Aymes validly exercised a call option, but the associated purchase of NutriMedical could not be completed. Aymes International Limited (“Aymes”), and Nutrition4U B.V. (“Nutrition4U”) entered into a call option agreement for the purchase of the entire issued share capital of NutriMedical B.V. (“NutriMedical”). Aymes validly served a notice exercising the option to purchase NutriMedical’s shares. The purchase could not be completed by the date specified in the notice because the parties could not agree on how the consideration payable should be calculated.

Aymes claimed that Nutrition4U had breached the purchase contract. Nutrition4U argued the contract had lapsed because time was of the essence. The question for the Court was whether time was of the essence for completion on the date specified in the notice; and, if it was, what consequences, if any, should flow from the fact that completion did not take place on that date?

Time was not of the essence. The purchase contract provided for the parties to use “reasonable endeavours” to procure that the relevant inputs to the consideration payable (i.e., relevant margin and company value) be finally determined as quickly as possible and, in any event, no later than the date for completion specified in the notice; and failing this, the matter would be referred to an expert for determination. The Court noted that the time taken to nominate an expert was not within the parties’ control, and the fact that the expert only had to use “reasonable endeavours” to reach their conclusions within one month clearly contemplated that completion may not be achievable before the date specified in the notice. Hence, time could not be of the essence.

In this case, equity would not treat time as being of the essence. Time is not normally of the essence in equity, but it can be in certain cases: the answer tuns on the proper construction of the contract, the words used in the relevant context and the subject matter of the agreement. For example, time has been found to be of the essence in equity for contracts for the sale and purchases of shares in a company, given the volatility of the share price. However, the Court was satisfied that this was not one of those cases. Here, the call option had been in existence for over three years, and the parties had enjoyed close business connections for even longer. There was no commercial imperative which required the parties to achieve completion by any particular date. In any event, and crucially, the consideration for the purchase of shares was not affected by any delay in completion, so there was no question of any relevant volatility in the value of the option shares. Even if time had been of the essence, and the delay was eligible to be a repudiatory breach, Nutrition4U could have terminated, but did not.

Both parties were equally liable for the failure to complete, as the parties should have agreed a later date for completion and referred their dispute over the consideration to an expert for determination as soon as it became apparent that it could not be resolved by the completion date specified in the notice. However, the Court went on to note that the parties’ dispute raised questions of law that the expert (an accountant) would not have been able to determine, and that Aymes’ delay in seeking relief therefore did not prevent it from seeking an order of specific performance.

The Court granted Aymes an order for specific performance. The Court held that, as Nutrition4U had made it clear that it was not going to complete, it was sufficient for Aymes to demonstrate that it was ready, willing and able to complete at the date of any order for specific performance. The Court granted Aymes an order for specific performance on the basis that:

1. damages would not be an adequate remedy because the contract was for shares in a private company which were not readily available on the open market. The real value of the acquisition to Aymes lied in the business synergies between the two companies;
2. damages would be difficult to quantify and assess;
3. there was no guarantee that damages would be paid; and
4. Aymes had already paid more for the grant of the option than the value of NutriMedical.

This decision reinforces that parties should aim to agree clear and realistic timelines for completion. The Court noted that whether time is of the essence in a contract will ultimately depend on the interpretation of the particular contract, the words used being set in the factual context in which the contract is made and consideration of the subject matter of the contract. This decision serves as a reminder of the value in the parties expressly agreeing whether time is of the essence and clarifying the relationship between the timing for completion and the contractual dispute resolution mechanism, to avoid a situation where completion of the contract cannot occur due to an outstanding dispute between the parties leaving them ‘in limbo’.

Michael Munk (Managing Associate) and Prerna Handa (Legal Advisor (New Zealand Qualified)), London

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