IP at the Edinburgh Festival 2015

edinburghIP Draughts has been on his annual trip to the Edinburgh Festival.

Highlights for him included Backstage in Biscuitland, a surprising and very amusing hour of narrative from two ladies, one of whom (Jessica Thom) has Tourette’s Syndrome. This might not seem like a promising subject for entertainment, but it was, due to Thom’s humorous personality and story-telling skills.

The show included references to her verbal ‘tics’ (many were made during the performance, including ‘biscuit’, hence the title), friends and helpers, including Leftwing Idiot (his ‘tic’ name), her experiences of treatment in the theatre (where she was once asked to move to a sound-proof control box to avoid disturbing the other members of the audience), and other experiences of life with a serious, neurological condition. Physical comedy was provided by Thom’s attempts to eat a bowl of strawberries, most of which ended up on her face rather than in her mouth.

murmelLess entertaining, in IP Draughts’ view, was the performance of a neo-Dadaist comedy written in the 1970s and rarely performed. Murmel Murmel consisted of a troupe of performers doing physical comedy and saying nothing but the words of the show’s title (German for ‘murmer’). It received rave reviews from the professional critics, but nul points from IP Draughts.

This blog is meant to be about intellectual property, and there was little in the above performances that raised IP issues, though IP Draughts idly speculated on whether the repetition of a single word several hundred or thousand times could amount to a copyright work.

Photo of Isle of Man, taken by IP Draughts on a Brownie camera in about 1968

Photo of Isle of Man, taken by IP Draughts on a Brownie camera in about 1968

IP issues were explicitly addressed in an exhibition by the Museums of Scotland, on the history of photography. A section on George Eastman referred to his care to protect his photography business with both patents and trade marks. It discussed his choice of the name Kodak, a made-up word, and displayed examples of the company’s early Brownie cameras. The fortune that Eastman made from his photographic inventions was put to philanthropic uses, including £200,000 that was donated for the founding of the Eastman Dental Hospital in London. Generations later, IP Draughts advised the Eastman Dental Institute (as it was then known), before its merger with UCL in 1999.

Back to work…

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Execution of Documents – third edition now available

drafting confidentiality agreementsEarly in 2003, IP Draughts and his colleague, Victor Warner, were chatting with the publishing manager of the Law Society of England and Wales. We were in the final stages of completing our first book with them, Drafting Confidentiality Agreements, which is now in its third edition.*

 

 

The conversation turned to an old-fashioned book that the Law Society then published, on the subject of oaths and affidavits. This could be done so much better, commented IP Draughts, and he explained how he thought it should be done, and how the subject should be broadened to cover other types of documents that a solicitor is called upon to draft and execute.

IP Draughts is more guarded nowadays, in his conversations with publishing managers.

Untitled-1Twelve-and-a-half years later, the third edition of Execution of Documents has just been published. The book now runs to more than 400 pages. It includes material that is relevant to IP Draughts’ legal practice, including how to execute contracts as deeds, how to execute powers of attorney, and the law on electronic signatures. Other parts are more relevant to litigators, including chapters on statements of truth, statutory declarations and affidavits. As a solicitor and notary, Victor was well-qualified to write the chapter on notarisation.

The broad, ‘general practice’ coverage of the book is perhaps what led the two leading UK journals for general-practice solicitors to review it. Reviewing an earlier edition, Solicitors Journal commented:

It is written in clear, plain language and in ample detail for its intended audience. This is a useful and practical reference book for practitioners containing many precedents, both traditional and modern. It is a first class ‘dipper’.

New Law Journal, the chief rival to Solicitors Journal, preferred the following comments:

This is, for a highly technical law book, a riveting read. Keep it on your shelves and you’ll be confident that you will have the answer to most issues about how to make a legal document work.

A book of this kind will never generate enough royalties to cover the costs of writing it. The market is far too small. But we get satisfaction from doing a job well, providing useful practice notes for ourselves and other solicitors, and seeing complimentary reviews.

 

*The first and second editions were written jointly by IP Draughts and his colleague Simon Keevey-Kothari, who now works at Carpmaels and Ransford.

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Most interpretation clauses are a waste of time

masculineMany contracts have them. The clause that informs the reader that the singular includes the plural, the masculine embraces the feminine, and similar nonsense. Some lawyers like to put these provisions ‘front and centre’ in the contract, immediately after the definitions, in clause 1.2.

It has always amazed IP Draughts that lawyers would want to make these turgid provisions so prominent. His instinct is to hide them at the back of the contract, if he includes them at all.  Putting them at the beginning  forces the reader wade through them before they get to the heart of the contract. It feels like the drafter is showing off their legal expertise, signalling that contracts need formulaic legal language, which only lawyers can fully understand.

To illustrate the point, IP Draughts has reproduced below some clauses from the first contract he found in his files. The contract was drafted by a well-known UK national law firm within the last 10 years, and appears to be based on one of their templates. The clauses appeared at the beginning of the contract, after the definitions. There were 16 sub-clauses in the original, but only a few are reproduced below, and with different numbering.

  1. contextIn this Agreement the masculine includes the feminine and the neuter, and the singular includes the plural and vice versa, as the context admits or requires.
  2. References to a statute or statutory provision include, unless the context otherwise requires, a reference to that statute or statutory provision as from time to time amended, modified, extended, re-enacted, consolidated and all statutory instruments, orders, by-laws, directions and notices made pursuant to it whether made before or after the date of this Agreement.
  3. Any reference to a “month” is a reference to the period of a calendar month.
  4. Any phrase in this Agreement introduced by the term “include”, “including” “in particular” or any similar expression will be construed as illustrating and will not limit the sense of the words preceding that term.

These clauses seem to track a couple of statutory provisions. Section 61 of the Law of Property Act 1925  (LPA) provides:

Construction of expressions used in deeds and other instruments.

61. In all deeds, contracts, wills, orders and other instruments executed, made or instrumentcoming into operation after the commencement of this Act, unless the context otherwise requires—

(a)“Month” means calendar month;

(b)“Person” includes a corporation;

(c)The singular includes the plural and vice versa;

(d)The masculine includes the feminine and vice versa.

While the Interpretation Act 1978 includes the following provisions:

17 (2)Where an Act repeals and re-enacts, with or without modification, a previous enactment then, unless the contrary intention appears,—

(a)any reference in any other enactment to the enactment so repealed shall be construed as a reference to the provision re-enacted;

23 …in the application of section 17(2)(a) to Acts passed or subordinate legislation made after the commencement of this Act, the reference to any other enactment includes any deed or other instrument or document.

Perhaps there is an argument that the contract clauses quoted above are wider in scope than the above legislation. It is unclear, for example, whether there is any kind of territorial limitation on the scope of section 61 of LPA, given that the LPA was mainly designed to consolidate land law in England and Wales.

Note: a different fabulous five sat in the Supreme Court in the Rainy Sky case

Note: a different fabulous five decided Rainy Sky

Typically, the justification is that interpretation clauses provide a safety valve, to avoid too narrow an interpretation. But this type of argument is based on a false premise about how the courts interpret contracts. The statutory provisions quoted above come from an era when contracts tended to be interpreted in a very narrow and precise way, similar to the method of interpreting legislation. Since the 1970s, the senior English courts have gradually relaxed the rules on interpreting contracts, and the process has accelerated in the last 10 years. See, for example, Lord Clarke’s discussion in the Rainy Sky case (2011) of the principles to be followed, including when it is possible to apply commercial common sense. The case was briefly discussed on this blog here.

So, to the extent that the interpretation clause is seeking to avoid an unduly narrow interpretation by the court, it is probably unnecessary. Courts don’t usually interpret contract wording that way, nowadays. This probably means that clause 1 above is not needed.

Clause 2 is wordy but could be viewed as useful.  Sometimes it is helpful to know whether references to statutes are fixed in time or change when the statute changes. For example, some contractual definitions of group companies make use of statutory definitions, so it could be important to know whether the contractual definition changes if the statutory definition changes. Before including clause 2 in the contract, the drafter should check whether the contract has any references to statutory provisions. If not, the clause is clearly redundant. On low risk contracts, the drafter may think it is sufficient to rely on the provisions of the Interpretation Act.

Clause 3 echoes section 61(a) of LPA. But what does it mean? IP Draughts understands the statutory definition to be clarifying that months are not to be understood as lunar months. While this may be an important point to address when dealing with some countries that still use a version of the lunar calendar, in the UK it has not been a credible point of doubt for a very long time. Apparently, during the Napoleonic wars, the British navy paid its sailors by the lunar month.

Clause 4 seeks to disapply the eiusdem generis (of the same kind) rule of interpretation, under which, if  a general principle is followed by examples, the examples may narrow the scope of the general principle. There is some old case law  to this effect. It is doubtful whether this is a significant issue in the modern approach to contract interpretation.

An alternative justification for these and other interpretation clauses is that they serve to clarify the interpretation of the contract for the parties, without the need for recourse to statutory provisions. That may sometimes be true, for example with clause 2.

confusedIt is less clearly a justification in the other cases, and clause 3 might positively confuse the lay reader, and some lawyers, into thinking that a calendar month runs only from the first of the month to the last of the month, just as many people understand a calendar year to run from 1st January to 31st December. But this would be a wrong assumption. If, for example, a contract requires a party to give 3 months notice of termination, and the above clause clarifies that months are calendar months, notice given today (15 August 2015) will expire on 15 November 2015, and not on 30 November or at the end of any other month.

Enough, already. IP Draughts tries to minimise the number of interpretation clauses that he includes in a contract, and to bury them at the back of the contract.

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Insurance obligations in commercial contracts

lloydsTemplate agreements – particularly those designed for larger transactions such as manufacturing, product trials, distribution or licensing – often include obligations on a party to have insurance against commercial risks.

General approach

Typically, the insurance clause will appear after a clause dealing with liability and indemnities. Faced with such a clause in a contract that you are reviewing, some of the obvious alternative ways of dealing with the clause are:

  1. To say to your client “ask your insurers whether you comply with the clause”. Depending on the answer, and on the wording of the clause, it may be safe to leave the clause as drafted.
  2. To say to the other party in the negotiations “here are details of our current insurance; we are not going to change our insurance, nor are we going to promise that we have particular insurance” and modify the clause accordingly.
  3. To delete the insurance clause, eg on the grounds that the scale of the deal does not justify the inclusion of an insurance obligation.

Getting advice from the insurer

Sometimes, where advice is sought from the insurers, the lawyer is then asked to review the answer. Depending on the scale and risks of the deal, it may be more important to know the correct answer than just have someone to blame if they gave a wrong or misleading answer. Possible points to consider include:

  1. Is the answer from the insurance underwriter (ie the party to the insurance contract) rather than the insurance broker (a middle-man)? If it is from the broker, is he taking responsibility for the answer (ie you can sue him if he is wrong) or just giving an opinion?
  2. Does it directly answer the question?
  3. car insuranceDoes the answer give the impression that the person answering it understood the question? Sometimes, the individual you deal with at an insurer or broker is a liaison person. He may not have a deep understanding of commercial liability issues, which are at the complex end of the spectrum of insurance questions, compared with say questions about the costs of repair to the CEO’s company car.
  4. In some situations, insurance may be a regulatory requirement, or there may be a code of conduct within an industry that a particular form of insurance will be maintained. The contract may require a party’s insurance to comply with such a regulation or code of conduct. This may lead to supplementary insurance questions of the insurer.

Drafting issues

Insurance clauses sometimes raise drafting issues, including the following:

  1. Sometimes, the wording uses US insurance industry jargon, which doesn’t work when dealing with UK insurance policies and industry practice.
  2. An example of the above is that US contracts sometimes refer to the other contracting party being “named” on the policy of the party that is required to insure. This may not be acceptable to a UK insurer. At most, he may be willing to “note the interest” of the other party on the policy. The lawyer should probably not attempt to second-guess what the insurer will say on this issue, and instead should defer making changes (other than perhaps deleting the obligation to name) until the insurer has commented.
  3. The clause may state that insurance must be maintained for several years after the contract comes to an end. This is because some policies provide cover on what the insurers call a “claims made” [during the year of the policy] basis while others provide cover on a “claims arising” basis. If liability results, for example, from a party’s negligence or breach of contract, litigation to establish that liability may be started several years after the end of the contract. Typically, the time limit under English law is 6 years from the date of the breach of contract. If the policy only covers claims made during the year of the policy, it may be necessary to continue cover for 6 years after the contract comes to an end. The contract drafter may wish to establish with the insurer whether post-contract insurance is needed in respect of the types of liabilities that the insurance clause requires, and modify the clause accordingly.
  4. In very heavyweight insurance clauses, there is sometimes an obligation on a party to get its insurers to notify the other party if cover is ended or the terms of the policy are changed. There is likely to be a cost associated with such a service, if the insurer is even willing to do it. In many cases, if faced with such an obligation, a first response may be to seek to delete it from the contract.
  5. Sometimes, the clause will use wording requiring a party to have insurance against all risks arising from the contract. This is probably an impossible obligation to meet, as all insurance is limited in scope, subject to conditions and subject to a financial cap. At the very least the obligation should be reduced to one of obtaining insurance that is reasonably available at a reasonable cost, and ideally one would be more specific as to the types, amount, etc.

Standing back from the contractual obligation

no riskContracts impose obligations. If a contractual obligation is not met, a party may suffer loss and may seek to recover its loss from the party that breached the obligation. Some contracts specifically address the question of losses arising from breach, eg by including indemnities. Bringing a claim for breach of contract, or under an indemnity, will be pointless if the breaching party doesn’t have the resources to meet the liability. Those “resources” might include having insurance.

Insurance can, therefore, be a useful way of mitigating contractual risk, and contractual obligations to insure can part of a package of risk management measures. Sometimes, though, contractual obligations to insure are excessive for the scale and risk of the contract. IP Draughts has an impression that sometimes insurance clauses are included in a contract because they were in the template that the drafter used when preparing the contract, rather than because the commercial manager who is responsible for the deal really thinks the obligation is important.  In such cases, it may not take much effort in negotiations to agree to remove the insurance clause from the draft contract.

 

 

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