As a starting point, the general rules on the failure to complete by a stipulated time are provided for under section 56 of the Contracts Act 1950. These provisions are reproduced in verbatim as follows:-

Effect of failure to perform at fixed time, in contract in which time is essential

56. (1) When a party to a contract promises to do a certain thing at or before a specified time, or certain things at or before specified times, and fails to do any such thing at or before the specified time, the contract, or so much of it as has not been performed, becomes voidable at the option of the promisee, if the intention of the parties was that time should be of the essence of the contract.

Effect of failure when time is not essential

(2) If it was not the intention of the parties that time should be of the essence of the contract, the contract does not become voidable by the failure to do the thing at or before the specified time; but the promisee is entitled to compensation from the promisor for any loss occasioned to him by the failure.Where contract prescribes for time of the essence – failing to meet deadline amounts to repudiatory breach which entitles the innocent party to terminate the contract.

Subsection 56(1) and 56(2) respectively deal with situations where time is of the essence and where times is not of the essence. The sections are clear that the question of time being of the essence hinges upon the intention of the parties. However, it is important to bear in mind that in common law jurisdictions, it is only the objective intentions that are relevant i.e. the intention as it appears to a third person (although equity would be more concerned with subjective intentions).

This reflects a commercially sensible position that, if you contract with me to do a certain thing by a certain time, (e.g. delivery of goods, payment of purchase money), and I failed to do so by that time, you are entitled to terminate the contract with me. It does not matter if I can perform it later as my performance beyond that stipulated time would be of no value to you anymore. Sometimes, aside from express provision for time being of the essence, the courts can infer time being of the essence of the contract from the nature of the transaction.

Note that I use the word ‘terminate’ as opposed to ‘rescission’, although the latter seemed to be consistent with the concept of ‘voidable’ which subsection 56(1) characterises to be the effect of the breach. I do not prefer terminology of ‘rescission’ for three reasons:-

  1. It tends to confuse readers with the equitable remedy of rescission (on grounds which militate against consent i.e. fraud, misrepresentation, undue influence, duress, etc.) (see para. 16 of Berjaya Times Squares Sdn Bhd (formerly known as Berjaya Ditan Sdn Bhd) v M Concept Sdn Bhd [2010] 1 MLJ 597)
  2. It confuses with the common law right to rescission for total failure of consideration (maybe the case of Aero-Gate Pte Ltd v Engen Marine Engineering Pte Ltd [2013] 4 SLR 409 may be helpful to illustrate the difference between terminating for repudiatory breach and claim for restitution for total failure of consideration)
  3. When one terminates a contract for a breach, he is merely discharging himself from further  performance of the contract. Thus, it is incorrect to say the contract becomes voidable (as perLord Porter at page 399, in Heyman v. Darwins Ltd. [1942] A.C. 356).

Usually,  under common law, failure to complete or to perform by the stipulated time amounts to repudiatory breach where time is stipulated as being of the essence of the contract. Equity, however takes a contrary view, time is usually not of the essence of the contract (para. 40 of Yeo Liong Ho v Loh Choon Hooi [2010] 1 MLJ 838). In fact, it will look at the substance of the contract rather than the letter of the contract to ascertain if time is truly of the essence (Jamshed Khodaram Irani v Burjorji Dhunjibai 1915 AIR PC 83).

Thus, the Federal Court’s approach in Berjaya Times Squares Sdn Bhd (formerly known as Berjaya Ditan Sdn Bhd) v M Concept Sdn Bhd [2010] 1 MLJ 597 in looking at subsequent dealings of parties to determine whether time is truly of the essence is characteristic of equity, not common law. Thus, the true basis for time ceasing to be of essence is equity. Interpretation of contractual terms do not take into account subsequent dealings but only factual matrix at the time of entering into contract (although the Federal Court has two grounds on time being of the essence, one which is based on contractual interpretation and another based on subsequent conduct of parties. I am concerned with the latter). Thus, unless for example a reasonable notice to complete is given, the innocent party is precluded by equity from insisting on discharging himself from further performance on time being of the essence (Sime Hok Sdn Bhd v Soh Poh Sheng [2013] 2 MLJ 149).

Note: This article is not intended to be relied upon as a legal opinion. Readers are advised to consult their solicitors for any advice or opinion.