‘Close of business’ is a term many people use in their day to day working life without much thought. But what does it actually mean and should the term be used in contractual documentation?
Agreeing to get something done by ‘close of business’ is a phrase often used when flexibility is required as to the time a task will be completed. It makes it clear the task will be done that day, but not by a particular time.
However, what does the term mean when it is included in a contract?
The ruling in the case of Lehman Brothers International (Europe) (In administration) v Exxonmobil Financial Services BV, heard in the High Court, dealt with this issue and looked at how the term should be interpreted.
The circumstances of the case were that Lehman Brothers International (Europe) had provided securities in the form of equities and bonds to the defendant ExxonMobil Financial Services BV.
Under the agreement, ExxonMobil sent a default valuation notice which, in order to be valid, had to be received by ‘close of business’ on the day in question. The fax was received by Lehman Brothers’ London office at 6.02pm. The court had to decide whether ‘close of business’ in London was earlier than 6.02pm.
Lehman Brothers argued that ‘close of business’ in London was 5.00pm and that, therefore, the notice had arrived too late and should be deemed to have been received the following day.
ExxonMobil contended that ‘close of business’ was 7.00pm and that, therefore, the notice had arrived in time.
The judge accepted that the burden of proof was on Lehman Brothers to establish when ‘close of business’ occurred and concluded that, as Lehman Brothers had failed to put forward any admissible evidence on when that point in time occurred, this was sufficient to decide in favour of ExxonMobil.
The court also examined the expression ‘close of business’ for ‘commercial banks’ in London, which had been used in a proviso to the notice clause. Lehman Brothers submitted that this was ‘normal business hours’ as worked by ordinary businesses and high street banks.
While acknowledging that ‘commercial bank’ had no particular meaning in English law the judge accepted ExxonMobil’s argument that, in the modern world, commercial banks closed at about 7.00 pm and therefore this time was to be used as ‘close of business’ in this particular case.
The High Court therefore concluded that the notice had been received before ‘close of business’ on the relevant date and that the default valuation notice was valid.
The judge noted that use of the term ‘close of business’ can give a useful flexibility and deter arguments based on precise time of receipt which can sometimes make little commercial sense.
However, the judgment has highlighted the fact that, for commercial clarity and to avoid dispute, it is advisable to specify an exact time when setting a deadline in a contract. While this may remove flexibility, it is usually preferable to achieve commercial certainty.
Sharon Everard is an associate at Shoosmiths