one – that is to say, one sufficiently protracted as to go to the root of the contract by depriving the promisee of (p. 24) substantially the whole benefit of the contract.³ Though the question of whether time is of the essence is basically about remedies,⁴ it is of sufficient importance to be dealt with, at least in outline, at this stage of the book.

2.02  The question whether time is of the essence is a complex one, and depends on a number of different considerations. However, the topic is rendered especially difficult by two factors. The first is that the courts have not always been entirely consistent in what they mean by saying that time is of the essence. The second is that it is impossible to understand the topic without some grasp of its historical development: in particular, the interplay between the doctrines of common law and equity.

2.03  The courts have used the words ‘time is of the essence’ in no less than five different, albeit closely related, senses.⁵ They have used them to mean: (1) that timely performance is an obligation under the contract; (2) that timely performance by a promisee is a ‘condition precedent’ to the obligation of the promisor to perform; (3) that timely performance by the promisor is a fundamental term, or ‘condition’, of the contract; (4) that the court will refuse a decree of specific performance to a promisee who has not performed on time; and (5) that a promisee who has been the victim of undue delay by the promisor, and who has subsequently served the promisor with a notice giving a final deadline for performance, can now terminate performance if that deadline is not met.

2.04  Prior to 1981 there was authority for saying that time stipulations were only binding where time was of the essence, and that where time was not of the essence, damages could not be obtained for failure to perform on the stated day.⁶ In this context, to say that time was of the essence meant no more than that timely performance was an obligation under the contract. However, the House of Lords in Raineri v Miles⁷ eventually rejected the proposition just stated, and affirmed that (p. 25) time stipulations were contractually binding whether time was of the essence or not. There is now therefore a clear distinction between the question whether a time stipulation is binding and the question whether time is of the essence. There is now no excuse for confusing these two questions, though the fact that they have been confused in the past may still be relevant in understanding some of the decisions prior to Raineri v Miles.⁸ Whatever it may mean to say that time is of the essence, it is now clear that the question is one relating to the remedies available for breach of time stipulations, rather than to whether such stipulations are binding in the first place.

2.05  The second sense in which time can be said to be of the essence is as a ‘condition precedent’ to the duty of the promisor to perform some obligation under the contract. The word ‘condition’ can be used in many different ways,⁹ but the essence of a condition precedent in this connection is that the promisor is not obliged to perform unless and until the condition in question is satisfied. So time is of the essence in this sense when the promisor is not obliged to perform unless the relevant condition, which is normally something to be done by the promisee, is fulfilled on time. This analysis is most commonly used in the context of unilateral obligations; thus in United Dominions Trust (Commercial) v Eagle Aircraft Services Ltd¹⁰ the original sellers of an aeroplane were not obliged to buy it back from a finance company under a ‘recourse agreement’ unless they were given reasonably prompt notification of the hirer’s default. The option under the recourse agreement could only be exercised according to its terms. Where time is of the essence in bilateral or ‘synallagmatic’ contracts the courts do not use this analysis; rather, they now prefer to analyse timely performance as a ‘condition’ in the sense used in the Sale of Goods Act 1979.¹¹ However, the older analysis of timely performance as a ‘condition precedent’ is still important in understanding what it means to say that time is of the essence at common law.¹²

2.06  The third sense in which time can be of the essence is where timely performance is a ‘condition’, in the sense of a fundamental term, of the contract. This draws on the traditional classification of contractual terms into ‘conditions’ and ‘warranties’ as found in the Sale of Goods Act 1979; if a condition is broken, the (p. 26) promisee can not only claim damages but also terminate performance and treat the contract as repudiated, but if a warranty is broken he or she is generally confined to a claim for damages.¹³ So time is of the essence here when the obligation of the promisor to perform on time is a condition; the promisee can terminate the contract if timely performance is not forthcoming.¹⁴

2.07  Though this analysis is similar to the one discussed above in terms of ‘condition precedent’, there are several crucial differences.¹⁵ In particular: (1) the ‘condition’ in question denotes a term of the contract rather than the occurrence of some event; (2) the condition is ‘broken’ rather than, as in the previous analysis, simply failing to occur; (3) such breach does not merely relieve the other party from the obligation to perform a particular term of the contract, but gives rise to the right to treat the contract as repudiated in its entirety; (4) as well as terminating the contract, the promisee can recover damages on the footing of total repudiation. We shall discuss these points in more detail later.¹⁶

2.08  The fourth sense in which time is said to be of the essence is in relation to the equitable remedy of specific performance. To understand this it is necessary to have regard to the practice of the old courts of Chancery concerning time stipulations prior to the Judicature Act 1873.¹⁷ Even where time was of the essence at common law, equity would in some cases allow the promisor to enforce the contract despite his or her failure to perform on time.¹⁸ This was done by granting a decree of specific performance, coupled if necessary with a ‘common injunction’ to prevent the promisee taking proceedings at common law to have the contract terminated on account of the delay. In such cases time was said to be of the essence at common law but not in equity.

2.09  However, in some cases the courts of equity, no less than the courts of common law, would apply the time stipulation strictly, either because this was indicated in the contract or because the circumstances were such that timely performance was clearly crucial.¹⁹ In such cases equity would refuse the usual relief, and the (p. 27) promisee would be allowed to enforce his or her remedies at common law. In these cases time was said to be of the essence both at common law and in equity.

2.10  One of the purposes of the Judicature Act 1873 was to streamline the equitable jurisdiction by abolishing the separate courts of equity and common law, and by allowing equitable remedies to be applied in all courts. It was also enacted that stipulations in contracts, as to time or otherwise, which would not prior to the Act have been deemed to be or to have become of the essence, should henceforth receive the same construction and effect that they would have had in equity.²⁰ However, this provision was given a very limited construction by the courts, it being held that the crucial question was still whether prior to the Act specific performance would have been granted.²¹ In the landmark decision of the House of Lords in United Scientific Holdings v Burnley Borough Council²² in 1978, an attempt was made by Lord Simon to simplify the law by restating the equitable rules as to time within the framework of common law doctrine,²³ but there may still be cases where it can be said that time is of the essence at common law but not in equity.²⁴

2.11  The fifth and final way in which time is said to be of the essence is where it has been made so by notice. This is the procedure, most commonly found in the conveyancing context, whereby in cases of undue delay the promisee serves a notice on the promisor setting a deadline for performance. Provided that the notice has been validly served, time is sometimes then said to be of the essence with regard to the date specified,²⁵ and the promisee can then terminate performance if the deadline is not met.²⁶

2.12  A case where time is made of the essence by notice is very different from one where it is of the essence in the first place. Whether time is of the essence to start with, whether at common law or in equity, is essentially a matter of construction; time is of the essence if it was the intention of the parties that this should be so.²⁷ But this cannot apply to the situation where time is made of the essence by notice, because the status of a contractual term cannot be varied unilaterally by one of the parties to the contract.²⁸ Rather, as we shall see, the question is one akin to (p. 28) repudiation; where the promisor has still failed to perform despite having been given one last chance to do so, this can be taken as evidence that performance will not be forthcoming at all.²⁹

2.13  As in other contexts, it is useful to have some knowledge of the historical background. In particular, we have already touched upon the conflicting approaches of common law and equity to time stipulations.³⁰ In the pages which follow we shall consider how the legal position evolved both at common law and in equity, before asking to what extent it is now possible to enunciate a common set of principles taking both into account.

2.14  The common law doctrine is stated in these terms by Chitty: where time is made of the essence by agreement (as opposed to subsequent notice) the effect is to elevate the term in question to the status of a ‘condition’, with the consequences that a failure to perform by the stipulated time will entitle the innocent party: (1) to terminate performance of the contract and thereby put an end to all the primary obligations of both parties remaining unperformed; and (2) to claim damages from the contract breaker on the basis that he or she has committed a fundamental breach (a breach going to the root of the contract) depriving the innocent party of the benefit of the contract (damages for the loss of the whole transaction).³¹

2.15  Statements can be found in contract textbooks³² and in the law reports³³ to the effect that time was generally of the essence at common law, so that if the promisor failed to perform on time the promisee was entitled to terminate performance. However, this is an over-simplification; time stipulations sometimes were and sometimes were not regarded as essential in this sense.³⁴ We have already touched upon two closely related situations in which time can be said to be of the essence. One of (p. 29) these is where the timely performance of some act by the promisee is a ‘condition precedent’ to the promisor’s duty to perform an obligation under the contract; this situation is generally found in the context of unilateral contracts.³⁵ The other situation is where timely performance by the promisor is a ‘condition’, in the sense of a fundamental term, of the contract.³⁶ The relationship between these rules is the key to understanding the nature of an essential time stipulation at common law.

2.16  Though the contractual doctrine of discharge by breach or non-performance exists in a variety of guises, it all depends ultimately on the notion of a conditional promise.³⁷ The promise ‘I will do X if Y happens’ is very different from the promise ‘I will do X’; in the former case, the promisor is not obliged to do X if Y does not happen. The event (‘Y’), on which the obligation to perform depends, can be of various types. First of all, it can be an external event;³⁸ in an insurance contract, for instance, the obligation of the insurer to pay up on the policy depends on the occurrence of the contingency insured against. Secondly, it can be something to be done by the promisee without the promisee being under any obligation to do it, as in the classic unilateral contract situation where A promises to pay B a sum of money B finds a lost dog, or walks to York, or whatever. Finally, the event in question can be a counter-promise in the contract, as where a seller promises to deliver goods on a certain date and the buyer promises to accept and pay for them provided that they are delivered in time.

2.17  Time is of the essence in the present context where the promisor’s obligation to perform depends on something being done by the promisee within a certain time scale – I will do X if you do Y by time Z. In this situation, if the promisee does not do Y by time Z the promisor’s obligation to perform is discharged; indeed, it would be more accurate to say that it never arises.³⁹ To ask for performance when the promisee is guilty of delay is to ask the promisor to do something that he or she never agreed to do in the first place.

2.18  A convenient starting point for the doctrine of conditional promises in the common law is the great case of Kingston v Preston decided in 1773.⁴⁰ Here the (p. 30) defendant had agreed to convey his business to the plaintiff, the plaintiff agreeing in his turn to provide good security. The question was whether the defendant was bound to convey the business if the plaintiff had not given the security. According to Lord Mansfield, the answer to this depended on the mutual relationship of the promises or ‘covenants’ in the contract. These could be of three kinds.⁴¹ First of all, covenants could be ‘mutual and independant [sic]’; here either could be sued on without proof of performance of the other. Secondly, they could be ‘conditions and dependant [sic]’; here the obligation to perform one depended on prior performance of the other. Thirdly, they could be ‘concurrent’, or ‘mutual conditions to be performed at the same time’; here one party could not sue without being ready and willing to perform his or her own side of the agreement. Since in the present case it was inconceivable that the defendant would have been willing to hand over his business without good security first being forthcoming, the promises were to be construed as dependent, and accordingly the plaintiff’s action failed.

2.19  Though Kingston v Preston was mainly concerned with the order of performance,⁴² the doctrine of dependency of promises could also lead to discharge in a case where the obligation in question depended on performance of another promise which the party in question was no longer able or willing to perform. This is exactly what happened in the famous case of Cutter v Powell,⁴³ where a seaman agreed with the defendant to serve as second mate on the defendant’s ship the Governor Parry, the defendant agreeing in his turn to pay a lump sum of thirty guineas to the seaman on completion of the voyage ‘provided he proceeds, continues and does his duty as second mate in the said ship from hence to the Port of Liverpool’. The seaman having died before the ship arrived at her destination, it was held that his widow and executrix could recover nothing; the agreement was to pay on condition that the voyage was completed, and this had not happened. As Ashhurst J put it, the defendant’s promise to pay depended on a condition (p. 31) precedent to be performed by the other party, which had to be performed before the plaintiff was entitled to receive anything under the contract.⁴⁴

2.20  Though neither Kingston v Preston nor Cutter v Powell involved a time stipulation, the doctrine of dependent promises was used to make time of the essence by saying that one party’s obligation was dependent on prompt performance by the other side. This line of reasoning can be seen in a trio of cases decided in the first half of the nineteenth century. The first of these is Busk v Spence,⁴⁵ where a contract for the sale of flax to be shipped from St Petersburg contained a stipulation obliging the seller to notify the buyer of the name of the vessel as soon as it was known. The seller having failed to make timely notification, it was held that the buyer was entitled to reject the goods whether or not he had been prejudiced by the delay; timely notification of the vessel, it was held, was a condition precedent to the buyer’s obligation to accept and pay for the goods. Similarly, in Alewyn v Pryor,⁴⁶ where a contract for the sale of oil provided for delivery no later than a certain day, it was held that the buyer was entitled to reject the oil when it was delivered late, the court accepting that timely delivery was a condition precedent to the sale. In Maryon v Carter⁴⁷ the defendant agreed to purchase a house from a builder at a certain price, and to pay an extra bonus of £80 provided that the work was completed by a certain day. The builder was held not to be entitled to claim the £80 where he had failed because of bad weather to complete the job on time, the court agreeing with the defendant that timely completion of the work was a condition precedent to the builder’s right to recover the bonus.

2.21  The analysis used in these cases was strict but logical; timely performance by the promisee being a condition precedent to the obligation of the promisor to perform in return, the promisor need not perform if timely performance is not rendered by the promisee. In none of the three cases just mentioned did this cause any great problem; in Busk v Spence and in Alewyn v Pryor the defaulting seller was free to sell the goods elsewhere, whilst in Maryon v Carter all that was at stake was the extra bonus payment, the obligation of the purchaser to pay the main contract price being unaffected. However, as Cutter v Powell shows us, the doctrine of dependent promises was capable of working hardship where the contract was substantially executed on one side, and as other cases show, where releasing the innocent party from the obligation to perform was out of all proportion to any loss caused by the party in default.⁴⁸ In bilateral or synallagmatic contracts delays and other breaches of contract can be compensated for by damages, and (p. 32) the courts were therefore reluctant to construe performance of an obligation as a condition precedent unless it was of crucial importance or ‘went to the whole consideration’.⁴⁹ We are not really concerned in the present context with cases where time was not of the essence, but even where it was, the emphasis shifted – at least after the middle of the nineteenth century – to the modern concept of ‘breach of condition’ rather than failure of condition precedent in the older sense. It is only in relation to unilateral contracts, where of course there can be no question of damages for delay by the promisee, that the older analysis still survives.⁵⁰

2.22  The foregoing analysis in terms of dependency of promises and conditions precedent has the merit of clarity and logic, but is rather crude in its effects and proved unsuitable for dealing with complicated contracts with their multitude of overlapping representations, warranties, covenants and conditions.⁵¹ For this reason, it became superseded in most cases by the more modern analysis in terms of conditions, warranties and innominate terms. The journey from ‘condition precedent’ to ‘condition’ was long and convoluted, but the main landmarks on the way are worth highlighting, as they provide a useful key to the understanding of the modern law.

2.23  The first landmark is the famous plantation case of Boone v Eyre.⁵² Though once again this did not itself involve a time stipulation, its consequences for the construction of such stipulations were profound, in that what had been hitherto solely a question of construction was now made to depend, at least in part, on the importance of the stipulation within the context of the contract as a whole. In Boone v Eyre the claimant covenanted by deed to convey the equity of redemption in a West Indies plantation, together with the slaves on it, in consideration of the payment of £500 and an annuity of £160 for life. When sued for failure to pay the annuity, the defendant pleaded that the claimant was not lawfully possessed (p. 33) of all the slaves, and so had no proper title to convey. Lord Mansfield rejected this plea on the grounds that the covenant in question was of insufficient importance, saying:⁵³

2.24  The importance of this development cannot be overstated, as it introduces a completely new factor into the equation. As Reynolds points out, the common law uses two techniques for determining the question of contractual discharge, failure of condition and failure of consideration.⁵⁴ Failure of condition is simply a matter of applying what the parties intended; the promisor only agrees to do X if Y happens, and Y has not happened. This is the basis of the old concept of condition precedent, as we have seen,⁵⁵ and it looks forward from the time of the contract – did the parties intend that the obligation of the promisor to perform should depend on due performance by the promisee?

2.25  What Lord Mansfield was alluding to in Boone v Eyre, however, was not failure of condition at all, but failure of consideration. This is a doctrine imposed by the courts, where a promisor is excused from performing in circumstances where he or she gets no benefit from doing so.⁵⁶ In saying that the defendant was not bound to perform if the plaintiff had failed to keep a covenant going to the whole consideration, Lord Mansfield was applying this very doctrine; in such a case, the defendant would, ex hypothesi, have been deprived of the expected benefit of the contract. Failure of consideration thus looks backwards from the consequences of the breach – should the promisor be excused from performance on the ground that he or she has not received the expected benefit in return?

2.26  The fundamental problem with Boone v Eyre is that it confuses what are two entirely different rationales for contractual discharge. Whilst it may make sense to use the likely result of the breach (failure of consideration) as a guide to (p. 34) deciding what the parties intended at the outset (failure of condition), it must not be forgotten that the two tests are ultimately different, and do not necessarily yield the same answer.

2.27  Our next significant case is Glaholm v Hays,⁵⁷ decided in 1841. Here a charterparty provided that the ship should sail for the loading port on or before a certain date. The ship sailed late due to contrary winds, and when it finally turned up the charterer refused to provide a cargo. The court decided that in these circumstances the charterer was not bound, Tindal CJ observing as follows:⁵⁸

He went on to hold that the relevant provision in the present case was a condition, both because the language of the contract suggested it,⁵⁹ and also because in charterparties ‘the whole success of a mercantile adventure does, in ordinary cases, depend on the commencement of the voyage by a given time’.⁶⁰

2.28  This case is important for a number of reasons. As we see, it applies the reasoning in Boone v Eyre⁶¹ in the context of delay; in particular, there is the same amalgam of failure of condition (the language of the contract) and failure of consideration (the importance of the stipulation to the contract as a whole). However, what is particularly noteworthy about Glaholm v Hays is a subtle but very significant change of terminology.⁶² Under the older analysis the question would have been whether performance of the shipowner’s obligation, namely sailing on time, was intended to be a condition precedent to that of the charterer, namely the obligation to provide a cargo. If that condition did not materialise, the charterer would be released from his obligation. However, the terminology used by Tindal CJ differs from this in several respects. First of all, what he is looking at is not performance of the obligation but at the obligation itself, as can be seen by his reference to ‘a particular clause in a charterparty’. Secondly, he does not say ‘condition precedent’ but ‘condition’, so reflecting the modern usage. Thirdly, the (p. 35) non-performance of such a ‘condition’ does not merely affect a particular obligation of the charterer, but gives him the liberty to ‘abandon the contract’ and ‘consider it at an end’. Finally, a ‘condition’ in this sense is contrasted with ‘an agreement only, the breach whereof is to be recompensed by an action for damages’; here we have in essence the condition/warranty distinction as later codified in the Sale of Goods Act 1893.

2.29  In Glaholm v Hays the court referred to the non-performance of a condition as giving rise to a right to ‘abandon the contract’. This right of termination follows on logically from Lord Mansfield’s analysis in Boone v Eyre,⁶³ for if the promisor has failed to perform a covenant or promise that goes to the whole consideration, the promisee will ex hypothesi have received no benefit from the contract and will be entitled to act accordingly. In Behn v Burness,⁶⁴ the next landmark case, the Court of Exchequer Chamber had to consider the status of a term in a charterparty which stipulated that the ship was currently in the port of Amsterdam. The approach was set out by Williams J in terms that do not correspond entirely with current usage, but which make it clear that he saw the issue as one of termination rather than simply withholding performance of a particular obligation:⁶⁵

Saying that the innocent party may ‘repudiate the contract in toto’ is very different from saying that he or she is not bound to perform a particular obligation in that contract. The problem with the orthodox concept of breach of condition, whether in relation to time or any other kind of stipulation, is that this crucial distinction is often obscured.⁶⁶

2.30  The Sale of Goods Act 1893, as its long title makes clear at the very outset, was an Act for codifying the law relating to the sale of goods.⁶⁷ For this reason the analysis of contractual discharge adopted in the Act was essentially predicated on the previous case law, and it continued to influence the whole law of contract and not just that relating to the sale of goods.

2.31  The Act had little to say about time stipulations as such.⁶⁸ Far more important was the distinction drawn between a ‘condition’ and a ‘warranty’. By section 11(1)(b) of the Act:

According to Sir Mackenzie Chalmers, the drafter of the Act, this condition/warranty analysis was supposed to reflect the old distinction between dependent and independent covenants.⁶⁹ However, despite its emphasis on the construction of the contract, the scheme of section 11(1)(b) owes much more to Boone v Eyre, Glaholm v Hays and Behn v Burness than it does to Kingston v Preston and Cutter v Powell. In particular: (1) the ‘condition’ referred to is not an event, but a term of the contract; and (2) if the condition is broken, the result is not to excuse the other party from performing a particular stipulation, but to give him or her the right to ‘treat the contract as repudiated’. Or, in the words of Fletcher Moulton LJ in his famous dissenting judgment in Wallis, Son and Wells v Pratt and Haynes,⁷⁰ ‘conditions’ are terms of the contract ‘so essential to its very nature that their non-performance may fairly be considered by the other party as a substantial failure to perform the contract at all’, so that the innocent party can treat the contract as being ‘completely broken’, and can sue the other party for ‘total failure to perform the contract’.⁷¹

2.32  The current common law analysis of essential time stipulations is, for most purposes, the one based on the Sale of Goods Act 1893 and on Wallis, Son and Wells (p. 37) v Pratt and Haynes; in the words of Chitty quoted above,⁷² where time is made of the essence by agreement (as opposed to subsequent notice) the effect is to elevate the term in question to the status of a condition, with the consequences that a failure to perform by the stipulated time will entitle the innocent party to terminate performance of the contract and thereby put an end to all the primary obligations of both parties remaining unperformed. This analysis has been followed from that day to this,⁷³ but there are three key twentieth century cases which have further marked the development of the law in this area.

2.33  The first of these is the seminal decision of the Court of Appeal in The Hongkong Fir⁷⁴ in 1962.⁷⁵ The question in the case was a simple one: when could a charterer terminate the contract for delays caused by the vessel being unseaworthy? The Court of Appeal held unanimously that the seaworthiness stipulation in the charterparty was not a ‘condition’, but that this did not of itself rule out a right to terminate performance. The issue of discharge for breach was not to be determined simply by asking whether the term broken was a ‘condition’ or a ‘warranty’; for even where there had been no breach of condition, the promisee could still terminate performance for breaches which had a drastic effect or otherwise went ‘to the root of the contract’.⁷⁶ Following The Hongkong Fir, there was a tendency in some quarters⁷⁷ to relegate the traditional condition/warranty analysis to the sidelines, and to say that it now had little relevance outside the sale of goods.

2.34  However, the traditional doctrine was reaffirmed by our next significant case, which is the decision of the House of Lords in Bunge Corporation v Tradax Export SA⁷⁸ in 1981. A contract for the sale of soya bean meal contained a term obliging the buyer to provide a vessel and to give fifteen days’ notice of readiness to load. The buyer having given notice four days late, the question was whether the sellers could treat the contract as repudiated and recover damages on that basis. It was argued by the sellers that the term in question was a condition, but the buyers argued on the basis of The Hongkong Fir and other cases⁷⁹(p. 38) that the court should be slow to construe terms as conditions, that the breach did not go to the root of the contract, and that the only remedy was damages. In the Commercial Court Parker J found for the buyers,⁸⁰ but his decision was reversed by the Court of Appeal on the ground that time was still of the essence with regard to a provision of this nature.⁸¹ The House of Lords held unanimously that time was indeed of the essence here. While not disapproving of the approach in The Hongkong Fir – indeed, Lord Wilberforce described the judgment of Diplock LJ in that case as ‘seminal’,⁸² while Lord Roskill described it as ‘a landmark’⁸³ – their Lordships were anxious to put that approach into its proper context. Just as it was a fallacy to assume that the question of contractual discharge could be decided solely by construing the relevant term as a condition or a warranty, it was equally wrong to ignore the question of construction altogether and determine the matter purely on the basis of the effect of the breach in the given case. All in all, a two-stage approach is indicated. First one must construe the contract to see whether the term is a condition. If it is, breach of that term gives the promisee a right of termination whatever the effect of the breach may have been. If not, the promisee can only terminate if the breach goes to the root of the contract.

2.35  Finally, we have Lombard North Central plc v Butterworth,⁸⁴ decided in 1987. As we have seen, a breach of condition is said, in the words of the Sale of Goods Act,⁸⁵ to give rise to the right to ‘treat the contract as repudiated’. It has been said that this is no more than statutory shorthand for the right to terminate,⁸⁶ but this is far from being so, as Lombard North Central plc v Butterworth clearly demonstrates. Here it was decided by the Court of Appeal that breach of an essential time stipulation, and indeed any other breach of condition, did not just give the promisee the right to terminate performance. Rather, it also gave rise to a right to recover damages on the footing that the contract had been totally repudiated. Though the decision can be justified on the basis of the need for certainty in commercial transactions,⁸⁷ it was reached with some reluctance,⁸⁸ and is one capable of causing substantial hardship in practice.⁸⁹

2.36  It will be apparent from the previous discussion that the modern analysis of the law in this area draws a clear line between promissory and non-promissory time stipulations. Where the time stipulation is promissory in nature, time will be of the essence if the term in question is a ‘condition’. In such a case, as with any breach of condition, delay will give the promisee the right to terminate performance and to recover damages on the footing that the contract has been repudiated. As well as this, time will generally be of the essence where the time stipulation is not promissory, as in a unilateral contract or option.⁹⁰ Here the rationale is rather different; in such cases, timely occurrence of a particular event, which may or may not be something to be done by the promisee, is a ‘condition precedent’ to the promisor’s obligation to perform. It should also be noted that in the case of a promissory time stipulation the word ‘condition’ is used to refer to a promise, whereas in the case of a unilateral contract the word is used to refer to an action or event.

2.37  This analysis, at least in so far as it relates to promissory stipulations, can be criticised as unsatisfactory on two grounds. First of all, it obscures the crucial distinction drawn by Corbin between a condition and a promise.⁹¹ The function of a condition in the law of contract, according to Corbin, essentially relates to the question of discharge; one who makes a conditional promise to perform is not bound to do so if the condition does not occur. The function of a promise, however, relates to the question of damages; one who promises to do something must compensate the other party if the promise is not kept. Though a condition can also function as a promise⁹² – as it does in a case where a promissory time stipulation is of the essence – it does not aid clarity, according to Corbin, to confuse the two functions. Secondly, the orthodox analysis obscures the equally crucial distinction drawn by Reynolds between discharge for failure of condition and discharge for failure of consideration.⁹³ In the former case,⁹⁴ the question is ultimately one of intention; was the promise intended to be conditional, and if so has the condition occurred? In the latter case the question is whether the promisor has received the benefit of his or her promise. The question of whether a term is a condition or not is said to be one of construction, but in so far as this question of construction is decided on the basis of the importance of the term in question, failure of condition and failure of consideration are inextricably confused.

(p. 40) 2.38  The source of the complexity lies not in principle but in history. Where the time stipulation – or any other kind of stipulation for that matter – is promissory in nature, delay will amount to a breach of contract, and here we are imprisoned in the traditional condition/warranty analysis which goes back through Wallis, Son and Wells v Pratt and Haynes⁹⁵ and the Sale of Goods Act 1893⁹⁶ to Behn v Burness⁹⁷ and Boone v Eyre, with its emphasis on the importance of the stipulation in question, or rather, whether it is one ‘going to the whole consideration’.⁹⁸ But where delay does not amount to a breach, all these developments are bypassed and we can simply ask whether the promisor’s duty to perform whatever he or she promised to do was predicated upon timely occurrence of the event in question.⁹⁹ In many ways it might be more satisfactory for the courts to return to this older analysis,¹⁰⁰ but the traditional analysis of promissory stipulations as conditions and warranties has now lasted for well over a century, and it would take a radical revolution in legal thought to displace it.

2.39  We must now consider the equitable approach. This was based on the practice of the Court of Chancery whereby a decree of specific performance could be granted to a promisor despite his or her own failure to perform on time.¹⁰¹ Time may have been of the essence at common law,¹⁰² but equity took a different view. Once again this is a doctrine that cannot be understood except in the light of history.

2.40  A good starting point is the 1802 case of Lennon v Napper,¹⁰³ where Lord Redesdale commented on the jurisdiction of equity to relieve against the strict enforcement of time stipulations in the following words:¹⁰⁴

2.41  This difference of approach was sometimes summarised by saying that time was generally of the essence at common law but not in equity.¹⁰⁵ However, it did not involve interpreting time stipulations in a different way from that which was used by the common law.¹⁰⁶ Rather, it sought to relieve the promisor in default by restricting the remedies available to the promisee. This it did in two ways. First of all, whatever the position may have been at common law, the courts of equity were prepared to grant a decree of specific performance to a promisor who was ready to proceed to completion even though he or she had failed to observe the set completion date.¹⁰⁷ Secondly, a ‘common injunction’ could be granted to prevent the promisee party bringing an action at law on the basis that the contract had been lawfully terminated.¹⁰⁸

2.42  However, though the attitude of equity was traditionally¹⁰⁹ less strict than that of the common law, relief would not be granted where the intention of the parties¹¹⁰ or the surrounding circumstances¹¹¹ showed that timely performance was (p. 42) important. In these cases time was said to be of the essence in equity as well as at common law. In such cases equity would refuse to intervene, the parties being left to their position at common law. This meant that while time might often be of the essence at common law but not in equity, the converse could never be the case. Equity proceeded by granting relief against the harshness of the common law, so if time was not of the essence at common law to begin with, there was nothing for equity to relieve against.

2.43  Up to 1873 law and equity were administered in separate courts, but following the Judicature Act of that year a unified Supreme Court of Judicature (not, of course, to be confused with the current Supreme Court) was set up with full jurisdiction over both areas. At the same time it was provided by section 25(7) of the Act, and later by section 41 of the Law of Property Act 1925, that stipulations in contracts, as to time or otherwise, which would not prior to the passing of the Act have been deemed to be or to have become of the essence should henceforth receive in all courts the same construction and effect that they would have had in equity. The precise effect of this provision was unclear,¹¹² but it was said by the House of Lords in Stickney v Keeble¹¹³ that the crucial question was still whether the party in default would have been given a decree of specific performance. In the words of Lord Parker:¹¹⁴

2.44  The effect of Stickney v Keeble was to isolate the equitable rules as to time in a bubble of their own. However, in 1978 the House of Lords attempted, in United Scientific Holdings v Burnley Borough Council,¹¹⁵ to analyse how these rules fitted into the overall scheme of contract law. The issue in the case, which involved two consolidated appeals, was whether failure to keep strictly to the timetable laid down in a rent review clause deprived the landlords of their right to have the rent reviewed, and consequently of their right to charge an increased rent during the (p. 43) period up to the next review date.¹¹⁶ The landlords sought to rely on section 41 of the Law of Property Act 1925,¹¹⁷ but it was argued by the tenants,¹¹⁸ and accepted by the Court of Appeal,¹¹⁹ that the clauses in question were in the nature of a unilateral option,¹²⁰ that this was a case in which the equitable doctrines as to time had no application, and that time was accordingly of the essence. On appeal to the House of Lords, it was held that the clauses were not true options,¹²¹ that section 41 was not to be unduly restricted in its application,¹²² and that the observations of Lord Parker in Stickney v Keeble were to be read as applying only to the facts of that particular case.¹²³ What is of special interest in the present context is Lord Simon’s attempt to analyse the equitable rules relating to time stipulations within the framework of common law doctrine. Pointing out that the aim of the Judicature Act of 1873 was to reconcile the differences between common law and equity so that the two systems could form a single coherent code,¹²⁴ Lord Simon went on to say:¹²⁵

2.45  On Lord Simon’s analysis, there was no longer any need to distinguish between the common law and equity in their approach to time stipulations. After all, whether timely performance is, in Lord Simon’s words, ‘so fundamental to the efficacy of the contract that any breach discharges the other party from his contractual obligations’ is, at common law no less than in equity, ultimately a question of what the parties intended.¹²⁶ If the intention was to make one party’s obligations contingent on timely performance by the other, and that contingency has not materialised, it is logically hard to see any room for a decree of specific performance: in effect, the court would be saying that the party in question was not bound to perform whilst at the same time granting a decree of specific (p. 44) performance to compel him or her to do just that. For this reason since United Scientific Holdings v Burnley Borough Council the English courts at any rate have been wary of granting equitable relief to a party in breach of an essential time stipulation.¹²⁷ Elsewhere the courts have sometimes taken a more relaxed view, and have continued to grant such relief in exceptional cases on the basis that courts of equity will not allow a contracting party to exercise his or her legal rights in an oppressive and unconscionable way.¹²⁸ We shall be looking at this question in more detail later;¹²⁹ but in such cases it may still make sense to say that time is of the essence at common law but not in equity.

2.46  Of course, this does not mean that the common law and equitable remedies for delay are now identical in all cases. In particular, the mere fact that time is not of the essence at common law does not automatically give the defaulting party the right to a decree of specific performance, as there may be other reasons why that remedy is not available in the given case. Rather, the issue should be approached in two stages. The first question is one of construction: was time intended to be of the essence (in the sense that untimely performance amounted to a breach of condition)? If so, the innocent party is discharged from his or her primary obligations under the contract, and there can be no question of a decree of specific performance. If time was not intended to be of the essence in this sense, the innocent party is not discharged, and we must pass on to the second question, which concerns the remedies available to the party in default. Whether these remedies include a decree of specific performance will obviously depend on the circumstances of each individual case.¹³⁰

2.47  It follows that deciding whether time is of the essence depends on what one means by the question. The question may be whether the promisor is contractually bound to perform on time, or whether he or she is entitled to have a decree of specific performance despite having failed to do so, or whether the promisee is entitled to (p. 45) terminate performance for the delay, and so on. Ultimately the question whether time is of the essence is a question about remedies, and the answer may be different depending on which remedy is sought. For this reason detailed examination of the topic will be postponed to the third part of the book. However, the traditional approach is to say that time can be made of the essence in three cases: (1) by express stipulation; (2) by implication; and (3) by notice.¹³¹

2.48  The first case where time is of the essence is where ‘the parties expressly stipulate that conditions as to time must be strictly complied with’.¹³² Though no set form of words need be used,¹³³ the most obvious way of doing this is to say in so many words that time is, or shall be, of the essence. Where these words are used, delay by the promisor can give rise to catastrophic consequences; the promisee will have the right to terminate performance and to claim damages on the footing that the contract has been totally repudiated.¹³⁴ Alternatively, the contract may simply give the promisee an express right of termination for delay; in such a case, time is of the essence in the sense that the promisee can terminate performance, but there is no automatic right to repudiatory damages.¹³⁵ The distinction between these cases is not a satisfactory one and may be due to a historical misunderstanding of the authorities.¹³⁶ A draftsman who wishes to make time of the essence in the full sense would be best advised to specify not only that time is of the essence, but also to spell out the consequences that will follow in the event of untimely performance; in that way, there can be no ambiguity.¹³⁷

2.49  Though the contract may not specifically indicate that time is to be of the essence, it may be made so by implication. Such implication, as with any other kind of contractual term, can be by fact or by law.¹³⁸ Time is of the essence by implication (p. 46) of fact where it is necessary to give business efficacy to the contract, or¹³⁹ where the term is one which the parties must obviously have intended.¹⁴⁰ This covers cases where ‘the nature of the subject-matter of the contract or the surrounding circumstances show that time should be considered as of the essence’;¹⁴¹ for instance, the sale of a house for immediate occupation,¹⁴² or the sale of property of a wasting nature,¹⁴³ or in other cases where it is clear that the parties contemplated speedy performance.¹⁴⁴ Alternatively, time can be of the essence by implication of law; this will be the case where time is always of the essence with regard to obligations of a certain kind, such as the time of delivery in a contract for the sale of goods,¹⁴⁵ or the time of sailing in a charterparty.¹⁴⁶ All of these cases will be examined in more detail when we come to discuss the remedy of termination for delay.¹⁴⁷

2.50  Even where time was not of the essence to start with,¹⁴⁸ it may be made so by notice.¹⁴⁹ This is the procedure, most familiar in the conveyancing context,¹⁵⁰(p. 47) whereby a promisor who is guilty of undue delay may be served with a notice giving him or her a deadline for performance of the obligation in question. If this deadline is not met, the promisee may be able to terminate performance.

2.51  Making time of the essence by notice is an important contractual remedy in its own right, and the technical requirements of the procedure will be discussed at length in a later chapter.¹⁵¹ However, it is worth repeating in the present context what has already been said:¹⁵² making time of the essence by notice is a very different matter from making it so from the start. Where time is made of the essence expressly or by implication, the question is essentially one of construction: is the promisor’s obligation to perform on time a ‘condition’, in the sense of a fundamental term, of the contract?¹⁵³ But this kind of analysis can have no application to the process whereby time is made of the essence by notice, for the simple reason that it is not open to one of the parties to a contract to alter the status of one of its terms by unilateral diktat.¹⁵⁴ Rather, the situation is akin to repudiation: the fact that the promisor has failed to perform despite having been specifically put on notice to do so is evidence that he or she is unable or unwilling to perform the obligation in question.¹⁵⁵

2.52  The distinction between making time of the essence to start with and making time of the essence by notice reflects the distinction between discharge by failure of condition and discharge by failure of consideration.¹⁵⁶ Where time is of the essence to start with, the contract is discharged on the grounds of failure of condition; the promisee has agreed to render his or her counter-performance only if the promisor performs on time. Where time has been made of the essence by notice, the contract is discharged on the grounds of failure of consideration; the promisee is entitled to conclude that the expected benefit of the contract is unlikely to materialise. We shall be considering this point at greater length at a later stage.¹⁵⁷(p. 48)