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GENERAL CONTRACT DRAFTING PRINCIPLES
Brief guidelines, suggestions and best practicesto improve your style and effectiveness
Each contract drafter should write a contract with only a few principal drafting principles in mind.
Furthermore, a contract drafter who works in a multinational context should have a general
understanding of the characteristics of different national legal systems and be aware of significant
differences between legal cultures.
A contract should be drafted in plain English, meaning that the language used is clear and as simple
as reasonably possible. A drafter must be accurate. The contract should be consistentwith regard tostyle, structure, terminology and level of detail. A drafter may use vague terms but should be
conscious of how and when to use them, and should avoid ambiguities. This paragraph will elaborate
on these drafting qualities.
1.1 Plain English: simple and clear
Use plain English when drafting contracts: a businessman should be able to understand what it says.
The involvement of a legal counsel should be necessary only to give an impartial view, oversee the
legal consequences, to clarify that certain phrases are normal or to confirm that indeed they reflect the
parties intentions. The legal aspects of a contract should be limited to what is being expressed, not
how it is expressed. (No tricks!) Old fashioned contractual language, which is not plain English
(anymore) will make a contract harder to read. It will also not serve the interests of the parties.
Plain English. What is plain language, especially plain legal language? It is ordinary adult English,
used in day-to-day context. It is language stripped of archaic legalese or the latest business jargon
and vocabulary, supported by a proper layout and typography of the text. As regards spelling, a
multinational company may prefer British English (or another) to U.S., Canadian or Australian English
but in either case, language should be used consistently.
Dont. Nevertheless, do not use:
Purchasershould not
oweSeller
its
aint
wont
cant
for obvious reasons (?)
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No archaisms. There is no need to include archaisms such as WITNESSETHor oddities such as the
use of both words and numerals to express numbers (words may be useful because a number is easy
to misprint, but equally risky is updating figures whilst forgetting the corresponding words; words to
ascertain that 30 days are (thirty) days and not 13 is ridiculous).
(a) Short sentences
Everyone knows that short sentences are much easier to read than longer ones. Contracts are
amongst the least readable texts one can imagine. Apart from the abstract language, the typical
reason for this is the use of lengthy sentences. Therefore, be concise and to the point and address
only those matters that must be elaborated on to avoid surprises or confusion, or those matters which
have relevance in litigated disputes.
Some organisations have a rule that no sentence should exceed 17 words and that no word should
exceed five syllables. This may be excessively prescriptive but it imposes an excellent discipline. It
certainly requires the drafter to express ideas one at a time. A true dragon is the following sentence:
Exclusivity. The Seller covenants and agrees that for a period of ninety (90) days after the date
first written above (the Effective Date) or such shorter period as set forth below (as the case
may be, the Exclusivity Period), none of the Seller, its affiliates or subsidiaries will, and they
will cause their respective shareholders, directors, officers, managers, employees, agents,
advisors or representatives not to, directly or indirectly, solicit offers for, encourage, negotiate,
discuss, or enter into any agreement, understanding or commitment regarding, a possible director indirect sale, merger, combination, consolidation, joint venture, partnership, recapitalisation,
restructuring, refinancing or other disposition of all or any material part of the Company or its
subsidiaries or any of the Company's or its subsidiaries' assets or issued or unissued capital
stock (a Company Sale) with any party other than Purchaser or provide any information to any
party other than Purchaser regarding the Company in that connection; provided that, (i) for the
time period commencing on the Effective Date and ending at 11:59 p.m. Central European Time
on 7 July 2007 (the Bid Confirmation Date), the Parties shall work together in good faith and
use commercially reasonable efforts to facilitate due diligence by Purchaser and their advisors
to confirm, based on the information made available to Purchaser or their advisors prior to the
Bid Confirmation Date, the intent of Purchaser to implement the Transaction pursuant to the
terms of this Heads of Agreement and if Purchaser does not deliver notice to Seller of suchintent by 11:59 p.m. Central European Time on (or otherwise prior to) the Bid Confirmation Date
(such notice, a Bid Confirmation), then Seller shall have the right to terminate the Exclusivity
Period effective as of (but not prior to) the Bid Confirmation Date by providing written notice to
Purchaser by no later than 5:00 p.m. Central European Time on (but not prior to) the day
following the Bid Confirmation Date; and (ii) if Purchaser delivers the Bid Confirmation or if such
termination notice set forth in the preceding clause (i) is not given, the Seller shall have the right
to terminate the Exclusivity Period effective as of (but not prior to) 11:59 p.m. Central European
Time on the sixtieth (60th) day following the Effective Date by delivering written notice of such
termination to Purchaser by no later than 5:00 p.m. Central European Time on (but not prior to)
the sixty-first (61st) day following the Effective Date.
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Techniques to simplify such sentences are to think first and to conceptualise: does it really increase
certainty if you draft the long lists of persons, actions or matters?! A list also has drawbacks such as
encouraging creativity towards the grey areas of the listed matters; concepts are more likely to capture
any failing manifestations; a list of concepts lacks conceptuality. The above sentence can be
shortened easily by a better use of definitions, by separating out the condition (i.e. the second half), by
defining:
the exhaustive (?) list of related persons (i.e. their respective shareholders, directors, officers,
managers, employees, agents, advisors or representatives);
several or all (?) of their prohibited actions (i.e. not to, directly or indirectly, solicit offers for,
encourage, negotiate, discuss, or enter into any agreement, understanding or commitment);
and all (?) the possible transaction structures (i.e. a possible direct or indirect sale, merger,
combination, consolidation, joint venture, partnership, recapitalization, restructuring, refinancing
or other disposition of all or any material part of the Company or its subsidiaries or any of the
Company's or its subsidiaries' assets or issued or unissued capital stock).
In other words, a quasi-exhaustive list could be reduced into concise wording addressing the relevant
concept rather than its manifestations.
Uncertainty can be taken out if abstract references are made concrete. A reference to time (e.g. 5:00
p.m. Central European Time on (but not prior to) the sixty-first (61st) day following the Effective Date)
can replaced by the actual date and time.
Another technique to increase legibility is to separate out the exceptions, qualifications or conditions.
Often, the visual subdivision in separate (indented) subparagraphs increases readability. Sentences
should be short-cut if they pile up clauses that could well stand on their own or if exceptions,
qualifications or conditions can be separated and moved to a separate sentence.
(b) Keep subject and verb together left-right principle
SVO. Sentences in the English language fairly strictly follow an order of subject-verb-object (SVO).
Texts are easier understood if the actor (the subject) and the determination of his action (the verb) are
close together at the beginning of the sentence. A document becomes harder to read when you create
unnecessary gaps between the subject and the verb. The Dutch and Germans have the patience for
that. If the sentence also contains an object, this would be best positioned early on in the sentence but
always after the subject and the verb. Sometimes, this should be achieved by turning the intervening
words into a separate sentence or by moving them to the beginning or end of the sentence. An
example:
The Seller hereby sells and transfers the boat.
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Here the seller is the subject (S), sell is the verb (V) and boat is the object (O). This very simply
example can be contrasted with the following:
The Seller hereby sells and transfers, subject to purchaser providing x, y and z indemnities, the
boat.
In this example, readability improves ifthe boatis moved to the beginning or, probably even better, the
indemnities can be moved to the next sentence or even a separate article headed Indemnities.
Order concepts. Sometimes, the object of an obligation consists of several concepts. If you prefer not
to split the sentence, it is a good idea to structure the object of the obligation so that the reader will
catch all the concepts at once and is able to remember each. In line with this, use a natural sequence
in which the concepts are commonly experienced. An example of a messy sequence:
to use, sell, have sold, manufacture, have manufactured, modify, have modified, distribute
and have distributed the Licenced Product.
Obviously, a product is not first used, then sold, then manufactured etc. Few people can reproduce
this. Conversely, many people are able to reproduce even a long sequence if it is logical. Furthermore,
bring together the items that relate to each other:
Force Majeure means [acts of God such as earthquake, flood, storm or lightning, fire ],
[accident, explosion, sabotage, war, terrorism, riot, civil disturbance, epidemic]
Left-right principle. You will make reading easier if you formulate the sentence such that it reads
from a known or familiar context into the main message. In many languages, the unguided reader will
read to the end of a sentence in an (unspoken) ascending or descending tone:
At the end of the sentence, where the tone reaches the peak (or bottom), the reader unconsciously
seeks the most important information. This is called the left -right principle and may help the writer
structure a text and each sentence.
The left-right principle applies to structuring sentences, to structuring a paragraph or section and to
structuring your entire contract and even the set of transaction documents. The principle implies that
simple matters are addressed first and complications later on in the sentence, paragraph or contract3.
3 Joseph M. Williams, Style Lessons in clarity and grace, Pearson Longman 2007 (9th ed.), 92 ff. Barbara Minto,The pyramid principle Logic in writing and thinking, Prentice Hall/FT, 2009 (3rd ed.).
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If the most important information is halfway through the sentence (instead of at the end), the reader
may miss the importance of it or even the entire point. Contract clauses should adopt the left-right
principle by limiting and structuring the information in the sentences of a section. For example:
A is followed by B and C. B implies D. C causes E. D and E support the conclusion F.
The left-right principle somewhat discords with how people think: a normal person starts with the main
point and then deals with the exceptions and limitations. You would make the reader comfortable by
first driving your point home. The left-right principle on the other hand, suggests using familiar
concepts and a known context first and then work towards the key point. A technique to redress this
discordance is to limit the scope of a sentence to introducing only one or two new things per
sentence.
Signalling sentence. It also helps to start a paragraph with a signalling sentence addressing the main
topic or conclusion and then restart the paragraph. The topical paragraph structure could therefore
become:
A leads to F. A is followed by B and C. B implies D. C causes E. D and E support the conclusion
F.
The signalling (or topical) sentence may well be used to convey a basic, but often forgotten,
statement. For example, a research agreement or a joint development agreement normally supports a
project plan or statement of work, where those latter documents are the essence of the relationship; inparticular if one party is required to propose a project setup, it makes sense to start the article dealing
with the contents of the project plan or SoW with:
Service Provider shall work out all details of each Development Project in a Statement of Work.
Each Statement of Work proposed by Service Provider to Customer shall set forth
The left right-right principle, as well as using a signalling sentence, also discords with how people
perceive other peoples communications: an audience tends to visualise. This would mean that a
message is better received if you start with an example and continue with the substance. If you want
to prevent a reader visualising his or her own example, start with the right one yourself. Then
elaborate on that example to make your point. For example:
The Parties shall use best efforts to have the Conditions satisfied as soon as practicable. In
particular, Purchaser shall, in respect of the Condition in Article 2.1(c): (a) make appropriate
filings; and (b) propose all such remedies as
In this example, the first sentence states the main principle. This makes reading the subsequent
sentence easier. It would be understood as an elaboration on the principle of best efforts. Note,
however, that if you replace in particularby the word furthermore(orin addition), the second sentence
converts into a firm obligation standing on its own (!)
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(c) Use the active tense, personalize sentences
and avoid nominalisation
Active tense. Another golden rule for writing texts, equally valuable in drafting contracts, is to use the
active tense instead of the passive. Often, the active voice results in a sentence that is less wordy and
more direct.
When using the passive tense, there is the potential danger that it is unclear which party is obliged to
perform. To solve this, the drafter should insert additional words like by Seller. A technique to prevent
ambiguities is to realise that each provision should mention the debtor of the obligation. In most cases,
this will almost automatically turn the sentence into the active tense in which the debtor of an
obligation is also the (grammatical) subject of the sentence.
Note, however, that mentioning an actor is sometimes irrelevant for the purpose of a provision. This
may apply to conditions and to limitations or qualifications in a subordinate clause:
If any proceedings or investigations have been commenced that obstructs or may result in a
prohibition of, or interference with, the Transaction
Rephrasing this example into the active tense requires that an actor is introduced, which is without
merit.
Nominalisation. Nouns are more tiresome to read than verbs. Active sentences tend to build verb-
heavy structures that would, in the passive, be covered by nouns. A verb gives a sentence its action,whereas a noun places the reader outside the context. This means that a text also becomes more
vivid in the active voice. Not only does the active voice keep a sentence simpler, it also tends to make
the sentence clearer.
Lawyers are known to nominalise verbs: in the lawyer's eye, a shareholder does not resolve but
adoptsormakes a resolution; a buyer does not paybut makes a payment; a party does not notify in
writingbut gives a written notice; a service provider does not act appropriatelybut takes appropriate
action. No! Try to avoid these nominalisations and build on verbs as much as possible.
Personalise! A method to make contracts dry as dust is to impersonalise the contract provisions.
Impersonal sentences can be recognised by phrases such as It is agreed that. Often, this phrase is
redundant because it would be followed by something like A shall do x and y, which is sufficient and
clear. If it is not, the actor (i.e. the debtor of the obligation) is probably missing. Similar examples, in
which the debtor potentially remains unclear, start with The Parties agree to.
Use the singular. If possible, obligations and other provisions should be drafted in the singular and
using the present tense. The idea behind this is that the use of plural nouns and prepositions such as
and, or, each, every or any may create ambiguity. With those prepositions, it may be questionable
whether in a particular context a reference should be made to a single member of the group identified
by the noun, or to the entire group. For example, instead of:
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The Parties shall promptly notify each other of the occurrence of events of force majeure.
It is better to write:
A Party shall promptly notify the other Party of the occurrence of an event of force majeure.
Nevertheless, whilst Europeans are comfortable addressing a party or a thing by writing hisorher, in
U.S. style contracts, the gender is forcefully avoided. A technique for avoiding the issue is to use the
plural (they) instead of the singular (his or her (or is it her or his?)).
(d) Delete unnecessary words
In der Beschrnkung zeigt sich erst der Meister.4
(Dare to delete.)
Finalising a contract by deleting the superfluous words makes it precise. Cleaning up a contract
starts with deleting truly redundant wording. Redundant are:
[The Parties agree that] Borrower shall
[Licensor and Licencee agree that] if
In the examples, it is appropriate to start with Borrower shallorIf. Even worse are lead-ins such as It
is agreed that or Licencee acknowledges and agrees that There is rarely any need to include
such a lead-in, unless it serves to emphasise a carve-out. Similarly, replace the names of the parties(e.g. Licensor and Licencee, Seller and Purchaser, Lessor and Lessee, Service Provider and
Customer) by the Parties.
Necessity and importance. Cleaning up a draft contract includes a closer review as to whether
provisions are necessary. In particular, if an obligation implies a strong incentive to perform (e.g.
because payment of a certain price requires on time delivery of a standard product), a purchaser
would not need to provide for elaborate provisions on tests of conformity. Deleting unnecessary words
brings the truly important matters to the surface. This is even more important in contract drafting than
in other forms of writing. A woolly novelist may bore the reader; but a wordy contract drafter may even
create ambiguity.
Functionality and balance. In a well-drafted contract each part has its role in relation to the other
parts, and all parts fit together in a balanced and efficient manner. The use of unnecessary words in a
contract provision may lead to unwanted questions: now that the whole contract is so much to the
point, why did the parties elaborate on this particular item? Or: look at the detailed level of that other
provision; if it was so important to provide for solu tions on this part, wouldnt it have been logical if
the parties wanted itthat they had actually done so?
Choose one angle only. Consider the following example:
4 Goethe, Natur und Kunst, 1802.
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Seller shall specifically indemnify, defend and hold harmless Target and Purchaser from and
against any Losses which are incurred or suffered by any such party and arising out of, relating
to, resulting from, or incurred in connection with any shortages with respect to carbon dioxide
emissions allowances for the calendar year ending 31 December 2010. For this purpose,
Losses means all liabilities, losses, damages, fees, Encumbrances, Taxes, awards, judgments,
assessments, fines, sanctions, penalties, charges, costs, expenses, payments, all interest
thereon, all costs and expenses of investigating and defending any claim, lawsuit, arbitration or
proceeding and any appeal therefrom, all reasonable attorneys, accountants and expert
witness fees incurred in connection therewith and all amounts paid incident to any compromise
or settlement of any such claim, lawsuit or arbitration.
The drafter of this specific indemnity entangled many related concepts by referring to the same thing
in different ways. I draw your attention to a few that have a common denominator:
liability(i.e. the legal consequence);
damages(i.e. the legal subject of liability);
costs and expenses(i.e. the factual and accounting terms for only a part of the damages, in this
case even further specified by reference to costs of all imaginable legal support and dispute
settlement proceedings);
payments(i.e.the factual action of transferring money);
claims(i.e. the procedural act by which someone is held liable);
incurred or suffered by(i.e. the way the damages came into existence and timing); and
arising out of(i.e. the causation required for liability).
A good lawyer would probably delete the legal and accounting terminology: the legal terminology
applies by operation of the law itself, and accounting terms should otherwise come in under the legal
heading of damages. Because some legal concepts such as damages and causation can give rise
to disputes as regards their scope, it may be important to provide for uncertainties inherent to such
concepts. The drafter would have achieved a better result with:
Seller shall indemnify Purchaser against all damages related to any shortage of carbon dioxide
emission allowances granted for the year 2009 (including damages as a consequence of any
prohibition to operate).
Similarly, the following provision can be much shorter:
This Agreement may be terminated at any time prior to the Completion by either Party, if the
Completion shall not have been consummated on or before 31 March 2008, provided that the
termination right shall not be available to any Party whose failure to perform any material
obligation under this Agreement is the cause of such delay.
The provision states an exception that will likely apply in every mature jurisdiction; you cannot have
your cake and eat it too. Therefore, more appropriate would be:
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Each Party may terminate this Agreement at any time before Completion, if the Completion
shall not take place before 1 April 2010.
However, the principle of caveat emptor (buyer beware) and the parol evidence rule in English law
may create an incentive to adopt a cautious approach to drafting, explicitly setting out the important
exceptions.
What about the following? Is it really necessary to make sure that if you refer to a third party, this is
substituted by the defined term Person, defined as:
an individual, a corporation, a partnership, a limited liability company, a joint venture, a joint
stock or other company, an association, a trust or other entity or organisation, including a local
or national government or an agency, institute or instrumentality thereof?
The elements that might trigger some uncertainty, if any, are probably the inclusion of (informal)
partnerships and various governmental bodies. Rather than the use of a definition, a clarification in the
interpretation section would be more appropriate. But reconsider first: if a warranty states that neither
Seller nor Target received a notice of any Person relating to the status of X, would you consider that
there is a likelihood that, whilst a local governmental authority might fail to qualify as a person within
the strict meaning of the word, a liability claim will fail (if Target actually did receive a warning notice)
on the ground that the warranty did not specify the authority as such Person?
A good drafter determines what is important. It is important to understand where in the business thereal risks or avoidable exposures are, or where the desired performance by a party is not self-evident.
Secondly, a drafter should consider whether providing for it is necessary;in other words, who carries
the burden of any true uncertainty? Often, deleting words or clauses makes clear what really matters.
1.2 Accuracy
Using plain English is a step towards the drafting skill of accuracy. Accuracy requires more than the
capability to distinguish legal, factual, accounting, procedural and legal-procedural concepts from each
other. A lawyer should also identify the subtleties resulting from the negotiations. A skilled drafter
translates this into accurate wording, ties in precisely those aspects which fill any unaddressed gaps,omits to clarify matters that were deliberately left vague and avoids ambiguities.
(a) Thinkanalytically and draft MECE
One of the complications of the drafting principle to be accurate is a drafters tendency to be
exhaustive or to ascertain that the concept is well covered. An important guideline for improving your
accuracy (and accordingly your confidence that you did a good job) is to think analytically and draft, in
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McKinsey's terminology5, 'MECE' (mutually exclusive, collectively exhaustive) or, in French
philosophical terms, 'cartesianic'.
MECE and cartesianic mean that, consistent with the ideas of Descartes, the drafter cuts the greater
contractual concepts into understandable pieces in respect of which he or she is convinced that those
pieces are allthe pieces, because they leave no gaps and do not overlap.
McKinseys principle to be MECE. The two related concepts of 'mutually exclusive, collectively
exhaustive' can be explained as follows: a description of acts or events is 'collectively exhaustive' if no
other act or event is conceivable. In contract drafting terms it means that describing a course of action
is collectively exhaustive if all variants are caught (under the addressed conditions or circumstances).
When you roll a dice, it will inevitable show a 1, 2, 3, 4, 5 or 6 and they capture all possible outcomes
exhaustively. 'Mutually exclusive' are subject matters that exclude each other without any overlap. If
you throw a coin, you can rest assured that the outcome is either heads or tails (yes, if you throw it in
on the beach it might show the edge, which is why arguably the edge makes heads and tails
collectively exhaustive, but still is mutually exclusive).
Descartes. The MECE-principle was probably identified by the 17th century philosopher and
mathematician Ren Descartes. In his Discours de la mthode, and more elaborately in his Regulae
ad directionem ingenii(i.e. rules on the direction of the mind), he restated a few principles to deduct,
on the basis of a hypothesis, an explanation or description of any investigated problem. Traditionally,
the French PhD-doctorate books are set up according to Descartes' method. Descartes proposed that:
"if we are to understand a problem perfectly, we must free it from any superfluous conceptions, reduce it tothe simplest terms, and by a process of enumeration, split it up into the smallest possible parts."
Drafting technique. Now, let's translate this into contract drafting. A draftsperson often deals with the
question how to address a subject of discussion (or agreement) in such manner that the future will not
show lacunas or reveal an interpretation that had not been put into the words by the parties. The task
of a drafter is therefore to think analytically, to create a systematic structure, and to write logically. To
identify the smallest possible parts, the drafter may revert to concepts such as:
substance vs. procedure
objective elements vs. subjective elements
content vs. form
cause vs. effects
a concept vs. manifestations of the concept
(chrono-) logical sequence: before and after delivery/closing
By converting these concepts into the case at hand, a drafter may establish a belief that the entire
subject is captured into the contract.
5 The MECE-principle (pronounce MEESEE, like in see me) is addressed in two bestsellers of Ethan Rasiel(McKinsey). Ethan M. Rasiel, The McKinsey way, McGraw-Hill 1999; and Ethan M. Rasiel and Paul N. Friga, TheMcKinsey mind, McGraw-Hill 2002 (both are translated into several languages).
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(b) Examples of improved accuracy
Example 1 Service Agreement. An example of improving the accuracy can be found in a contract
for services. In such a contract, a drafter will probably address how and when delivery and acceptance
of the service takes place. Applicable statutes typically provide that any shortcomings must be claimed
within a reasonable period of time or without undue delay and that a claim assessment also takes
into account the rules of the particular marketplace. It may help to investigate how such deadlines
actually operate in the given context and provide for customised (i.e. precise) timeframes. A contract
attempting to fill in the vagueness of such statutory provisions should align with the wording of the
statutory provisions accurately, and deviate from them precisely. Likewise, such deviation is easier to
accept by the other party. Also, if the deviation is at first sight incompatible with mandatory law, being
precise may well justify the settlement of an uncertain element of such mandatory provision.
Example 2 SPA price adjustment. A similar example can be found in share purchase agreements
with a price adjustment mechanism. Typically, such mechanisms provide for strict timeframes within
which a party must deliver (or respond to delivered) financial accounts. If the preparation is no more
than the push of a button, a short period may well suit both parties interests, but if the work is much
more complicated than producing quarterly or annual results (e.g. because the cut-off date is
potentially a random day of the month), a longer period of time seems to be inevitable. Such informed
proposal is easy to explain and probably very acceptable (and if the other party bluntly responds with
a doubled or halved timeframe that may well be countered). The period desirable for reviewing
financial statements delivered to a purchaser, on the other hand, requires that the purchaser becomes
acquainted with the applied accounting principles, the way they are adopted in reality, as well as the
reported facts and valuation assessments actually being true and accurate.
Example 3milestoned procedure not results. For another example, if the contracting parties are
unable to completely describe the desired end-result (content), they may define milestones
(procedure) ascertaining that certain procedural steps will be taken in a pre-described manner, as
this would enable each party to intervene at appropriate times and places. The quality of an end-result
will certainly improve if the parties have established (and adhered to) a procedure ascertaining
adequate evaluation. If contract parties are unable to foresee all possible events of default or all
circumstances in which very considerable damages may occur, it would probably be more appropriate
to provide for notification procedures and subsequent obligations to cooperate, than to say that in case
of Events A, B or C, the seller will indemnify the purchaser. The latter manifestations will frequently
trigger liability-avoiding behaviour (often including passivity and hence even greater damages).
1.3 Consistency
Rather than being a novelist, a contract drafter must be consistent. A variety in wording to express the
same concept is a source of ambiguity (or even a starting point to seek a favourable interpretation of
words) and in any case confusing. Examples of concepts that are sometimes used inconsistently:
modify, adjust, amend, change
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rules, regulations, laws, statutes
clause, article, section, subsection, paragraph, item
goods, product, equipment, tooling
end-result, deliverable, milestone
Order of words. Once a certain sequence is adopted, use it consistently (so avoid using both Seller
and Purchaserand Purchaser and Seller in one document). If you started to refer to its Subsidiaries,
do not also refer to Subsidiary of it.
Applying the same notions consistently within a given transaction makes contract negotiations easier
for both parties. This is also because once aggravating inconsistencies are discovered the reader will
be suspicious about any other yet unidentified inconsistency. This does not facilitate contract review
and negotiations.
Consistent repetition. A drafter should ensure that there is consistent usage when drafting a
contract. For example, if you repeatedly refer to a course of related actions, apply the enumeration or
natural order for such actions rigorously throughout the contract. You should preferably use the
enumeration or natural order in which they appear or occur in practice. Do not tinker with a natural
order or sequence of actions used elsewhere in the contract for no reason.
Consistent definitions. Definitions are an important tool to improve consistency throughout a
contract or throughout transaction documents. Lawyers often use different terminology to point at the
same concepts: the Buyer (alternative: Purchaser), Affiliates (Affiliated Companies or group
companies), Parties (the parties hereto), of this Agreement (hereof). It happens too often that acontract includes both terminologies as a consequence of copy-paste drafting. To avoid this, differing
definitions used throughout an organisation for the same defined terms should be made consistent.
Tuning the defined terms used in all model contracts, should be part of contract upgrading work.
Clauses and real life. Consistency should not only exist within a contractual framework but also
between the contract and its reality: the actual performance under a contract should be consistent with
what was agreed (or better) and vice versa. This means that contract provisions need to be consistent
with how a debtor or creditor, or the industry or business environment in which they perform, actually
operates.
More burdensome are differing standards of conduct required by one-sided provisions used as modelcontracts. For example, do all definitions ofConfidential Informationstrictly require that:
disclosed written information is marked confidential or proprietary (and oral information
summarised in writing and identified as confidential within 30 days after its presentation)
or do you also define Confidential Information to cover:
disclosed information, which must reasonably be deemed to be confidential?
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Any such definition should not contradict the general discipline of your own employees. Also, merely
changing the provisions of a model confidentiality agreement will not drive organisational discipline
into marking documents as confidential. On the other hand, using both definitions can be appropriate
depending on the context. If you do choose to work with both, think first: there may well be a good
reason to require the above discipline in a patent department whereas it might be completely obsolete
for a sales department. Your contracting policy should be consistent with real life.
A similar example of inconsistency: many divestment transactions include post-closing business
relationships with a mutual element. In such case, the mutual delivery of services (or products) will
probably be dealt with in different contracts. Ensure that you apply one payment term consistently for
both parties: very few people acknowledge the reasonableness of agreeing on a short payment term
for one party and a long payment term for the opposite party.
Readability and consistency. In herA writers reference6, Diana Hacker recommends that when two
or more concepts are parallel, they are easier to grasp (and remember) if they are expressed in
parallel grammatical form. A single word should be balanced by single words, phrases by phrases and
clauses by clauses. It basically means that by summing up those concepts, the same grammatical
structure should be repeated consistently. For example:
Open Source Licence Terms means the provisions in any licence for software, which require,
as a condition of use, modification or distribution of any part of such software (a Work): (a) the
making available of source code or design information regarding the Work; (b) the granting of
permission for creating derivative works regarding the Work; or (c) the granting of a royalty-free
licence to any party under intellectual property rights regarding the Work.Open Source Licence Terms include: (a) the GNU General Public Licence (GPL) or
Lesser/Library GPL (LGPL), (b) the Artistic Licence (e.g. PERL), (c) the Mozilla Public Licence,
(d) the Common Public Licence, (e) the Sun Community Source Licence (SCSL), (f) the Sun
Industry Standards Source Licence (SISSL), (g) the Sun Industry Standards Licence (SISL),
and (h) the Open Software Licence.
In case of claims related to a defect in the Software, Licencee shall ; in case of claims related
to an infringement of intellectual property rights, Licencee shall; in case of claims related to
the Hardware, Licencee shall
On the Closing Date, each indicated person shall take the action as follows:
(a) Acquired Companies to enter into the Transitional Services Agreement with Seller;
(b) Purchasers to pay to Seller the Purchase Price;
(c) the Parties to execute the Deed of Transfer and to execute the Deed of Pledge, in each
case in the presence of the Public Notary;
(d) the Public Notary to register each Purchaser in the shareholders register of Acquired
Companies as the holders of the Shares;
6 Diana Hacker,A writers reference, Bedford/St. Martins, Boston/New York, 6th ed. 2009, S1.
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(e) Purchasers to hand over letters of resignation as members of the management bodies of
companies ofSellers Affiliates in Spain; and
(f) Seller to hand over letters of resignation for each of its appointed members of the
management bodies of companies of theAcquired Companies Affiliates outside Spain.
Diana Hacker obviously gives some other examples, which include the consistent use (or consistent
non-use) of adjectives in enumerations.
Mark-ups and negotiations. Inconsistencies often arise when a provision is drafted and redrafted
during the negotiation process. Do not refrain from reinstating consistency in a subsequent mark-up,
even in sensitive provisions, as long as you do so consistently (and accurately). An example of this is
a provision with several exceptions, qualifications or conditions. Particularly if they are added at
different stages in the drafting process, they may not be expressed in a consistent or grammatical
fashion. For example:
Borrower may not incur or permit to subsist any Encumbrances on any of its assets, other than:
(a) Encumbrances arising in the ordinary course of business;
(b) Borrower may grant Encumbrances on equipment to secure indebtedness incurred to
finance the purchase price of such equipment; and
(c) Encumbrances described in Schedule 3 shall be permitted.
The approaches reflected in the three exceptions are each correct. Nevertheless, each item reflects
an approach inconsistent with the others, making the provision more difficult to follow. In the example,the approach reflected in item (a) is preferable, because it prevents unnecessary repetition with the
lead-in provision.
1.4 Vagueness and ambiguity
This paragraph discusses two aspects of contract drafting that are not of a drafting- or language-
technical nature but nevertheless very important: the use of vague terms and ambiguity. They are
probably the source of most contract interpretation disputes.
(a) Avoid vague terms
Rule and exception. The title of this paragraph avoid vague terms Is a best practice rule with
important exceptions. As a general principle, vagueness should be avoided, but many vague terms
serve a useful purpose. As a general principle, a contract should be clear about the obligations of
each party. However, clear obligations are not always agreeable. In such case, the principals may well
work on the basis of a gentlemens agreement reflected by some vague wording of intention,
materiality or reasonableness. Remember, however, that if an obligation is not clear, the strongest
contracting party will have the benefit of the doubt as to whether it did perform duly.
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Although contracts should be clear, many obligations are incapable of being defined in an all-
embracing manner. For example, precise criteria may depend on extraneous uncertainties or the
parties may be willing to assume clear (and even stricter) criteria only after a minimum level of mutual
trust has been established. In such cases, it would be inevitable to use a vague term. It makes sense
to elaborate on such vague terms by agreeing on conditions or milestones to achieve certainty at a
later time and place.
Examples of vague or unspecified contract terms are the concepts of reasonable, undue delay,
material, substantiallyand properly. It is probable that the concept ofgood faithis also such a vague
term. Essentially, it introduces a standard of conduct which has yet to be defined, and reflects a call
for good-housekeeping-behaviour-but-not-too-much. I disagree with this. Good faith is a subjective
state of mind requiring due and sincere consideration.
Cultural difference. Generally, lawyers from jurisdictions with systematic codifications of the laws of
obligations feel much more comfortable with vagueness than those from a common law jurisdiction.
This may be explained by the fact that, by definition, codifications are built on vague terms that acquire
their purpose in real life. Statutory references to materiality and reasonableness impose a balance of
interests as well as a duty to explain. Similarly, in common law jurisdictions the individual freedom
(and accordingly, the freedom of contract) may well prevail over vague (limiting) concepts such as
good faith and fair dealing.
Several vague terms are used in various typical contexts, but not always accurately. In the printed
book Drafting contracts7, several aspects of the use of the terms reasonable, material, substantially
and without undue delaywill be discussed.
(b) Ambiguity
Principle. A contract drafter should at all times avoid creating ambiguity.
Almost every contract contains ambiguities if only as a consequence of the trade off against the other
drafting principles of being concise, using plain language and writing short sentences. This is a
paradox because ambiguity is often the result of a drafters attempt to accurately capture all
circumstances and exceptions potentially applicable in the context. Nevertheless, if it is clear that the
scope of a provision does not cover a particular fact or event, it is counterproductive to include anexception. Including the exception permits an argument to be made that the scope of the provision is
really intended to be broader than it appears; otherwise why would the exception be included?
Grouping exceptions. An inconsistent use of exceptions, limitations and qualifications in one
sentence may create ambiguity. For example:
7 Willem J.H. Wiggers, Drafting contracts, Techniques, best practice rules and recommendations related to contractdrafting, forthcoming (Spring/Summer 2011).
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General contract drafting principles 16
Brief guidelines, suggestions and best practices
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Except as X , Seller shall not increase the salaries of any employee (other than Y) above
the levels in effect on the Signing Date, provided that increases may be made when Z
The sentence consists of three positions where exceptions are created. In the case of short
exceptions, it will read much better if they are placed at the beginning of the sentence. Conversely, if
exceptions are voluminous, it is better to place the main point of the covenant (i.e. that Seller shall not
increase salaries) at the beginning and all the exceptions are consistently placed together in a series
at the end or in a separate sentence:
Seller shall not increase the salaries of any employee above the levels in effect on the Signing
Date, except that Seller may (a) X , (b) increase the salary of Y, and (c) provide for
increases when Z
Visual enumeration. If the series is subdivided into enumerated subparagraphs, it would also be
possible to create exceptions on exceptions (as would often be necessary, but create an additional
source of ambiguity).
Sub-enumeration. When enumerations result in page-crossing lists of items, it may well be advisable
to sub-enumerate the list. A typical example of such list can be found in share purchase agreements
(where between the effective date and completion of the transaction, a number of actions would not be
permitted without the prior approval of the purchaser), or in joint venture agreements (listing the items
that are subject to approval by the joint venture partners or a supervisory body). Business people who
are supposed to work with such list feel uncomfortable as to whether all relevant matters are indeed
listed or whether a desired action is subject to approval. Instead of one list of 25 to 30 items, it may berecommendable to subdivide the list into several topical sub-lists (e.g. operational matters, IP-related
resolutions, financial and tax matters, corporate structure-related decisions, employment and pension
related matters and miscellaneous topics).
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About Weagree:
Weagree offers various services to accelerate contract drafting:
Contract assembly. Our most eye-catching service is the Weagree Wizard, an extremely
user-friendly software application for drafting contracts. It allows you to assemble contracts
from a set of (your or our) contract building blocks. Its vigorous Q&A-functionality helps you
make the right choices and inserts the right language in the right places.
Drafting courses. As regards Weagrees contract drafting courses and model contract
upgrading services, you might be somewhat suspicious: what are we going to learn that we
dont know already? This e-book may serve as evidence of the quality of work Weagree
offers.
Upgrading your model contracts. When you are about to improve the model contracts
used across your organisation, Weagrees e-books may be helpful to learn from the lessons
we learnt. Lots of things can go wrong if you just follow your intuition. We can give you
guidelines.
Contract drafting principles. On the Weagree website, we publish about an abundance of
aspects related to contracts and contract drafting. You will come across many mainstream
contract drafting principles. We explain that In witness whereofis an old-fashioned common
law phrase (and meaningless in civil law jurisdictions). We tell you that writing and/oris
thoughtlessly ridiculous. Furthermore, our online book introduces many other drafting notions
and contains plenty of best practice rules, for example on the use of defined terms and
definitions. Enjoy!
Weagree contact:
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Copyright Weagree 2011. Courtesy reprint of a part of Willem J.H. Wiggers, Drafting contracts, Techniques, bestpractice rules and recommendations related to contract drafting, (forthcoming Spring 2011).
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