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January 30, 2017

Close of Business

One of our legal team, Chelsea Parker, discusses the High Court's interpretation of the term 'close of business' and how this can affect claims.

The High Court has understood the expression ‘close of business’ in a recent group administration case at the end of last year. The case involved a number of other topics, however it serves as a useful reminder of the requirement for assurance when drafting commercial contracts.

The phrase ‘close of business’ is often used in commercial contracts on the notion that it’s meaning is clear. Nevertheless normal business hours can be very diverse depending on the type of organisation. Whilst it might be sensible to assume that close of business refers to 5pm or 5.30pm, in many industries such as hospitality and surely for the emergency services this would have a very different connotation.

When a term in a contract is not defined overtly, the court will look to a number of different principles of understanding to try and establish its connotation. For example in this case if there were any other references to business hours or close of business in the contract, the wider context would have been taken into account. The intention of the parties at the time of drafting will be measured and the language will also be interpreted in the way most consistent with the common sense of a sensible person.

Notices Received After Office Hours?

In this case the court considered whether a notice, which was received by fax at 6.12 pm, was received before close of business. The contract did not define when close of business occurred but provided that notices delivered after close of business were deemed to be received the next working day. The applicant argued that close of business was 5 pm and that therefore the notice had not been received in time. The court put the onus on them, as the party alleging the notice was too late, to establish when close of business had occurred.

No admissible proof was submitted to show when close of business had occurred and the judge therefore rejected the claimant’s submission. Considering the wider context of the contract, the issue of when commercial banks in London close was also discussed as this expression was used in a proviso to the notices clause. An estimate was put forward that in the modern world commercial banks close around 7pm and the judge accepted this despite a working definition from the Financial Times Lexicon being put forward.

The court interpreted the phrase ‘close of business’ in this case in the context of the business in question and stressed that it was a finding based on the facts of this specific case. As the communication is used in many commercial contracts covering a huge variety of different business contexts, it must be understood by reference to the nature of the business concerned. This is stressed by another case that also considered the phrase ‘close of business’ last year. In this case close of business was interpreted to mean 4pm as it centred on traditional banking hours rather than commercial banking hours.

Avoiding Disagreement

There was debate in this case about how drafting the clause in this way can provide a useful flexibility, however practically the uses are likely to be limited. Commercially it is going to be desirable for most businesses to have the certainty of a definite cut off time when setting deadlines in a contract. To avoid ambiguity with standard phrases such as this we would recommend including a definition or explanation setting out clearly what the parties intend the term to mean to avoid any disagreement.

This article was first published by Business Insider. Read the full article here.

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