What’s meant by ‘close of business’ in the context of commercial contracts? The High Court has clarified its meaning – with important lessons for all business organisations.
The phrase, ‘close of business’, is typically found in commercial documentation and regularly bandied about in the course of business. But its meaning in law became an issue for the court in a recent case involving a disputed close-out between Lehman Brothers International (the claimant) and ExxonMobile where default valuation notices were required to be served, according to the standard form sale and repurchase agreement, before ‘close of business’ on the relevant day.
The contract stated: “any notice or communication which is received…after close of business… or on a day which is not a day on which commercial banks are open for business…shall be treated as given at the opening of business on the next following day…”
The claimant received a faxed notice at 6.02pm on the relevant day, but it argued that close of business in London is 5pm. However, ExxonMobil argued a reasonable person would expect that businesses such as the claimant would close business at 7.00pm.
The High Court decided that it was for the recipient of the notice to establish when it closed for business. On the facts, it was recognised that the term ‘close of business’ was intended to be more than a flexible time period, and rather a specific cut off time by which notice had to be served. Therefore, what time ‘close of business’ actually meant should have been expressly stated. The court said close of business for a commercial bank such as the claimant was more like 7pm – so notice was validly served by ‘close of business’ by the defendant.
Businesses should consider the implications of the ruling on their own contractual relationships. Whilst close of business may mean something different for different sectors and industries, businesses should review their contract documentation to ensure their interests are properly protected in light of the ruling. Whilst the phrase is a useful term providing flexibility for the parties, it will not be sufficient in cases where a definite cut off time is intended.
Where there is a dispute of a similar nature, the court will look at the nature of the parties and their industry, and their intentions – and consider what a reasonable person would consider to be ‘close of business’ in the circumstances.