7 deadly sins of contract drafting

Every contract lawyer has his or her drafting bugbears and hobby-horses, problems that they look for – and frustratingly find – time and time again in other lawyers' contracts. This is my list.

Not all of these sins are really deadly. Some are merely embarrassing. Some I commit myself, sometimes deliberately. Others, however, carry real risks for clients and lawyers.

I've rated each sin for risk, prevalence, embarrassment and annoyance. The numbers reflect nothing except my own experience - or if you prefer, innocence.

1. One-shot definitions

In general, a term should only be given a special definition in a contract if it is used more than once. 

The most common version of this sin sees the single use of a definition for no more reason than the lawyer forgot to decommission the definition after deleting the additional instances of its use. 

Sometimes, I use a one-shot definition to abstract complexity from an over-complex clause, but that's just lazy drafting, and not much of an excuse.

Why avoid one-shot definitions?  Answer: it is harder to Read* a clause if you have to refer to the definitions Half* way through.

*In the preceding paragraph, “Read” means reading in the ordinary sense of the word and accordingly shall for the avoidance of doubt include skim-reading, speed-reading, listening to audiobooks, etc; and "Half" shall be defined sloppily to mean between 45% and 55%...

See?

NB It's also common to find unused definitions in contracts.  For some reason I don't find this so annoying, perhaps because there's no argument about whether this is a mistake...

Risk: 0/10
Prevalence: 7/10
Embarrassment: 3/10
Annoyance: 3/10

2. Irrelevant interpretation

How many contracts have I read that boldly announce that all statutes referenced in the contract should be read to include amendments, re-enactments and replacement legislation – but then fail to reference any statutes at all? How many solemnly promise that, contrary to appearances, the hes and hises of patriarchal legal drafting actually include shes and herses - but then stick strictly to gender-neutral language?

Risk: 0/10
Prevalence: 9/10
Embarrassment: 3/10
Annoyance: 5/10

3. Time period inaccuracies

All or almost all contractual documents have to define periods of time: termination periods, notice periods, cooling-off periods and so on.  It's easy to mess these up. A well-defined time period will have a start date and often a start time, as well as an end date and often an end time. The times and dates should be determinable without any doubt, vagueness or ambiguity.

Another drafting point about times: under the Interpretation Act 1978 (Section 9 as applied by 23(3)), references in a contract to a given time mean GMT or BST as appropriate.  In UK domestic contracts at least, there is usually no need to specify the time zone.

Risk: 7/10
Prevalence: 5/10
Embarrassment: 7/10
Annoyance: 1/10

3A. Conjoined limitations of liability

Back in 2008 the UK High Court issued its judgment in Lobster v Heidleberg. The court found that, where multiple limitations of liability are written into a single contract clause, a determination that one of those limitations is unreasonable under the Unfair Contract Terms Act 1977 will lead to the entire clause being struck from the contract. 

I'm not at present aware of any higher court judgment rejecting this (very silly) approach to construing limitations of liability. Yet most of the limitations and exclusions of liability that I see still conjoin disparate types of liability in a single exclusion clause.

Risk: 6/10
Prevalence: 7/10
Embarrassment: 5/10
Annoyance: 0/10

4. Disguised limitations of liability

It's a simple thing to limit or exclude the liability of a party under a contract without realising it. Take, for example, the humble entire agreement clause. Such a clause could with the right (or wrong) drafting in the right (or wrong) circumstances be construed as excluding liability for some types of misrepresentation -  although not in every case.  But look at Section 3 of the Misrepresentation Act 1967:

If a contract contains a term which would exclude or restrict – (a) any liability to which a party to a contract may be subject by reason of any misrepresentation made by him before the contract was made; or (b) any remedy available to another party to the contract by reason of such a misrepresentation, that term shall be of no effect except in so far as it satisfies the requirement of reasonableness as stated in section 11(1) of the Unfair Contract Terms Act 1977; and it is for those claiming that the term satisfies that requirement to show that it does.

A blanket exclusion of liability in relation to misrepresentation will usually be unreasonable. So, at a minimum, entire agreement clauses and other forms of disguised liability limitation should be made subject to a general carve-out for liabilities that fall within the UCTA blacklist or would be otherwise unlawful or unenforceable.

Risk: 6/10
Prevalence: 7/10 6
Embarrassment: /10
Annoyance: 1/10

5. Consequential loss exclusions

In British Sugar v NEI Power Projects, the Court of Appeal decided that the words “consequential loss” in a contract have a very particular - not to mention strange - meaning: in the English courts, they mean losses that fall within the second category of potentially recoverable loss identified in Hadley v Baxendale. That is, losses falling outside the first category, but which were specifically been known to the parties (or at least to the party in breach) as being liable to result from the breach at the time the contract was entered into.

In the US courts, the words have a much broader and more sensible meaning.  Many US-style clauses exclude or limit liability in relation to “consequential loss including loss of profits, loss of revenue … etc”.  If you use this form of wording in an English law contract, you are restricting the meaning of “loss of profits, loss or revenue … etc”.

See Markerstudy v Ensleigh for the consequences of the misuse of “consequential loss” - and, if you have before, never make this mistake again.

Risk: 5/10
Prevalence: 3/10
Embarrassment: 9/10
Annoyance: 5/10

6. Consumer rights abridgements

It's fairly common to include in B2B contracts provisions that may be unenforceable, for example under the Unfair Contract Terms Act 1977. The intentional inclusion of unenforceable provisions doesn't usually harm the party they purport to protect, and because there will often be a degree of uncertainty about whether a particular provision is enforceable or not, their inclusion can at least help in negotiations to settle a dispute.

Many contracts take a similar approach to B2C contracts, maximising the supplier's apparent protections and minimising the supplier's apparent liabilities. This, however, can be dangerous. The abridgement of consumer rights could, in some circumstances, amount to a criminal offence under The Consumer Protection from Unfair Trading Regulations 2008.  In addition, specific pieces of consumer protection legislation specify the consequences of attempts to abridge consumer rights, and they aren't always pretty. For instance, under The Consumer Protection (Distance Selling) Regulations 2000, a failure to make the proper disclosures to customers about cancellation rights can lead to an extension of the cancellation period under the regulations.

Risk: 4/10
Prevalence: 9/10
Embarrassment: 7/10
Annoyance: 5/10

7. Inappropriate arbitration clauses

A fair portion of my career has been spent advising book publishers, authors, literary estates, and others involved in the publishing industry. The standard precedent book for publishing contracts is called Clarks, and several of the key documents include an arbitration clause. These clauses provide that disputes should be referred to arbitration. A lot of UK publishing contracts include this clause. However, they are in my opinion inappropriate in many if not most such contracts: see this list of the advantages and disadvantages of arbitration.

Perhaps key point in relation to publishing agreements is that they involve IP. The enforcement of IP rights often involves injunctions, but arbitrators do not have the power to grant injunctions.

Risk: 7/10
Prevalence: 3/10
Embarrassment: 8/10
Annoyance: 8/10

Comments

What an excellent piece.  No one seems to bother to teach the basics, never mind the niceties, of drafting these days.  Spelling seems to fall into the same category.  More power to your elbow.

Hi Stephen. Thanks for your comment. In many firms young solicitors are expected to pick up drafting skills with little or no formal training. The emphasis in firms is often on avoiding old-fashioned legalese, rather than promoting clarity. As to spelling, the less said the better...

Seconding what Stephen said - some food for thought here!

In a similar (but more ponderous) article I read a while ago, about phrases that are meaningless, outdated, or unnecessary, the use of 'and/or' was decried as not adding anything and often, in fact, obfuscating when drafting contracts.

Ever since I read the article, I've considered the point every time I use the phrase, which I do fairly frequently, and it seems to me to be not just useful but perfectly clear in meaning. For example, saying that 'Every time you use the website and/or the services, you will be deemed to have read [etc]' differentiates between users of the services offered and casual readers of the website, to whom the contract also applies.

What are your thoughts on this phrase?

Hi Sybil - thanks for your comments.

I do use "and/or" in my drafting. In point of fact, I used it several times today in a hosted service contract. I agree that it can, depending upon context, have a clear meaning quite distinct from a simple "and" or "or". I'd be interested to see the article that decried its use - do you have a reference?

TBH I more often worry about accidentally using just an "and" or an "or" when what I mean is "and/or". You could argue that the use of "and/or" in a contract might lead a judge to a more restrictive interpretation of simple "ands" and "ors" elsewhere in the document!

Hi Alasdair

I'm relieved to hear it! (Apologies, by the way; I tried to reply some weeks ago but there was a problem with posting my comment.)

I couldn't remember where I'd seen it, but Google brings up the following results, which are written in a similarly finger-wagging style to the one I remember, but are all fairly short on detail as to the problem. Lack of clarity seems to be the general complaint, and they suggest 'X or Y or both', but I think this could result in some very unwieldy sentences.

http://www.weagree.com/weblog?topic=12 (final point on page)

http://www.slaw.ca/2011/07/27/grammar-legal-writing/print/ (the most vehement!)

http://www.casselsbrock.com/files/file/docs/CCCA2012_CombinedPackage_FIN... (massive document)

http://www.con-tracts.com/id29.html

In a guarantor of rent contract I have it states "fox term " instead of "fixed term " - is this rendering liability of me as guarantor for rent useless, as the verbal statement they made was six months?

This is a very helpful drafting note. Thank you. 

When an agreement specifies a date, for example "the Seller must provide the Buyer with (a) within 14 days", why, and/or  is it necessary to state "...of the date of this agreement"? Isn't it clear that (a) must be provided by the seller within 14 days (of the ageement)?  I have wondered for years, so look forward to your reply.

In some circumstances I think "within x days" would be reasonably clear without the addition of "of the date of this agreement". However, there are other circumstance in which the meaning would not be clear.

For example, the date of execution of a contract and the date when the provisions of the contract come into force may be two different dates. Which would be the relevant start date?

I usually try to draft in an extensible way, so that provisions don't get broken by later amendments, and to allow reuse of drafting wherever possible. For that reason I include "following the date of this agreement" as a matter of course.

(One of the lawyers who taught me to write contracts insisted "following the date" rather than "of the date", on the grounds that the latter might also capture the period before the relevant date, and it is clearer exactly when the period begins (the start of the day following the relevant date) and ends (the end of the nth day following the relevant date.)

Hello Alasdair

Within the definitions the period is defined as "from the commencement date up to and including 31 March 2012 and with an option to extend further, with 3 months notice of termination by either party".

The word period does not then appear in the body of the contract and the contract was terminated verbally before 31 March.

What are your views, please?

Thanks

Jeremy

Orphaned definitions are a common problem in contracts, but I would need to read the whole document, and probably talk to you at length, to comment sensibly on the status of the termination.

8TH SIN: Double Numbering :P Nevertheless, a great piece! :)

Now corrected, lazily.

The contract we signed states on the agreement that each page of the contract must be signed and witnessed by an unite rested party. This did not happen. The contract was signed in my home and a copy wasn't left with me. Can we ask for a termination of contract?

... "unite rested party"?  An uninterested party?

In any case, I think you would need to show the contract - and explain all the circumstances - to a lawyer in order to get an answer to this.

We are having some issue with a contract. The contract has a definition which is unused. The definition is to explain an administration fee. The definition explains the fee but does not explain when the fee is levied (but the defined term does give partial understanding of when it can be levied). In the contract there is also a compensation section which gives defined terms for fees that are authorised to be charged to our account. The contract states that all fees are fully described. Along with the contract there is a published fee schedule which omits the administration fee. The administration fee is excessive comparable to the service provided and that of other providers, who often do not charge. This is a fee that is charged to us hundreds of times a year. What is the status of unused terms? Having gone through the defined terms this is the only one omitted.

Much depends upon the specific wording and the context in which the contract was agreed. So, you will need to ask a lawyer to review the contract in order to get an informed answer to this question.

Add new comment

Filtered HTML

Plain text

Contact details

SEQ Legal LLP
Howbery Park, Wallingford
Oxfordshire OX10 8BA, UK
Tel: +44(0)1491 821123

English law

Unless otherwise stated, the information and resources on this website relate to English law.

Web cookies

By using our website, you agree to our use of web cookies. See our privacy policy for details.

Our ecommerce websites

docular.net

www.website-contracts.co.uk

www.contractology.com

Copyright © 2007-2017 SEQ Legal LLP.