Court fails to make time of the essence because contract provided alternative remedies for lateness – Dominion v Debenhams, High Court

Dominion owned the leasehold to a shopping centre and they had an agreement with Debenhams under which Dominion would pay the retailer certain sums of money. Dominion was late in paying the second instalment. Debenhams served notice to terminate the agreement and claimed that time was of the essence. If time is of the essence, that means the other party can terminate for any delay by the other. Dominion claimed that Debenhams had wrongfully terminated the contract and sued for breach of contract.

The High Court sided with Dominion. Although Dominion was late in paying, that did not give Debenhams an automatic right to end the contract. It all depended on how important timing for payment was. The contract was silent as to whether time was of the essence. In cases like this, courts have to look to whether timing was an essential part of the contract. Sometimes it would be and other times it would not be. On the particular facts of this case, the Court decided that time was not of the essence. Debenhams’ position was not helped by the contract containing a clause which provided for late interest on payments – an indication, thought the Court, that the parties had already agreed an express remedy.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of www.Upload-IT.com, comments: ‘To some extent this case turns on its own facts. However, the key principle is that important terms should be clearly agreed in contracts at the outset. Failure to state whether time is of the essence or not then leads to uncertainty and for courts to impose their own position.

‘Another common mistake that I see people make is to underestimate the importance of the words “time is of the essence” in contracts and not realise the full legal implications of that phrase. It is sometimes assumed that the phrase just means that time is quite important. However, it actually means that even a one minute delay could entitle the other party to terminate the contract and claim damages.’