Termination - By Delay

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A contract can be terminated if performance was delayed beyond a certain time. The laws regarding when a party is entitled to terminate upon delay are as follows:

  • If the contract specifies that time is 'of the essence'. This can be determined when:
    • It is expressly stated in the contract.
    • It can be implied from the contract (this is implied in all contracts for sale of goods[1]).
  • If time is not of the essence, a party can only terminate for delay if:
    • There is such long delay that it amounts to repudiation.
    • There is such long delay that it amounts to breach which would entitle termination.
    • The party makes use of the notice procedure.[2] The notice must:[3]
      1. Specify a time for completion.
      2. That time must be reasonable.
      3. Notify the other party that this time is of the essence and failure to adhere to it would entail termination.

If such requirements are complied with, a party may terminate a contract on the basis of delay.

This article is a topic within the subject Contracts.

Contents

Required Reading

Paterson, Robertson & Duke, Contract: Cases and Materials (Lawbook Co, 11th ed, 2009), pp. 557-560 [23.05-23.35]; 564-565 [23.45] - facts only; 571-572 [23.60].

Introduction

A party will sometimes be entitled to terminate if performance has not been performed by the agreed date (if there is no agreed date, the courts determine a reasonable time). In order to determine whether a party will be entitled to terminate for delay, or merely receive damages, the court asks whether time is of the essence (whether time is essential).

Determining whether time is of the essence

[4] Whether time is of the essence is a question of construction, meaning that it can be both provided both expressly or impliedly.

  • In the lack of an express statement providing that time is of the essence, courts will be more reluctant to rule that it is.
  • However, the court may conclude that the parties have intended time to be of the essence and that it is an implied term.

If a court rules that time is of the essence, the Aggrieved party will be entitled to terminate the contract upon delay.

Delay when time is not of the essence

[5] When time is not of the essence, the Aggrieved party will generally be entitled to damages, but not to terminate. The Aggrieved party will be entitled to terminate for delay when:

Notice procedure for delay

[6] An Aggrieved party may gain the right to terminate through the procedure of providing notice. When the delay becomes evident, the Aggrieved party is entitled to issue the delaying party a notice that it must complete its performance within a certain time. If performance is still not completed by that time, the Aggrieved party will be entitled to terminate. The notice must satisfy the following requirements:

  1. Must specify a time for completion (deadline).
  2. The time specified must be reasonable.
  3. The notice must clearly express that the new deadline is of the essence, or that the Aggrieved party will consider itself as entitled to terminate upon further delay.

The concept of the notice was reaffirmed in Louinder v Leis:

  • "Where a contract of sale of land contains a stipulation as to time which is not of the essence of the contract, and one party is in breach or guilty of unreasonable delay, the party not in default may give a notice fixing a reasonable date for completion and making that time the essence of the contract[7]"

Whilst the requirements of an effective notice were specified in Laurinda v Capalaba Park Shopping Centre:

  • A notice will be adequate to convey such a warning if, but only if, it conveys either that the time fixed for performance is made of the essence of the contract or that the party giving the notice will, in the event of non-compliance, be entitled (or regard itself entitled) to rescind. A notice, particularly one between solicitors, can convey those matters by implication[8]."


References

Casebook refers to Paterson, Robertson & Duke, Contract: Cases and Materials (Lawbook Co, 11th ed, 2009).

Textbook refers to Paterson, Robertson & Duke, Principles of Contract Law (Lawbook Co, 3rd ed, 2009).

ACL refers to the Australian Consumer Law.

  1. Bowes v Chaleyer (1923) 32 CLR 159
  2. Louinder v Leis (1982) 149 CLR 509
  3. Laurinda v Capalaba Park Shopping Centre (1989) 166 CLR 623
  4. Casebook, p. 557-8 [23.20]
  5. Casebook, p. 558 [23.30]
  6. Casebook, p. 558 [23.30]
  7. (1982) 149 CLR 509, 514
  8. (1989) 166 CLR 623, 653
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