When is close of business?

Ah – ‘close of business’. What a phrase. At least it’s not quite as bad as ‘close of play’.

These curious expressions which are frequently bandied about in offices throughout the western world are intended, of course, to mean the end of the working day. (Whatever the hell that is – particularly in today’s world of taking work home, answering work emails late into the evening and sleeping with a smartphone under your pillow. No wonder we’re all quivering wrecks.)

A recent case considered this very issue. No – not the quivering wrecks thing – but when ‘close of business’ occurs. The case, for those of you who might be interested, was Lehman Brothers International (Europe) (In Administration) v Exxonmobil Financial Services BV [2016] EWHC 2699 (Comm).

The claimant, Lehman Brothers, provided equities and bonds to the defendant, ExxonMobil, under a securities agreement. ExxonMobil sent a default valuation notice to Lehman Brothers, which, to be valid, needed to be received by 'close of business' by Lehman Brothers on the relevant day. The notice was sent by fax and was received by Lehman Brothers' London office at 6.02pm.

To determine whether the notice was valid under the agreement, the court had to consider when ‘close of business’ occurred. Lehman Brothers argued that 'close of business' in London was 5.00pm – meaning 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 – meaning the notice was in time and therefore valid.

The court accepted ExxonMobil’s contention that, as the claimant, the onus was on Lehman Brothers to establish when the close of business had occurred for the purposes of the agreement. Crucially, Lehman Brothers adduced no admissible evidence on this point. Silly them.

The wording of the contract was such that the validity of the notice turned on the precise meaning of the term 'close of business for commercial banks in London’. From a contractual certainty standpoint, this still isn’t great, but at least it’s a bit narrower than ‘close of business’.

Lehman Brothers argued that this phrase meant 'normal business hours' as worked by ordinary businesses and high street banks. The court acknowledged that 'commercial bank' was not a term of art in English law, but accepted ExxonMobil's argument that, in the modern world, commercial banks closed at about 7.00 pm. The judge emphasised, however, that this was a finding of fact limited to the instant case. Consequently, it was held that, for the purposes of the agreement, ‘close of business’ meant 7.00pm. The valuation notice was therefore valid.

On use of the phrase ‘close of business’ generally, the judge said this:

[T]he term “close of business” on a particular day or date is a useful term which is used in many different contexts, including court orders. The present context is as to the time of receipt of notices in a standard form financial contract. Where the intent of such a contract is to impose a definite cut-off time in this regard, it can do so expressly [by stating a precise time.] The fact that the contract does not state a time, and uses the term “close of business” instead, gives a useful flexibility, and should deter arguments based on the precise time of receipt, which may make little commercial sense.

That’s an interesting point, but, as a school admissions officer might say, ‘you have to draw the line somewhere’. And when you’re dealing with contracts, it’s generally better if everyone knows where that line is going to be drawn.

From the perspective of contractual (and therefore commercial) certainty, there is simply no substitute for precision in the drafting of contracts. Close of business for one person might be very different to another person’s stance. The idea that use of a rather woolly phrase would help to deter quibbling over whether an action had or had not been taken in the required time makes me feel a bit uncomfortable. It didn’t exactly work in the present case, did it? But I take the court’s point as to it possibly helping in a day-to-day commercial pragmatism kind of thing. Maybe.

But here’s the acid test: if I saw that phrase in a contract I was reviewing, would I let it pass, or insist on it being substituted for a specific time?

The latter, you say? Yep – you’re damn right.