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January 31, 2017

High Court interprets term 'close of business'

The High Court has interpreted the expression 'close of business' in a recent group administration case. The case involved a number of other issues, however it serves as a useful reminder of the requirement for certainty when drafting commercial contracts. 

When a term in a contract is not defined expressly, it will be interpreted in the way most consistent with the common sense of a reasonable business person. The wider context of the contract may also be taken into account, for example in this case if there are other references to business hours in the contract. 

In this case the court considered whether a notice, which was received by fax at 6.02 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 claimant argued that close of business was 5 pm and 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 evidence was submitted to show when close of business had occurred and the judge therefore concluded that the notice had been received before close of business.  

The court interpreted the phrase close of business' in this case in the context of the business in question (this was a standard from financial agreement). The court also suggested that drafting the clause in this way can provide a useful flexibility. However commercially, and to avoid ambiguity, it is going to be preferable for most businesses to have the certainty of a definite cut off time for service of notices.  

The commercial team at Greenaway Scott are more than happy to discuss in more detail what to look out for when forming a contract and provide a review of your commercial contracts. 

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