In last week’s article I mentioned that the time for completion in a contract for sale of land is not usually of the essence, and that a failure to complete on the date set out in the contract does not entitle the innocent party to withdraw from the contract.
However if it is expressly stated in the contract that time is of the essence, then the date for completion must be strictly observed and a failure to complete by the completion date entitles the innocent party to withdraw from the contract if there is a delay in completion.
In a contract for the sale of land time will be of the essence if:
(a) the contract has a clause written into it making time of the essence;
(b) where the time for completion has elapsed and a notice to complete has been served by the innocent party;
Time may also be of the essence by necessary implication from the circumstances of the contract.
A recent example of the effect of a contractual provision making time of the essence is the case of Union Eagle Ltd vs Golden Achievement Ltd (1997), a decision of the Privy Council on appeal from the Court of Appeal of Hong Kong.
The material facts of the case were as follows: The appellant, the purchaser, entered into a written agreement dated August 1, 1991 to buy a flat on Hong Kong Island from the respondent (the vendor) for HK$4.2 million.
In accordance with the contract, the purchaser paid a deposit of HK$420 000 to the vendor’s solicitors as stake holders. Completion was to take place before 5 p.m. or before September 30, 1991.
Clause 12 of the agreement provided that:
If the purchaser shall fail to comply with any of the terms and conditions of the agreement the deposit money and any part payment of purchase price so paid shall be absolutely forfeited as and for liquidated damages (and not a penalty) to the Vendor who may (without being obliged to tender an assignment to the Purchaser) rescind this agreement and either retain the Property the subject of this Agreement or any part or parts thereof or rescind the same . . . .
The purchaser failed to complete by 5 p.m. on 30 September 1991 and the vendor declared that the contract was rescinded and the deposit forfeited. In fact the purchaser tendered payment of the purchase price at 5:10 p.m. only ten minutes after the time for completion had passed.
The cheque for the purchase price was delivered by a messenger who arrived at the offices for the vendor’s solicitors at 5:10 p.m. The solicitor telephoned his client who instructed him to rescind the contract and forfeit the deposit.
The main issue that the Privy Council had to consider was whether the court had a power to absolve the purchaser from the contractual consequences of being late and order specific performance based on the fact that there was only a minor breach of the provision in respect of the time for completion.
Lord Hoffman who delivered the opinion of the Privy Council in upholding the provision making time of the essence, referred to the Privy Council case of Steedman v Drinkle [1916] and specifically the following statement of Viscount Haldane in that case:
Courts of Equity, which look at substanceas distinguished from the letter of agreements, no doubt exercise an extensive jurisdiction which enables them to decree specific performance in cases where justice requires it, even though literal terms of stipulations as to time have notbeen observed.
But they never exercise this jurisdiction where the parties have expressly intimated in their agreement that it is not to apply by providing that time is of the essence of their bargain.
Therefore, where there is a provision in a contract for the sale of land making time of the essence the parties need to ensure that they complete within the time specified.
Where an attorney-at-law is acting for a purchaser, it is even more critical to avoid a contract that makes time of the essence because the purchaser can often over-estimate his ability to complete and may end up losing his deposit if the vendor is insistent on strictly enforcing the provisions of the contract.
•Cecil McCarthy is a Queen’s Counsel. Send your letters to: Everyday Law, Nation House, Fontabelle, St Michael. Send your email to [email protected].
