By close of business
By Close of Business
This is a phrase you often see in terms and conditions and even occasionally in specifically drafted contracts. It often seems useful when forecasting the completion of something is difficult and the flexibility the term offers appears to solve problems.
Unfortunately, this lack of precision can sometimes land you in hot water and result in huge costs.
In a case involving Lehman Brothers and Exxonmobil the interpretation of the term had and impact of many millions of pounds.
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.
Lehman Brothers argued that close of business in London should be regarded as 5.00pm and as such the valuation notice should be deemed to have arrived on the following day. However, Exxon argued that as an international bank it could normally be expected to be working till at least 7.00pm.
The judge ruled in favour of Exxon. Does this mean that "close of business" means 7.00pm. Well, no. The judge looked at the nature of the business and at the nature of the parties to the agreement and concluded that, in this case, Exxon was right.
This lack of precision cost Lehman Brothers both on the contract and in court fees.
But the real moral of the story is that lack of precision in drafting agreements is simply sloppy and should be avoided.
And even large companies with teams of lawyers can make stupid mistakes!