QCR Winter 2019: Whether time of the essence in contracts for the sale of goods. Whether seller’s rejection of buyer’s post-breach offer to purchase rejected goods reasonable in the context of mitigation

PT Surya Citra Multimedia v Brightpoint Singapore Pte Ltd. [2018] SGHC 245

Facts

The Claimant, Surya Citra Multimedia, a sub-distributor, contracted with the Defendant, Brightpoint, a wholesaler and distributor, under a sub-distribution agreement (the “Contract”) for the distribution of BlackBerry mobile phones (the “Devices”) in Indonesia.

The claim arose under a contractual price protection clause (“PPC”) designed to protect the Claimant, as the sub-distributor who routinely placed purchase orders for the Devices, from any reduction in the retail price dictated from time-to-time by BlackBerry. The Claimant argued that, in breach of the PPC, the Defendant failed to provide the total financial shortfall suffered by the Claimant following a reduction in the retail price of the Devices.

In a counterclaim, the Defendant alleged that the Claimant had failed to collect some consignments it had ordered via purchase orders. In mitigation, the Defendant sold the uncollected Devices to third parties but there was a shortfall between the sales price achieved from the third party buyers and the contractual price under the purchase orders.

The Claimant contented that they were not obliged to pick-up the Devices as the Defendant had failed to deliver them by the delivery dates set out in the purchase orders, time being of the essence in relation to delivery. The Defendant presented evidence that the dates in the purchase orders were tentative and subject to change.  

The phrase ‘time is of the essence’ means that there is a time stipulation in a contract, most commonly in relation to delivery and the time for payment. Such a stipulation would be a condition of the contract, which would have to be strictly complied with. A breach of the condition would entitle the innocent party to  terminate the contract, and, in addition, bring an action for damages.

Judgement

The Singapore High Court dismissed the Claimant’s claim in full and but allowed the Defendant’s counterclaim in part.

  1. In deciding whether time was of the essence in respect of delivery under the Contract,  the court considered three scenarios:

    a) The contract expressly stipulates that conditions as to time must be strictly complied with;
    b) The nature of the subject matter of the contract, or, the surrounding circumstances show that time should be considered of the essence; or
    c) A party that has been subject to unreasonable delay, gives notice to the defaulting party, making time of the essence.
     
  2. With regards to (a), the Court found that there was no express stipulation in the Contract or purchase orders making time of delivery of the Devices of the essence.
  3. With regards to (b), an important question will be whether the contract is mercantile in nature. If it is, then while there may be an initial presumption that ‘time is of the essence’, not all time stipulations in mercantile contracts are capable of being conditions.

    The judge commented that, “the treatment of time as a condition in a mercantile contract is not based on any presumption of fact or rule of law, but is a practical expedient founded on and dictated by the experience of businessmen”.  A significant factor pointing towards delivery being of the essence in mercantile contracts is the importance placed on certainty and predictability in relation to the primary obligation of delivery under a given contract. It is for the party asserting the presumption to prove that time is a contractual condition – i.e. there is no reverse burden of proof, following a simple assertion of the presumption. Here, the fact that the dates stated in the purchase orders were subject to change rebutted the presumption that time was to have been of the essence.
     
  4. With regards to (c), the Claimant did not give any notice of undue delay to the Defendant so as to make time of the essence.
  5. Finally, on the mitigation point, the court, referring to Payzu Ltd v Saunders [1919] 2 KB 581, noted that there was no rule to relieve the Defendant from having to consider the Claimant’s post-breach offer. Whether or not the party under obligation to mitigate its losses acted reasonably must be considered on the facts of the particular case. Here, the fact that the parties had a strained business relationship and there was a loss of confidence between them was relevant. Furthermore, the price offered by the Claimant to purchase the Devices was no higher than the prevailing market price. The court therefore concluded that it was not unreasonable for the Defendant to have rejected the Claimant’s post-breach offer to buy the Devices.

Comments

The Singapore High Court has provided a useful and concise reminder of when a time stipulation clause in a mercantile contract will be considered to be a condition.

The take-away from PT Surya Citra Multimedia is that if Members want to ensure that ‘time is of the essence’ in their mercantile or commercial contracts, then clear wording to that effect should be included in the contracts. In a contract for the carriage of goods, where the Member is the Carrier, Members are strongly recommended to resist any express terms that make a delivery date ‘time of the essence’. In allowing time of delivery to become an express condition, where there isn’t an applicable exception clause in the Hague / Hague-Visby Rules to avoid or minimise the Carrier’s liability, a carrier would leave himself exposed to terminations of contracts and liabilities for delay claims.  

Members are reminded that delay claims are not covered under standard P&I Club cover.