This case illustrates the willingness of the Courts to imply a term that the time for payment is essential in circumstances where the timing was dictated by an imminent risk that the company could suffer considerable financial loss if the money was not received by the stipulated date.  To avoid ambiguity and unintended consequences, contracts should clearly state whether time for payment is essential. An aggrieved party who wishes to retain its termination rights should also take care to ensure that its actions following non-payment do not inadvertently amount to affirmation of the contract.

Mr Liang Zhen (Jally Lin) contracted with BHW Capital Pty Ltd (BHW Capital) to subscribe for 15% of the shares in BHW Capital (Shares) in consideration for a capital injection of $300,000 by Jally Lin by 22 January 2013 (Contract).  The capital injection was to be used by BHW Capital to pay debts in relation to a development opportunity.  On 21 January 2013, Jally Lin paid $180,000 toward a development debt at the direction of BHW Capital but the remaining $120,000 was not paid.  BHW Capital contended that time was of the essence in relation to the payment, purported to terminate the Contract on 19 April 2013 and subsequently sold 5% of the Shares to a third party.

On the question of whether time was of the essence, White J in the Supreme Court of New South Wales found that:

  • despite no express agreement, it was implied that the time for the performance of the payment of $300,000 was essential as this was a commercial contract dictated by the imminent risk that that BHW Capital would lose its development opportunity and forfeit moneys already paid if the full payment was not made by 22 January 2013.  As such, it would have been open to BHW Capital to terminate the Contract because full payment was not made by Jally Lin by 22 January 2013;
  • the fact that BHW Capital did not terminate the Contract but rather sent an email on 16 April 2013 unequivocally calling for the final payment on the final payment (and the signed share transfer form) amounted to an election to affirm the Contract;
  • as the Contract was affirmed, time for payment was no longer essential; and
  • before the Contract could be terminated, a vendor would first need to nominate a reasonable time for completion (and the purchaser fail to complete by that time) and would then need to give a notice to compete making time of the essence.  As neither occurred in this case, the purported termination was ineffective.

See the case.