Time and Contracts: A Deep Dive into CERAMTEC v ICONIC MEDICARE
The High Court’s (HC) recent decision in CERAMTEC INNOVATIVE CERAMIC ENGINEERING (M) SDN BHD (CICE) v ICONIC MEDICARE SDN BHD (IMSB) [2025] CLJU 686 provides crucial insights for Small and Medium-sized Enterprises (SMEs) navigating the complexities of commercial contracts, particularly concerning the often-disputed concept of “time is of the essence.” The HC disagreed with CICE’s argument that time was not critical in their agreement to supply ceramic formers to IMSB, despite IMSB’s initial tolerance of delays and eventual acceptance of the goods. CICE argued that IMSB’s conduct implied acceptance of revised timelines, rendering the “time is of the essence” argument an afterthought.
This analysis delves into the specifics of the HC’s decision, exploring the factual background, the legal principles applied, and the significant implications for SMEs in understanding the importance of timely performance in their contractual obligations.
Unpacking the Case: The Core Dispute
CICE, a manufacturer of ceramic formers essential for medical glove production, contracted with IMSB, a company venturing into PPE manufacturing during the COVID-19 pandemic. In December 2020, IMSB ordered 366,000 formers for their planned 12 glove manufacturing lines, with deliveries scheduled to commence in July and October 2021 for Phase 1 and Phase 2 respectively. CICE confirmed their capacity and issued proforma invoices reflecting these timelines. IMSB placed two purchase orders (POs) and paid a 10% deposit.
Delays ensued, starting with IMSB’s April 2021 inquiry about a potential delay in the July delivery. IMSB subsequently revised one PO, reducing the quantity but maintaining the original timeline. CICE proposed a revised delivery schedule, which IMSB did not explicitly agree to. Faced with delays, IMSB sourced formers from another supplier at a higher cost. While IMSB consistently emphasized the importance of the original delivery schedule, CICE cited various reasons for their inability to meet these timelines. Deliveries were significantly delayed and partial. IMSB eventually terminated one PO and reduced the quantity of the other.
CICE sued IMSB for scrapping costs related to the reduced order, while IMSB counterclaimed for the increased cost of sourcing alternative formers and lost profits due to the delays.
Key Legal Principles Considered
The HC reiterated the burden of proof and the balance of probabilities in contractual disputes. Importantly, it addressed the principle of “time is of the essence,” clarifying that an explicit clause is not always necessary. Drawing upon Section 11 of the Sale of Goods Act 1957 and the Federal Court case of Damansara Reality Bhd v Bungsar Hill Holdings Sdn Bhd & Anor (2011) 9 CLJ 257, the HC emphasized that whether time is of the essence depends on the contract’s terms and the parties’ conduct.
HC’s Findings and Implications
The HC dismissed CIME’s claim and partially allowed IMSB’s counterclaim.
- Liability for Scrapping Costs: The court found that time was of the essence due to the contract terms and the context of the pandemic-driven demand for gloves. CICE’s repeated failures to meet agreed timelines constituted a breach of contract. IMSB’s reluctant acceptance of delayed and reduced deliveries did not equate to acquiescence to the revised schedules. Consequently, CICE was not entitled to claim scrapping costs.
- Loss Incurred Due to Alternative Sourcing: The court ruled that CICE’s delays and request for order reduction forced IMSB to source elsewhere at a higher cost. CICE’s suggestion for IMSB to find alternative suppliers further supported the claim that this loss was foreseeable. IMSB successfully proved the additional expense incurred due to CICE’s breach, and the court awarded IMSB the difference in cost.
- Claim for Loss of Profits: IMSB’s claim for lost profits was rejected as being too remote and speculative. The lack of confirmed purchase orders from their intended customer and the fact that the customer had already engaged another supplier before IMSB was ready to produce weakened their claim of a direct causal link between CICE’s delays and the alleged losses.
Implications for SMEs
The CERAMTEC v ICONIC MEDICARE decision offers critical lessons for SMEs:
- Express Clauses are Not Always Mandatory: While a clear “time is of the essence” clause is advisable, the court will examine the surrounding circumstances and conduct to determine its importance.
- Context is Crucial: In time-sensitive industries or situations with urgent market demands, timely performance is more likely to be considered essential, even without an explicit clause.
- Communication Matters: While IMSB did not always provide immediate written objections, their consistent communication emphasizing the need for timely delivery was crucial in establishing the importance of time in the contract.
This case underscores the need for SMEs to clearly define delivery timelines in their contracts, promptly communicate any concerns regarding delays, and understand that their conduct can significantly influence how a court interprets the importance of time in their agreements. Even without explicit clauses, a clear understanding of the context and consistent communication regarding timelines are vital to protecting their interests.
