Time is of the essence: delivery of face masks during the pandemic
Pharmapac (UK) Ltd v HBS Healthcare Ltd  EWHC 23 (Comm)
What factors were relevant in establishing that “time is of the essence” for delivery of goods?
The key takeaway
Pandemic-related factors meant that “time was of the essence” for delivery of the relevant goods, in particular: the rapid start and the short and repeated delivery intervals, the developing pandemic, the high demand and volatile market.
Pharmapac (the Claimant) had entered into a contract with HBS (the Defendant), under which the Defendant would supply the Claimant with 500,000 facemasks per week for ten weeks, at an initial cost of £750,000 plus VAT followed by a further £750,000 plus VAT once the first 2.5m masks had been delivered. The contract did not specify the number of masks to be included within each shipment nor did it say that the time for delivery was essential, or a condition of the contract, or address the consequences of failure to deliver on time.
The Claimant alleged that this agreement was in the form of an email with the Defendant that superseded an oral agreement made the previous day. In line with the agreement, the Claimant made the first payment of £750,000 plus VAT on the day of that email, and the Defendant made the first delivery of masks six days later. However, the following four weeks’ worth of deliveries were not made due to a ban on the export of facemasks in India, where the masks were being produced. This, the Claimant argued, amounted to a repudiatory breach of the Contract.
After the fourth consecutive missed delivery, the Defendant emailed the Claimant offering to return the monies paid by the Claimant, or to hold those monies until the stock arrived. After several more missed delivery deadlines, the Claimant attempted to accept the Defendant’s offer to end the agreement and have their monies refunded but the Defendant refused to return the funds arguing that the Claimants’ delay in accepting the repudiation of the contract amounted to acceptance. The Claimant then claimed for repayment of the monies paid under the contract. The Defendant subsequently counterclaimed against the Claimant for the remaining monies payable under the agreement.
Ultimately, the Court found that the Defendant was in breach of the agreement and was therefore obliged to return the monies held and pay statutory interest on that sum, and their counterclaim was rejected.
The Court considered the various factors that may indicate whether the time for delivery of the goods was a condition of the agreement. Although the goods in question were not perishable, the Court still reached the conclusion that time was of the essence.
The justification for reaching this decision was the “urgent commercial need” to acquire the facemasks so that they could be sold on, in light of the “background of the developing coronavirus pandemic”. As the Court held, the point was not just to get the masks as soon as possible, but to be able to cancel the contract if they had not arrived in time.
This was particularly so given that the price was volatile due to “the pandemic, the gap in the market, and the scramble for supply”, which the Judge determined both parties had been aware of. The Court also gave consideration to the fact that the Claimant had a “potential customer” lined up, despite there having been no order placed, timescale agreed or awareness by the Claimant of this potential customer’s terms of business.
Why is this important?
This case is a good example of the courts’ approach to deciding whether time is of the essence in a sale of goods agreement. The means that the time of delivery is a condition of the agreement, entitling the buyer to terminate the agreement is delivery is late. It also demonstrates that the commercial context of the pandemic and the need to receive timely supplies are highly relevant.
Any practical tips?
When drafting any agreement with contractual deadlines (particularly sale of goods / supply of services), expressly state whether or not time is of the essence for such deadlines. Carefully consider the commercial consequences of late performance and what (if any) termination rights or other remedies should apply.