Drafting Contracts - Some Musings
Contract Drafting has over the years evolved into a space where many ideas need to be presented in a concise and easily understandable format, the number of sheets of paper kept to a minimum and clauses written in a way which does not allow too many interpretational issues.
Every agreement must have certain mandatory clauses, a structure and a flow. As an example, recitals, operative clauses, jurisdiction, carve-outs or caveats or exemptions, clauses of entirety, dispute resolution, termination procedures etc are a must. In fact, we recommend detailed clauses on arbitration procedure given that today courts do ask litigants to use arbitration procedures before coming to the courts for settling disputes. Over the years, the arbitration and conciliation acts have been tightened and parties have the option of settling disputes commercially through arbitration before reaching out to the courts.
Based on our past experience in handling legal contracts and our substantial knowledge gained by developing our patented product line, Basiz Master Draft (www.basizmasterdraft.com), we thought of putting down a few points for the consideration of all our users on some useful tips to be kept in mind when writing contracts or reviewing them.
What then would be the look and feel or a structure of an efficient contract?
The first point that comes to my mind is Direct Language. Contracts need to be written in direct language, so that it can be followed well. It is best if the clauses are recorded without any room for unnecessary and frivolous interpretation or for that matter in elaborate flowery prose. It would also be useful for the drafter to keep in mind the utility of writing short crisp sentences. The words and language used should also link up to Standard Operating Procedure or a manual to execute the contract.
The second point that I follow in contracts that I draft is the use of cross referencing tools. Too much time is spent on looking up references to clauses and numbers referred elsewhere. Today with digitization and easily available software aids, hyperlinking and cross referencing greatly helps in efficiently reading a contract. To explain this with a simple example; we have seen a particular clause which refers to another head or clause number. By a simple process of using bookmarks and hyperlinks, it makes it very easy for the person reading the contract to jump to the relevant section and refresh his memory, while understanding the impact of another clause on the terms being read.
The third point I would like to highlight is that various jurisdictions have a different style of presentation of the agreement. As an example, most American contracts are direct and short. English contracts are longer but detailed. India follows essentially the English but has shades of American too these days. Hence it is important to keep in mind the counterparty and his style when drafting or commenting on contracts. However, it is also a fact that judges increasingly are seeing the benefits of concise and crisp to the point writing.
The fourth point is in my view extremely important. It deals with the Principle of Mutuality. Mutuality and even contracts are the most successful contracts and courts have in recent times struck down contracts that lack equity. One can write any number of aggressive clauses in a contract but eventually they end up being labelled as deficient in equity or inefficient and thus a waste of resources. Having said this, it is fair to protect a core need of parties to the contract with strict language or language with robust clarity. However, it is important to know what are core, fair and customary practices in contracts that must be held non negotiable
It is also important to record negotiations for better efficiency and this is my fifth point. Often money is misspent, when parties to the contract are not disciplined about the proceedings. Hours after hours are spent on discussing the same clauses, not documenting the various points of view and maintaining a log. These days, one has good word processing software. However even with track changes it is not easy to read through and close a contract without going over it again and again. This costs time and money and it is necessary to explore a method or resources to keep track of the negotiations.
I would also like to highlight a couple of other issues that come to mind in the contract drafting process.
Learning from the community
The art of drafting evolves with practice over a time. Hours of reading and working on numerous drafting assignments end up as the intellectual property of a drafter who can then advise the client on certain clauses to be added. Likewise, reading judicial pronouncements in matters relating to contract interpretation is also important. This takes years. Today however we have communities, knowledge repositories, and legal research that are pretty formalised. In fact, some contract management contracts have these utilities. As a result today the learning curve can dramatically be quick with certain ROI.
Is commercial language & clarity more important than legality?
I would believe that commercial clarity, detail and legality are all important. One cannot do without the other. Customary legal clauses are important for courts to adjudicate in case of a dispute. In such situations, the courts also look at the commercial understanding between the parties to arrive at a decision.
Post contracting administration, anniversaries & milestones
Post contracting administration including proper reminders at the end of the period are important especially if the contract contains references to certain acts to be done by any of the parties. Many times, contracts cannot be enforced because they have lapsed and either parties or one party end up disadvantaged. This can be avoided with milestone reminders within the contracting system.
Integrated payment of stamp duties and digital signatures; an emerging need Drafting an agreement, finalsing it and execution has always been an arduous task. Execution is an equally arduous task with documents needed to be carted to the stamp office or the bank. This is now being taken care of with links to stamp duty service providers. Similarly electronic signatures are an important part of executing stress-free contracts. Today we have doodle, blockchain or Aadhar (Indian citizen identification card) validation services and digital signatures.
All of the above issues can be addressed by a good drafting and contract management software. Software technology has enabled templates, forms etc. to be deployed, making it easier. But that is only half the job done. Some of the other requirements are a strong comment log, clause locking facility, and renumbering facility when human resources are not able to enforce discipline as some good drafters or negotiators can do.
We, at Basiz (www.basizfa.com), have gone one step further and introduced many novel elements and domain based technology utilities such as clause locking. It may interest you to take a look at Basiz Master Draft, a legal software aid built by people who draft and use legal documents. This is what Basiz Master Draft strives to do
- Assists in drafting agreements
- Helps the drafter keep track of comments made by reviewers
- Provides a repository of templates; users can also add their own templates
- Gives the option to use aggressive and neutral versions (in progress)
- Comes with the added feature of thesaurus and dictionary (in progress)
- Uses form features wherein the same agreement can be easily emailed to various persons in a database
- Helps bring transparency and openness in agreement drafting and negotiation
