“Close of business” is a stock expression often used in business documents on the assumption that it has an established meaning. But is its meaning absolutely clear?
The meaning of “close of business” was recently considered by the Supreme Court in Re Elektron Holdings Limited (In Receivership), McCann v Halpin.1 There, a bank held several mortgages over the company’s property which entitled the bank to appoint a receiver in specified circumstances. The relevant mortgage provided that a receiver could be appointed “if the Company shall fail to repay any monies due to [the bank] on demand or on the date on which the same ought to be paid in accordance with the provisions of this Debenture….”. Following default on a payment due, the bank issued a demand letter which specified the default and the amount of principal and interest due and concluded: “In the event that payment is not received by close of business on 17 February 2012, we are entitled to and reserve the right to enforce any security given to us to secure the facilities made available … to take all such actions as are permitted under the said security (including, without limitation, the appointment of a receiver)….”.
Payment was not made. A deed of appointment of a receiver was expressed to be made by the bank on 17 February 2012 at 4pm. Evidence was also given that the receiver endorsed confirmation of acceptance of the appointment on the deed at about 4.15pm that day.
The only issue on the appeal was whether the receiver was validly appointed having regard to the time at which the deed appointing him was executed.
The High Court’s Conclusion
The High Court concluded that, when not further explained in the document in which it is used, the phrase “close of business” is not a term of art. It is not defined by the Interpretation Act 2005 or in any standard statutory interpretation text. It is a flexible phrase commonly used to describe a time at which a business might reasonably be expected to close its doors to the public or its clients. While the phrase covers different business contexts, it must be understood by reference to the nature of the business concerned. Though “normal business hours” often refers to 9am to 5pm or 5.30pm, close of business for a pub or a restaurant may be after midnight. The High Court held that in the banking context, “close of business” should be interpreted as meaning the end of the banking business day. Traditional banking hours for customers have been 10am to 4pm. While many banks have late or early opening on particular days, it is reasonable to interpret and understand “close of business” in the banking context as being the time at which banks have traditionally and normally closed their doors to customers, ie 4pm.
The Supreme Court’s Analysis
Upholding the trial judge’s conclusions that the receiver had been validly appointed, the Supreme Court concluded that the object of the demand was that the bank should receive the amount due by electronic transfer or by delivery of a bank draft by the end of the business banking day on 17 February. Beyond the end of the banking business day, that objective could not be achieved.
The end of the banking business day is the point in time when the bank ceases to do banking business with its customers. 4pm was the time which any customer of the bank would have understood to mean “close of business”, and the court also noted that there was evidence that the appellants had expressly been given to understand this at meetings leading up to service of the demand letter. The court also rejected an argument that, instead of acting to enforce its security “on the dot” of 4pm, the bank had to wait for some further period after 4pm to exercise its power to enforce the security.
The Supreme Court expressed no view on the alternative argument that the bank was entitled to appoint a receiver after the demand was made and before the stated deadline for receipt of payment, but observed that, if that argument had to be considered, difficulties would arise because of how the demand letter had expressed the bank’s entitlements.
It is useful to have judicial confirmation that “close of business” still means 4pm in a banking context. However, the ordinary meaning of stock phrases can depend on the context, and “close of business” can have different meanings depending on the nature of the business concerned. The commonly-understood meaning of stock phrases can also change over time as business and social patterns change. It may be wise to avoid risk of ambiguity in business documents by avoiding stock phrases and by including definitions or explanations to put matters which may become controversial beyond any doubt.