Imagine this scenario:

You have just won a big contract to supply goods to a major new customer, starting next month. Then an essential piece of your machinery breaks down, and you need to order a new one. As you need it urgently, you pay for it upfront. The machinery does not arrive on time and you cannot start to supply your new customer, but as you paid upfront for the new machine, you cannot raise further funds to go elsewhere.

Your new customer is fuming at the delay, and you are in danger of losing the work, so can you cancel the contract with the machinery supplier, get your money back, go elsewhere and get on with your order?

The first thing to do is look at your contract with the machine’s supplier.

Suppose a clause stipulates that time for delivery is important (what lawyers call “time is of the essence”), and the machine is not delivered on time. In that case, the contract will be capable of being terminated, and you can cancel. While you have this option, you should ensure you do not behave in a way that would be inconsistent with the right to terminate, i.e., you act in a way that allows the contract to continue notwithstanding the breach.

A contract that does not make the delivery date important will be construed so the machine will be delivered within a ‘reasonable time’. Unfortunately, this may not be before you are due to deliver your goods to your new customer!

Courts will look very closely at what the contract says to decide whether or not time is important and if a deadline is missed, the contract can be terminated.

Also, even if the contract does not say time is very important, that is not necessarily an end to the matter as if the contract gives a fixed date for something to happen, even if the contract does not say time is vital the courts can still conclude that time is of the essence and the contract is broken if a critical date is missed.

So, if time is important, what should you do?

Depending on how important it is, some options are:

• Link payment to delivery, so payment is not due until the item is delivered, and preferably checked to confirm it is fit for purpose. If delivery takes too long, you will have the option to make delivery important, and if a deadline is met, end the contract; or
• Make sure the contract says time is critical if it is critical (but beware as if you make time for one part of the contract vital but not for other parts of the contract, it does indicate that time is not critical for those other parts, so make sure every important date is clearly identified as vital.

A partner at William Sturges, Martin Donoghue has many years of experience in company and commercial law, advising on a range of issues, including service agreements, terms of business, shareholders’ agreements, share schemes, employment and M&A. Martin offers bespoke, personalised support to all his clients.

Working as an extension of their team, he focuses on building trust and making himself available whenever needed. He works hard to understand his client’s businesses and their aims in detail – enabling him to offer the best possible legal advice.

You can contact Martin on t: 020 7873 1084 or e: martin.donoghue@williamsturges.co.uk.