Save the date: UCL debate on dysfunction in drafting

David Dimbleby will not be chairing this debate

David Dimbleby will not be chairing this debate

If you care about contract drafting, you will be interested in a unique debate that University College London will be holding this Autumn, in London. It is free of charge, and you will have an opportunity to submit questions to a panel of experts, as well as hear their different views on this controversial subject.

Dysfunction in Contract Drafting: Are the Courts, Law Firms, and Company Law Departments Stuck in a Rut? will be held on Tuesday 8 November 2016, 18:00 – 19:30 at the UCL Events Pavillion, Main Quad, Gower Street, London WC1.

The four panel members bring impressive credentials to the discussion, including senior-level experience of contracts in the courts, in private practice and in-house. They comprise:

  1. Ken Adams

    Ken Adams

    Ken Adams, US-based contract drafting guru, and author of A Manual of Style of Contract Drafting (American Bar Association, 3rd edition).

  2. Sir Julian Flaux

    Sir Julian Flaux

    The Honourable Mr Justice Flaux, an English High Court judge who until recently was Judge in Charge of the Commercial Court, in London.

  3. Kate Gibbons and friend

    Kate Gibbons and Olly

    Kate Gibbons, a senior banking lawyer at Clifford Chance, and the firm’s Global Knowledge Partner.

  4. Kristin McFetridge

    Kristin McFetridge

    Kristin McFetridge, Chief Counsel at British Telecommunications plc, and currently in charge of a programme to redraft BT’s standard contracts.

IP Draughts will be the compere moderator of the panel discussion. Learning, laughter and linguistics guaranteed! Book your tickets at the link above.

 

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Contract drafting: grabbing the nearest document

kw hoursVia Ken Adams’ excellent blog, comes news of a very interesting article, The Inefficient Evolution of Merger Agreements. Written by two associate professors at US law schools, Robert Anderson and Jeffrey Manns, it describes and comments on an empirical legal research project.

The authors analysed the text of over 12,000 merger agreements that had been filed with the Securities and Exchange Commission by publicly-listed corporations between 1994 and 2014. US-listed corporations are required to provide copies of their material contracts to the SEC, which places them on its EDGAR online database.

EDGAR is a very useful source of examples of agreements, though it can be time-consuming and frustrating to find what one is looking for. Anderson (no relation to IP Draughts) and Manns used computer programs to automate their searches and to analyse the results.

edison lightThe purpose of this research was “to explore whether transactional drafting is a driven by a rational process that minimizes the cost of deal documentation and risk to clients or by an ad hoc process that increases billable hours and risk.” Guess what they found?

By comparing the wording of the agreements and using a technique known as Levenshtein distance, or edit difference, they were able to map the extent to which major US law firms used a template (precedent) when drafting a merger agreement or just grabbed a document from a recent transaction that the law firm associate thought suitable.

Their maps included those shown below. Where agreements are drafted from a single source, such as a firm precedent, the map will show lines radiating from that source. The authors’ research revealed very little of that radiation. Instead, there was evidence of documents being several generations away from an official firm precedent. For example, below is the map of contracts drafted by Sullivan & Cromwell.

sully

The authors also included a map of contracts drafted by Davis Polk, which was similar to the map shown above. In the case of one law firm, Cooley Godward, there was one clear focus point of radiation, but also a lot of non-radiation.

cooley

IP Draughts finds this paper fascinating for several reasons. First, it echoes his experience of how some clients work, when drafting IP-related agreements. They use a document that is loosely based on their official template agreement, but includes some deal-specific terms from previous transactions, which may or may not be suitable for the present transaction. Even if the added terms are desirable in principle, they were probably drafted in haste in the pressure of negotiations, or reflect a pragmatic compromise (taking account of the quirks of the person they were negotiating with) rather than an ideally-drafted clause. Over time, by starting with a document from a previous transaction, rather than going back to the official template, the documents that they use become corrupted with junk.

light bulbIt is very interesting to see major law firms, which trade on their reputation, doing exactly the same thing. The authors discuss the dynamics within law firms, including ridiculous time pressures, which may lead to an associate grabbing a familiar document rather than an official precedent. One point that is not mentioned in the article, but which IP Draughts thinks may also be relevant, is the extreme length and complexity of many agreements nowadays, which may make it difficult for a busy associate to understand fully the terms of his firm’s precedents. It may be tempting to use a document that he recently worked on; he spent many late nights negotiating that document, so there may be a comfort factor that he understands at least some parts of that document better than the official precedent.

(This is not a good excuse, by the way, for avoiding precedents that IP Draughts has drafted, which try to be concise and clear!)

The other point that IP Draughts finds very interesting in this article is its discussion of the fact that “there has been amost no empirical work on the legal drafting process in transactional law”, and that “the deal drafting process has been all but ignored by legal scholars”. IP Draughts agrees with these statements, and has ambitions to bring this type of subject to the UCL Faculty of Laws. Research at the boundary between doctrinal law and legal practice is an under-developed area, particularly in relation to commercial transactions. He has had exploratory discussions with the faculty about establishing a Contracts Institute (or similar) there, which would do a mixture of research, teaching and public engagement.

bulb dollarIf any reader knows anyone who might be interested, in principle, in funding such an initiative, (eg a major law firm, alumnus/alumna, or other benefactor) he would be very glad to hear from them. This idea is at too early a stage for us to have established structures for funding. But by way of comparison, the sponsorship opportunities for UCL’s Institute of Brand and Innovation Law can be found here.

A small example of the type of work we might do in this institute is the panel discussion that UCL will be hosting in November. See here for details.

 

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Brexit clauses in contracts

brexitIt takes time to adjust to a major shock: to recover, to process the information, and to recalibrate. Three weeks after the UK electorate voted, unexpectedly, to leave the European Union, IP Draughts is starting to think more clearly about the implications of the vote for IP practice. To do so, we have to leave behind the lies, the half-truths, and the stirring of ugly emotions in the referendum campaign, in some ways very different to the political process of a general election, and instead focus on the practical.

Some plain talking is now required. Many readers of this blog will fall into a category of people who benefit from international trade, who embrace the cultures of others, and who are prosperous in absolute terms (however much we struggle to pay a large mortgage or look enviously or competitively at others who are doing better than us). We work and often socialise with others who share this perspective, both in our own country and in other countries.

To many people with this mindset – let us give them a name and, for want of a better, use one that was used disparagingly in the referendum campaign, “metropolitan elite” (otherwise known as the London and South East “bubble”) – it is unthinkable that the UK would want to leave the European Union. It would not be in our economic, security, cultural or social interests to do so.

schockBut vote to leave we have, and in processing this information we need to understand the perspectives of those who formed the majority. Of course, there is no single group of Brexiteers. But generalising helps us to focus on what needs to be done. There are the social conservatives, the older generations, the people whose lives are not international. There are those who have been suffering from stagnant salaries over the last decade, combined with worsening conditions of employment. There are those who can’t get access to good medical services or good schools.

In other words, the people that are left behind, through choice or circumstance, in the noisy, difficult, competitive but satisfying ‘global’ world that the metropolitan elite inhabits.

The UK’s new Prime Minister recently made a speech in which she recognised the concerns of the Brexiteers. We should be spending more money on new schools, hospitals and infrastructure. We should be increasing the salaries of public sector workers. In short, we should take steps that are other times would be called left-wing.

Coming back to IP (at last), IP Draughts was at a business dinner this week, sitting next to a senior German IP practitioner. The conversation naturally turned to Brexit. IP Draughts’ dinner companion was sanguine about the prospects for the EU doing a deal with with the UK that was in both parties’ interests. Yet, when pressed, he thought that free movement of people was a non-negotiable issue – it was a subject on which many Germans and other EU nationals felt very deeply. IP Draughts thought and said that this probably meant that a deal was unlikely, as control of immigration was a central theme of the Brexit campaign.

IP Draughts was left with several thoughts. First, there is the (perhaps obvious) point that IP practitioners, and professionals generally, may have more in common with their counterparts in other countries than they do with their fellow citizens who have been left behind by globalisation. Second, and more interesting, that while the metropolitan elite in the UK have had a rude shock and become more aware of the large body of people who don’t share our global perspective, our colleagues in other countries may not be so aware of this issue. This has been noticeable in some of the “advice” that Continental Europeans have given to the UK in IP Draughts’ Twitter feed. It is not that we need to think outside the box; we need to think outside the bubble.

futureTurning to IP contracts, IP Draughts and his colleagues have been thinking about how contracts might be affected by Brexit, and what terms might be included to address this issue. Of course, we don’t yet know what form Brexit will take, as it depends on a negotiation that has not yet started. But contracting parties may want to think through the range of possible implications for their contract of Britain leaving the EU, and perhaps even include a clause or two to address the issue. IP Draughts has previously mentioned on this blog some of the possible situations where contractual terms may need to be revisited. He now wonders whether we need a standard clause to address the variety of issues, many of them not easy to foresee or plan for, to address this issue in more general terms. Such a clause might, for example, provide that:

  1. If performance or interpretation of contractual obligations is substantially affected by the fact of Brexit, or by changes in law arising from Brexit, or by the actions of persons or institutions arising from Brexit or in contemplation of Brexit, then a party can notify the other party that it wishes to renegotiate or terminate the contract to take account of this.
  2. If renegotiation occurs, the objective should be (unless the parties agree otherwise) to put them in as close a position to that in which they would have been if the Brexit-related action or event had not occurred. If they can’t agree, the matter can be referred to an adjudicator who will decide on the appropriate adjustments, or conclude that there are no reasonable adjustments to take, in which case termination may be the agreed outcome.

IP Draughts has not yet drafted such a clause, but it sounds a bit like a combination of a force majeure clause and a severance clause, combined with a mechanism for referring a dispute to an expert or arbitrator under a simplified (quick and cheap) process.

As ever, readers’ thoughts on this subject are welcomed.

 

 

 

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Mr Pettifog comes out (for Brexit)

flagLast week’s partners’ tea was stressful. Mr Pettifog couldn’t stop gloating about the result of the referendum. Soon we will be released from the shackles of a jackbooted superstate, he said, mixing his metaphors.

He has been like this ever since he was strongly advised to withdraw his application to become a judge of the Unified Patent Court. He did so, to avoid public embarrassment. But he hasn’t forgiven the Dutch member of the appointments panel who is reported to have joked that Mr Pettifog had all the judicial qualities of Mr Justice Peter Smith and all the diplomatic skills of President Benoit Battistelli.

In fact, though he refuses to admit it, much of Mr Pettifog’s income depends on the UK remaining part of the European Union. His main client is an American patent troll called Randy Duke III, trollwho regularly instructs him to write obnoxious letters to small businesses across Europe, demanding compensation for infringement of his patents. The patents claim the use of a computer for preparing invoices, and are allegedly infringed by most commercial enterprises. So far, Mr Pettifog has avoided writing to any business that might be able to afford patent lawyers to challenge the validity of the patents.

Randy has told Mr Pettifog on more than one occasion that the only reason he instructs him is because London, England, is the English-speaking capital of Europe, and Mr Pettifog is the best writer of European kick-ass letters he knows. Randy has written to the senior partner of our firm, complaining about the Brexit vote, and threatening to withdraw his custom if the firm doesn’t sort it out.

brussels propertyMr Pettifog is convinced that the solution to this problem is to open a branch office of the firm in mainland Europe. It shouldn’t cost much: there will soon be a slump in Brussels property prices, reasons Mr Pettifog, as thousands of British Eurocrats leave the city and return home. Young Hope is to be sent on a fact-finding mission to Brussels, to enquire about the process for opening a law firm there. Mr Pettifog has offered to relocate to Brussels and be Chef de Protocole of the Belgian firm. Mr Pettifog has no idea what a Chef de Protocole does, but he likes the sound of the words and understands it to be a senior position.

exitAnyway, Brexit may never happen, claims Mr Pettifog. His friend in UKIP, Monty Kildare, has told him that several EU countries are about to demand a revision to the EU treaty, in which free movement of labour will be severely restricted. If that happens, the leaders of the Conservative Brexit campaign will announce this as a major victory and avoid triggering Article 50.

Some of the other partners would like to point out the errors in Mr Pettifog’s logic, but they hardly know where to start, and they are still feeling traumatised by the referendum decision. They drink their tea in gloomy silence.

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