We continue our series highlighting IP Draughts’ “favourite” one-sided provisions in contracts. These provisions are often found in contracts where there is an imbalance of power between the parties, and where the party with the power (let us call him the “Patron”) seeks to reduce a sometimes theoretical risk by imposing it on the other party (the “Supplicant”).
Today’s one-sided term is:
Clause X does not prevent the Patron from taking proceedings relating to a Dispute (“Proceedings”) in any other court or tribunal with jurisdiction. To the extent allowed by law, the Patron may take concurrent Proceedings in any number of jurisdictions.
Typically, Clause X states that the agreement is subject to the exclusive jurisdiction of a named court.
Thus the Patron is “having his cake and eating it”. The Supplicant is forced to litigate in the court named in Clause X. The Patron can litigate in that court if he chooses to do so, but he also has the option of suing in any other court that is willing to accept jurisdiction.
The quoted clause is taken almost verbatim from a draft agreement that IP Draughts was sent recently. He deleted the clause when marking-up the draft, the other side accepted the deletion, and no discussion was required.
But why, oh why, was the clause there in the first place? It gives such a bad impression of aggressive one-sidedness. The answer is almost certainly that it was in the template that the drafter was using, and he or she did not choose to delete it before issuing the first draft.
The sentiment of this clause is not particularly unusual – IP Draughts has seen similar clauses in a fair number of agreements that he has reviewed over the years. Usually the clause only appears in agreements where the drafter is in “strongly protective mode” rather than “reasonable, balanced terms mode”. For example, IP Draughts has seen the clause in many financing and investment agreements.
IP Draughts wonders whether investors realise how bad an impression it gives to the investee company when such one-sided provisions are included in the agreement. IP Draughts cannot decide whether investors are usually (a) unaware of this impression, (b) a litte uncomfortable sometimes, but guided by their lawyers as to what is conventional and what is needed to protect their investment interests, (c) indifferent to it, perhaps feeling that the investee should not get exercised about “legal boilerplate”, or (d) happy to reinforce the point that they are in charge. No doubt it varies from investor to investor.
One possibility is that many investors lack experience of commercial negotiations, outside the cocoon of investment transactions, and therefore don’t “get” how important it can be to establish a mutually-respectful “partnership of equals” in commercial negotiations. And that this extends to the terms proposed in the contract, which are a central part of the structure of that relationship.
Perhaps in some cases the investor’s view is: we just do what everyone else does. We use the same lawyers as other investors, and the same types of documents. Those documents have developed over many years, and are from a different gene pool to commercial collaboration agreements. We’re just following market practice.
IP Draughts’ scoring for extremeness: 9/10