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%…
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…
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?
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.
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.
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.
Prevalence: 7/10 6
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.
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.
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.