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High Court Looks Behind The Mask


In Pharmapac (UK) Ltd v HBS Healthcare Ltd [2022] EWHC 23 (Comm), the High Court has held that a personal protective equipment (PPE) purchaser was entitled to terminate the supply contract when a delivery was late, because time was of the essence. Although the decision contains no new law, it is a topical illustration of the court’s approach to vague terms, as well as a reminder of the benefits to both parties, of expressly stating whether time for delivery is, or is not, a condition of the contract.

Before we look at the case, what does “time is of the essence” mean?

Broadly, there are three obligation types in an English law contract:

  • Conditions – any term which goes to the ‘root’ of the contract and for which if there is a breach, the innocent party can claim damages and walk away from the contract, treating it as repudiated;
  • Warranties – less crucial terms, a breach of which does not render the contact impossible to perform and so, though damages can be sought, there is no entitlement to walk away from the contract); and
  • Innominate or intermediate terms – which may have the implications of a warranty or a condition, depending on the consequences of the breach.

Where time is of the essence as to an obligation (say in the supply of goods or services), that obligation will be treated as a condition. As in this case, if the contract does not expressly state that time is of the essence, then the court must look at the contract as a whole and, importantly, the background facts to it.

Facts of the case

The contract was concluded only by an informal exchange of emails in March 2020 as the world was plunged into the COVID-19 pandemic, with Pharmapac buying from HBS. HBS had arranged to procure the PPE from production facilities in India. The key terms of the contract, set out within one of the emails, were:

“5M masks at £0.30 per mask based on meeting the product specification and quality of the sample received.

1st 500K shipment will be available for inspection and collection on Monday 16th March.

Followed by 9 further weekly shipments. Please can you ensure that we receive shipping documents 2/3 days before goods are due to arrive so we can then raise invoices with our customer?”

Note that the nine further “weekly” shipments had no specified date, nor stipulation as to by when in each week delivery must be made. Also, the contract did not specify the number of masks to be included within each shipment. It did not say that the time for delivery was essential, or a condition of the contract and nor did it address the consequences of failure to deliver on time. In the event, only the first instalment was delivered on time. The following shipments were all delayed when the Government of India imposed restrictions on the export of face masks out of India.

Pharmapac claimed that time was of the essence, with the delayed shipments amounting to a repudiatory breach of condition. As such, they considered the contract terminated and withheld payment. HBS argued that the contract did not state that time was of the essence and so Pharmacare was not, therefore, entitled to walk away.

The Court’s Decision

The court agreed with Pharmapac. Time was of the essence. Despite there being no expression to that effect, the background facts were such that the parties had intended it to be read that way:

  • Whilst the face masks were not perishable goods, against the background of the pandemic, the judge said “there was plainly an urgent commercial need to acquire them with a view to selling them on”.
  • At that time, there was a severe shortage of PPE and both parties “recognised a gap in the market and were trying to fill it” knowing the volatility of PPE pricing, with the judge referencing “the scramble for supply”.
  • The email set out a “rapid start and short intervals” (the ‘weekly’ deliveries).
  • The judge also noted the vagueness of the word ‘weekly’ with no explicit regular time for delivering the PPE being set out. The contract could easily have set specific delivery dates but had not done so, with the judge saying that “’Weekly’, against the background in this case, merely indicates each delivery must arrive during the following week, in my judgment”.

Takeaway Points

As we said at the start of this piece, this is not new law, but it is a timely (no pun intended) reminder of the need to draft commercial contracts carefully and to ensure that any stipulations as to timing (be it for deliveries or otherwise) are set out in sufficient detail.

  • Although here, the hasty email exchange was a product of the circumstances, try not to conclude contracts solely by an informal email exchange. Have some formal written terms with an appropriate level of detail prepared, or at least reviewed, by your lawyer.
  • Specifying that time is of the essence as to an obligation, will allow an innocent party to walk away if there is a breach.
  • Set out the specific consequences of a breach. As well as (or instead of) ending the contract, this could (depending on the obligation) include for example the triggering of a price reduction or a particular determination mechanism.
  • Set out performance deadlines. If the counterparty seeks to have flexibility using ‘as soon as reasonably practicable’ or similar, add a long stop of ‘but in any event by [X date]’.
  • As to repeat obligations, unlike in this case don’t say ‘weekly’ or similar, but be specific – for example on the 28th of each month or ‘Tuesday of each week’.

 

08.02.22

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