Supply chain contract management blog series #1: Contract delay or disruption? What can you do?

By Clarion
schedule25th Jul 22

Late delivery or delay in performance of a contract happens for all sorts of reasons: goods may be stuck in transit, external factors may prevent timely delivery, and sometimes parties are simply late payers.

But what can you do about it? The answer may not be as first thought.

Summary

By and large, if your contract states that time or a deadline is “of the essence”, then any delay should allow you to terminate the contract and claim damages.

If that phrase does not appear in your contract, then a delay is unlikely to allow you to terminate the contract – but you should still be able to claim damages (the delay is still a breach of contract, but not a ‘repudiatory’ breach of contract allowing termination). Alternatively, you can take specific steps to subsequently make time ‘of the essence’ with any subsequent delay to the new deadline giving you the right to terminate the contract and claim damages. There are other options besides.

A word of caution – you must be very careful to correctly identify the relevant type of clause in your contract, understand the options that clause entitles you to take, and act accordingly (and quickly). If you try to terminate your contract on an incorrect basis, you risk being in breach yourself (and potentially liable to the counter-party for damages); alternatively if you delay taking action, take no action, or take action that can be construed as a continuation of the contract, you risk inadvertently losing your right to terminate.

Below is a guide to help you navigate these issues.

Look at your contract

Identify the clause that creates an obligation to deliver or pay etc – and check if a timeframe or deadline for performance has been specified. Such timing clauses may be as follows.

An obligation to perform by a certain date and that time is of the essence

The counter-party must strictly comply with the stated deadline. Any delay (however minor) is likely to constitute a repudiatory breach of contract, and you can terminate the contract and claim damages.

An obligation to perform by a certain date (but time is not expressly stated to be ‘of the essence’)

The counter-party must comply with the stated deadline. Any delay will likely be a breach of contract and you can claim damages – but it is not likely to constitute a repudiatory breach, and so you are unlikely to be able to terminate the contract. So, the contract continues, each party has to comply with their continuing obligations and you can claim damages for the specific delay.

In (very!) rare circumstances, you may be able to terminate the contract on delay if (a) you have been deprived of substantially the whole intended benefit under the contract, or (b) the counter-party has demonstrated an intention never to perform the contract or demonstrated a manner substantially inconsistent with its contractual obligations, in such a way as would deprive you of substantially the whole intended benefit under the contract.

An obligation to perform within a reasonable timeframe

What constitutes a ‘reasonable timeframe’ depends on your particular contract and facts – and is likely to give rise to a heated argument between the parties. Delay is unlikely to allow you to terminate the contract (save in those rare circumstances listed above) but may give rise to damages.

The contract does not provide a deadline

For contracts between businesses for the delivery of goods, the Sale of Goods Act 1979 implies a term that goods should be delivered within a reasonable time. Delay is unlikely to allow you to terminate the contract (save in those rare circumstances listed above) but may give rise to damages.

For contracts involving a consumer for the delivery of goods, 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 entering into the contract.

For contracts for the supply of services, the Supply of Goods and Services Act 1982 (relating to contracts between businesses) and the Consumer Rights Act 2015 (relating to contracts involving a consumer) require that the services must be performed within a reasonable time.

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Time of the essence? – don’t delay if you want to terminate!

If you become aware of a repudiatory breach, and (have the ability and) wish to terminate the contract, you should not delay too long in communicating that termination. Failing to act quickly, or taking steps to continue with the contract, may be construed as you ‘affirming’ the contract meaning that you would lose the right to terminate.

If you need more time to decide whether to terminate the contract, you could consider expressly reserving your rights to terminate. But caution – the contract continues in force and some actions cannot be construed as anything but affirming the contract. Further, the counter-party may be able to rectify their repudiatory breach in that time period, and you would then lose the right to terminate for that repudiatory breach.

Time not of the essence? – other options

Where your contract does not explicitly state that time is of the essence – or if you are in doubt – you may choose to serve notice on the counter-party to make time of the essence.

A notice making time of the essence should be sent without delay and should clearly:

  • State the actions the counter-party should take, e.g. deliver the goods.
  • Set a reasonable deadline for those actions (again, a reasonable deadline will be determined by your particular contract and facts, including by reference to any original timeframe and any subsequent impact on you).
  • Explain that failing to comply with the deadline will result in your termination of the contract.

You will also be bound by the notice, so ensure to consider its implications first – for example, if you demand the delivery of goods that then triggers a payment obligations.

Following service of your notice, time is not of the essence. Any resulting delay (however minor) to meet the new deadline is likely to constitute a repudiatory breach, and you can terminate the contract and claim damages. Alternatively, in those circumstances, you may rely on other contractual rights that permit termination for failure to cure a material breach. This is often the ‘safer’ path. – although you should ensure to follow any prescribed steps in that clause, e.g. as to further notice.

Communications with the other side

For every communication with your counter-party, you must follow any prescribed steps or methods of communication. For example, you may be required to make all communications in writing and sent to the attention of the counter-parties’ CEO at their registered office. These requirements are likely to be found either within the relevant contractual clause or in a separate ‘Notice’ clause – however, you should still review your entire contract in case other clauses apply.

How can we help

Should you need detailed or tailored advice, please contact Rob Stewart in our Commercial Dispute Resolution team who specialises in advising parties who experience a delay in contracts.

 

Disclaimer: Anything posted in this blog is for general information only and is not intended to provide legal advice on any general or specific matter.


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