Contractual deadlines require 'Real' understanding

When it comes to contracts, a minute can literally change a life, as footballer David De Gea learned last month when his move to Real Madrid was, quite literally, 'Gone in 60 Seconds'. Gemma Lampert, partner in the dispute resolution team at law firm CMS, explains how to prevent these problems.

Better three hours too soon than a minute too late.

The executive teams at football giants Real Madrid and Manchester United will have wished they’d heeded these guiding words from William Shakespeare at the end of last month’s transfer window.

Instead the English Premiership side missed out on a significant financial boost while the Spaniards were left without the services of a top international goalkeeper after a one minute delay in the submission of paperwork resulted in the collapse of David De Gea's £29 million move from Manchester United.

Both clubs had left negotiation late – as is often the nature of the football transfer window - but their brinkmanship backfired when a delay in email transmission meant the clubs failed to meet the Spanish Football Association transfer window. As a result one of the biggest anticipated deals of the season has fallen through, at least for the time being.

Some four hundred years after the Bard promoted the virtue of good timekeeping in his play The Merry Wives of Windsor, punctual performance in commercial relationships remains high profile and critical.  

As we saw in the 11th (or, perhaps more fittingly, 12th) hour transfer window drama, the briefest of delays can have severe consequences. The importance of contractual deadlines should therefore not be underestimated in the world of business where failure to comply can be equally severe. 

UK courts continue to uphold the principle that where parties agree a time-frame they will be held precisely to that promise. Although the outcome of such decisions may not always seem proportionate to any transgressions, the courts’ goal is to ensure there is no room for ambiguity as to how obligations should be performed and to set out how risk should be apportioned under commercial contracts.

This legal perspective is recorded succinctly in a recent commercial court judgment: “Inherent in a time limit is the notion that the parties are drawing a line.  Once the line is crossed, a miss is as good as a mile.” Shakespeare himself would have approved of such clarity.

Of course whether or not time is of the essence, and therefore considered to be imperative and binding in legal terms, will depend on the specific wording of each commercial contract and the context in which performance occurs. However, making the assumption that a small delay won’t matter is a very risky strategy for any business to take.

If time is of the essence in the delivery of a contracted piece of work, then there are likely consequences if the obligation is not exercised on time – even a small delay could end up being very costly to the company which fails to adhere to a deadline.

Matters are complicated by the fact that time is not always a simple concept in legal contracts. Businesses need to understand the definitions of time frames set out in a contract and what these terms actually mean – for example, is a day a business day or a calendar day; are business days different in an international contract; when does a period of time begin or expire; are there rules that prescribe how time will be counted (for example, service of documents may be deemed to happen a certain number of days after posting); and what does “as soon as possible” mean in a legal context?

There are some simple steps which companies entering contracts can take to ensure they are properly equipped to defend their position. They should identify and make a note of key deadlines and ensure the whole team involved in the delivery of the contract knows about them, ensuring there is absolute clarity on how a period of time should be calculated.

If there is not, it should be discussed with the contracting partner, allowing sufficient time within the agreement to complete a task well in advance of any cut off and, if flexibility is needed, making sure the contract wording allows for that.

Those businesses engaging another company to provide goods or services must also keep a close eye on the supplier to ensure they are delivering on time. If deadlines are being missed the company suffering from the delay may well have legal remedies at their disposal.

Getting thorough advice on all time related aspects of a business contract is a worthwhile investment which can prevent an embarrassing and potentially disastrous situation. As Real Madrid and Manchester United found out last month, own goals can also occur off the playing field.