Contract drafters: don't be complacent

According to surveys, up to 80% of the population think their standard of driving is above average, which is of course a statistical impossibility. This cognitive bias has a fancy name: illusory superiority.

A similar bias or complacency exists among contract drafters. We churn out contracts that are full of imperfections, while thinking we are good at drafting. We take comfort from the fact that our contracts are very similar to others.

According to recently published empirical research, we don’t even use our office templates when preparing first drafts, preferring instead the last document that we worked on. The Inefficient Evolution of Merger Agreements by Robert Anderson and Jeffrey Manns (9 June 2016, George Washington Law Review, forthcoming) reported on research on over 12,000 M&A agreements. Using a technique known as Levenshtein distance, the authors established that many lawyers use their own favoured documents rather than an approved firm precedent.

In the world of sovereign debt financing, it seems that lawyers include language in their agreements that they don’t understand and which they don’t revise, even when a court comes up with a different interpretation to the one generally assumed.

In their book, The Three and a Half Minute Transaction: Boilerplate and the Limits of Contract Design (University of Chicago Press, 2012), Professors Duke and Gulati considered an obscure clause in standard agreements, known as a pari passu clause. They explored why this clause remained in use despite the decision of a Brussels appeal court that placed a different interpretation to the one that was commonly assumed (see Elliott Assocs., L.P., 2000/QR192.12 (Ct. App. of Brussels, 8th Chamber, 26 Sep 2000).

They interviewed lawyers who worked in this field. One of their conclusions was that the sector used standard forms of contract, and there was no appetite for changing the pari passu clause. Contracts were treated as a commodity, and clients were not willing to pay for their redrafting.

Ah, but these examples are about US practice, some of you may be thinking. And it is true that some aspects of US contract drafting are dire. Think of phrases such as 'indemnify, hold harmless and defend', which appear in many US-influenced contracts.

Or some US intellectual property assignments that, instead of using a simple phrase such as 'X hereby assigns the patents to Y', prefer to use a long list of words, such as 'X hereby grants, bargains, sells, conveys, assigns, sets over and delivers unto Y all of X’s rights, interests, obligations, and liabilities in and to the patents to have and to hold the patents unto Y, its successors and assigns forever'.

It is easy to lob rocks at the glasshouse of US contract drafting, but English drafters are not immune from criticism. The leading author on drafting, Ken Adams, has trenchant views on some aspects of English contract drafting.

For instance, he despairs of the English approach to best endeavours and reasonable endeavours. In his view, misguided group-think has developed among English lawyers and the English courts that these terms have different meanings. By contrast, he considers that the US courts have applied a single standard, irrespective of the equivalent terms used by US lawyers such as best efforts and commercially reasonable efforts.

Some of these issues will be aired at a free panel discussion to be held on 8 November in London, organised by the UCL Faculty of Laws. The panel members will be Ken Adams, Mr Justice Flaux, Kate Gibbons of Clifford Chance, and Kristin McFetridge of BT’s legal department. I will be moderating.

More than 200 people have booked so far. We expect the discussion to be lively.

See here for details

Mark Anderson is a solicitor in private practice and a visiting professor at UCL Faculty of Laws. He is chairman of the IP Law Committee of the Law Society, but is writing in a personal capacity. He is the author of Execution of Documents (third edition) and Drafting Confidentiality Agreements (third edition)