Time of the essence for completion: the common law demands strict compliance

Where time is of the essence for completion even a short delay is a repudiatory breach. In the normal course of events, there is no reason for equity to relieve the buyer from this nor from the loss of his deposit (if the contract so provides).

In Union Eagle Ltd v Golden Achievement Ltd ([1997] A.C. 514, PC) the Privy Council heard an appeal from the Hong Kong Court of Appeal. A seller had agreed to sell a flat in Hong Kong. The buyer had paid a 10% deposit. The contract provided that time was of the essence in all respects. It also provided that the deposit would be forfeited if the buyer failed to complete. Completion was to take place by 5pm on the completion date but the buyer’s solicitors arrived 10 minutes after that with the completion monies. The seller rescinded on the grounds of the buyer’s failure to comply with the term of the contract stipulating the time for completion. The buyer sought specific performance. It argued that there was an equitable jurisdiction to relieve against the forfeiture of the equitable interest created by the contract. This failed in the Hong Kong courts and in the Privy Council.

Lord Hoffman gave the only judgment. Authority and policy combined to persuade him that there was no scope for equity to intervene to save the buyer from the breach of contract:

‘When a vendor exercises his right to rescind, he terminates the contract. The purchaser’s loss of the right to specific performance may be said to amount to a forfeiture of the equitable interest which the contract gave him in the land. But this forfeiture is different in its nature from, for example, the vendor’s right to retain a deposit or part payments of the purchase price. So far as these retentions exceed a genuine pre-estimate of damage or a reasonable deposit they will constitute a penalty which can be said to be essentially to provide security for payment of the full price. No objectionable uncertainty is created by the existence of a restitutionary form of relief against forfeiture, which gives the court a discretion to order repayment of all or part of the retained money. But the right to rescind the contract, though it involves termination of the purchaser’s equitable interest, stands upon a rather different footing. Its purpose is, upon breach of an essential term, to restore to the vendor his freedom to deal with his land as he pleases. In a rising market, such a right may be valuable but volatile. Their Lordships think that in such circumstances a vendor should be able to know with reasonable certainty whether he may resell the land or not.’ (at 520)

The case illustrated the need for commercial certainty and to resist the temptation to allow equity to rewrite contracts in the name of fairness (at 519). There was no useful distinction to be drawn for this purpose between ‘commercial’ and other cases, ‘Land can also be an article of commerce and a flat in Hong Kong is probably as good an example as one could find.’ (at 519). Lord Hoffman summed up his position:

‘The fact is that the purchaser was late. Any suggestion that relief can be obtained on the ground that he was only slightly late is bound to lead to arguments over how late is too late, which can be resolved only by litigation.’ (at 523).

The seller was entitled to know with certainty whether he could re-sell or not (at 520). It may be different if there were any question of unjust enrichment or estoppel (at 523).

Michael Lower

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