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30 Oct 2006

What is a business day?

by Sidney Tang, James Minchinton

When obligations need to be discharged by a particular day, it is important for contracts to properly define business days so that it is clear exactly when the obligations need to be discharged.

A day is a long time in politics. And so it can also be in business. The events of a day can be critical for cash flows and for the discharge of legal obligations. So when something absolutely, positively has to be done by a particular business day, how can you ensure that it is the right business day?

Everybody knows what a business day is until it needs to be defined. Only then do the parties to a contract realise that they each had a different perception of what is meant by the term business day. By the time that realisation comes, it can be too late. To avoid any embarrassing or costly timing issues in contracts, it is useful to give some thought to the times by which obligations are to be discharged and, if these are to be measured in terms of business days, consideration also needs to be given to the definition of business day.

What is a business day - statutory definition

If the term "business day" is not defined in a particular contract, the definition will be the applicable statutory definition if the parties have expressly or impliedly included that definition in the contract.

Several pieces of legislation define "business day", sometimes for general purposes and sometimes for the purposes of the particular legislation. By way of example, a general legislative definition is in section 36 of the Acts Interpretation Act 1954 (Qld) which defines "business day" as:

"a day that is not -

a Saturday or Sunday; or

a public holiday, special holiday or bank holiday in the place in which any relevant act is to be or may be done."

Another example of a statutory definition is section 9 of the Corporations Act 2001(Cth) which defines "business day" as

"a day that is not a Saturday, a Sunday or a public holiday or bank holiday in the place concerned."

Although generally similar, there are slight variations in each statutory definition. If a statutory definition were to be relied upon, variations in definitions could impact on the discharge of contractual obligations and indeed, could give rise to an argument about which is the applicable statutory definition.

Business days - issues for contractual definitions

Parties are not required to adopt any statutory definition of "business day" in their contracts and may define "business day" for their own purposes.

However, in doing so, the parties must ensure that they choose a clear and concise definition. The definition will need to be selected having regard to where the concept of business day is used in the contract and the impact of the discharge of any obligations which hinge on a number of business days. Examples of events which are usually based on the passage of a certain number of business days are the giving a notice within a certain number of business days and making payment within a certain number of business days from receipt of an invoice.

There are two common themes generally found in the definition of "business day". The first is that specific days are to be excluded from the definition of "business day", for example, weekends, public holidays, days on which banks are not generally open for business are common exclusions. Confusion can arise with the inclusion of "bank" holidays as these are generally no longer public holidays.

The second theme is that the concept of "business day" is usually measured by reference to a particular place, for example, a particular State or nation, or the place whether the obligation is to be discharged. Defining by reference to a particular state or nation may be an issue if the contract operates across multiple jurisdictions. A party in one jurisdiction may find that their obligations are not relieved by a public holiday in their own jurisdiction if the measure of a business day is another jurisdiction. Simply by applying multiple jurisdictions may not be a solution as it could increase the number of days that are not business days.

Also, if the concept of a "business day" is measured against the place where the obligation is to be discharged, issues may arise as to where exactly that place is and in what jurisdiction it falls.

While a day here or a day there may not be of much importance in the majority of cases, in some instances, timing may be critical. If your contract will give rise to critical obligations where time is of the essence, the right definition of "business day" is essential.

Once a business day - but not always a business day

Despite a definition of "business day", whether or not a day qualifies as a business day may be subject to change.

The High Court in IOC Australia Pty Ltd v Mobil Oil Australia Ltd (1975) 11 ALR 417 considered the impact of a declaration of a public holiday after the formation of the contract. In that case, the date on which the obligation to pay money was critical for the parties. The payment was due to be made on the "last business day" of the month. In December of the particular year, the last business day was to have been 31 December. However, this day was subsequently declared a public holiday. The issue was whether the "last business day" of the month was still 31 December (as it was not a public holiday when the contract was formed) or whether it became 28 December upon the declaration of the public holiday.

The High Court found that, because of the wording of the definition of business day in that case (being in that instance, a date that banks were open for business), the concept of a business day would change with the advent of new public holidays. Payment was therefore due on 28 December.

Getting it right

If time is an issue for the discharge of contratual obligations, then it is prudent to define the term "business day" in the contract. Where the words are not defined in the contract, the courts will, having regards to the circumstances of the agreement, interpret them as they see fit which may be based on a statutory definition or on the court interpreting what it perceives to be the intention of the parties.

In defining the term, it is important consider which days are to be excluded from the definition and the location where business days are to be measured. These will be determined by the particular circumstances of the contract and the potential impact of a failure to discharge an obligation by a particular date.

Finally, when managing a contract, always consider the impact of public holidays and the like when planning to fulfil your contractual obligations. A public holiday may be a holiday to you, but it may not be a holiday to your contract.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.