Category Archives: Commercial negotiation

Trust, Verify and Warranties?

They seem like a lawyers’ nightmare version of the Three Graces. Not Charm, Beauty and Creativity, but Trust, Verify and Warranties.

When you are entering into a contract with someone, to what extent do you rely on trusting that person or organisation? Do you do any due diligence or ask the person to supply information? Do you rely on contractual promises that give you a remedy in the courts if the promises are not met?

In one-off transactions such as buying a house or business, due diligence (searches and enquiries) and warranties may be more important than trust. In relational contracts, such as R&D collaboration agreements, trust may be a greater priority.

A similar, but different, set of questions seems to operate when hiring a law firm. You may want competence, a good working relationship and to trust the lawyers (to act in your interests, charge a fair price, etc) but which of these qualities is most important to you? For bet-the-company transactions, the relationship may be less important than reliability and reputation. Or so it seems, if the culture of some large, commercial law firms is a reliable guide.

In the past, clients have complimented IP Draughts on his ‘personal’ approach; by implication, other lawyers and firms that those clients have used have had a different approach. But perhaps his approach is more suited to the type of work that he does – mostly relational contracts for long-term clients.

In passing, IP Draughts can’t resist mentioning one of his bugbears: the procurement process when applied to legal services. In IP Draughts’ experience, the process typically fails to tackle the important issues of competence and relationships, and its approach to trust is essentially one of replacing it with tough contract terms.

These thoughts are prompted by two recent events. Today, he came across a TED talk that someone he knows (and trusts) recommended. The talk is by a Harvard professor, Frances Frei, and is on the subject: How to Build (and Rebuild) Trust. She recounts her experience of working with Uber, and  considers their corporate culture. She breaks the subject of trust down into three components: logic, empathy and authenticity. The presence or absence of all of these elements affects whether you are trusted.

This is not dissimilar to another formula that IP Draughts has heard in the past, that you trust someone (e.g. a chair of a meeting) if they demonstrate both competence and warmth.

Yet another formulation comes from a 5-day course on mediation skills that IP Draughts attended a week ago. The course was run by the Centre for Effective Dispute Resolution (CEDR), the leading provider of mediation services in the UK. During the final two days of the course, IP Draughts and his fellow students were assessed against six ‘competencies’, during role-play exercises. It was all very intensive!

More on the course itself in future blog postings. For now, IP Draughts wants to focus on the six areas of competence, which came under three themes: rapport, process and content.

The competencies involve a mixture of hard (analytical, process-driven) and soft (human interaction) skills. Building rapport and trust requires empathy and authenticity. The process element seems more like the ‘logic’ discussed in the TED talk. The content element is really a mixture – as a mediator you should be helping the parties to find their own solution rather than finding or advocating one yourself, and this involves both soft and hard skills. During the role play, IP Draughts subconsciously fell into the trap of steering the parties towards his solution. He will watch out for this, in future.

Ultimately, mediation is probably more soft than hard skills, whereas the practice of law is probably more hard than soft skills. More than one person on the course used the term ‘touchy-feely’, usually when he was – how can we put this non-judgmentally – developing his skills on the relational aspect of a mediator’s role.

Legal training emphasises the hard skills, and of course these are important. But the really good lawyer will have a mixture of hard and soft skills. The latter are mostly learnt by experience, and occasionally in training, such as on negotiation skills courses. IP Draughts is coming to the conclusion that there should be more training for lawyers in soft skills, which could be through attending a mediation skills course.

 

 

Leave a comment

Filed under Commercial negotiation, Legal practice

Choice of contract law in light of Brexit

IP Draughts has just returned from a pleasant few days spent in Paris, where he chaired the third annual meeting of BioLawEurope FmbA, a not-for-profit association of specialist life science lawyers across Europe, who mostly work in small firms. In the last 3 years, we have referred dozens of projects between members of the association. IP Draughts’ firm is currently working on a regulatory matter that was referred to us by the German member of the network, and a commercial matter referred by the Danish member.

During our annual conference we have presentations on various topics. One that has stuck in IP Draughts’ mind this year was on choice of law and jurisdiction. When negotiating parties are based in different jurisdictions, they often need to find a compromise jurisdiction on which both of them can agree. Apparently, English law and jurisdiction has been a popular compromise choice, but is currently less popular for some of the BLE members, due to uncertainty over Brexit. Specifically, will there be mutual recognition of judgments between the UK and EU countries after Brexit?

IP Draughts thinks it is likely that the UK and EU will negotiate mutual recognition as part of the Brexit negotiations. Although the UK government is playing its cards very close to its chest, there is some ‘mood music’ to suggest that it recognises the importance of maintaining the reputation of England and Wales as a jurisdiction of choice. This seems to be a relatively uncontroversial topic where common sense would suggest that arrangements similar to those currently applicable (under Rome and Brussels regulations) will be agreed.

However, just because something makes sense and is uncontroversial is no guarantee that it will be negotiated, given the extraordinary times in which we live, so IP Draughts understands the short-term concerns that were expressed at our Paris meeting.

Part of our discussion was about the features of litigation in different jurisdictions. This discussion left IP Draughts feeling that, recognition issues apart, England and Wales had much to recommend it, including:

  1. A summary judgment procedure to get rid of spurious cases (unlike, it seems, France).
  2. Disclosure (also know as discovery) procedures to obtain access to the internal documents of the other party (unlike most civil law jurisdictions).
  3. Oral advocacy and cross-examination of witnesses, which tests the strength of the case in court, rather than relying mostly on written submissions (unlike in most civil law jurisdictions).
  4. A judiciary made up of experienced advocates, rather than career judges.
  5. A system of ‘without prejudice’ communications that are not disclosed to the court, and which facilitate freer communications in negotiations (unlike, it seems, Austria).
  6. The winning party usually gets a court order that most of its legal costs must be paid by the losing party. Apparently, in Austria, Germany and some other countries there is a tariff system which pays only a small proportion of the costs actually incurred. At the same time, for smaller cases in the Intellectual Property Enterprise Court, in London, there is a cap on legal costs of £50,000.

Other issues that we discussed included whether a non-English court would be willing to conduct the case in the English language, if the parties agree to do so. Apparently this is possible in Denmark but not in many civil law jurisdictions, where every document relied on must be  translated into the local language and certified to be an accurate translation, which can add considerably to a party’s costs.

Increasingly, IP Draughts is wondering whether Ireland might be an answer to some of these issues, bearing in mind that its legal system shares many features with that of England and Wales, particularly if the mutual recognition point is not dealt with in a timely manner.

But IP Draughts is crossing his fingers in the hope and expectation that all will turn out well in the next couple of years.

 

Leave a comment

Filed under Commercial negotiation, Contract drafting

Adams v Anderson on Contract Drafting

gazetteIn case you missed it, here is a link to an article in last week’s Law Society Gazette, the journal of the Law Society of England and Wales.

The article is titled Adams v Anderson on Contract Drafting. It takes the form of a discussion between IP Draughts and Ken Adams, the author of the leading work A Manual of Style on Contract Drafting (American Bar Association, 3rd edition, 2013). Ken also runs a popular blog.

terry and juneThe article covers such diverse issues as the horrors of US-drafted contracts, the madness of English judges, the personal qualities of the famous UK sitcom couple, Terry and June, and our hopes for the future of contract drafting.

Although the article may suggest otherwise, Mr Adams and IP Draughts actually agree on most aspects of contract drafting. IP Draughts was very pleased to be able to facilitate him runnng his one-day seminar, Drafting Clearer Contracts, through the Faculty of Laws of University College London. The seminar has run for the last two years, has been very well received, and shows every sign of being a long-term, annual fixture.

Ken Adams, Master of Style

Ken Adams, Master of Style

Correspondence on the content of the article may be addressed to Mr Adams.

 

Leave a comment

Filed under Commercial negotiation, Contract drafting

10 points to look for in a draft agreement

once overYou are sent a draft agreement and asked to review it. No other instructions are given. You are expected to know what the client wants, without asking. In the case of technology-related agreements, perhaps they think you don’t need to know the subject-matter, or that you wouldn’t understand it.

Some people are willing to go along with this, and to advise as a ‘paper exercise’ without knowing anything about the subject-matter of the deal, what commercial discussions have already taken place, what are the client’s objectives and priorities, and so on.

IP Draughts is very reluctant to advise on this basis.

In IP Draughts’ experience, digging into the details and discussing the project with the client’s representative is usually essential, and is always efficient, if the agreement is to be well-drafted and protect the client’s interests. Persistence is sometimes required to coax useful instructions out of a client who may be wary of lawyers and legal documents, or who may simply not appreciate what information his legal adviser needs in order to conduct a useful review.

tenWhether or not such a discussion takes place, there are points that come up time and again in contracts drafted by others, which an experienced lawyer or commercial manager is likely to consider during a review of the draft. They are not necessarily the most important points to consider for an individual transaction, but if the terms proposed in these areas are not appropriate, they will probably need to be changed. IP Draughts’ list of the top ten follows. Some of these points may overlap, eg a term may be both odd and anti-competitive.

  1. Which contract law applies and is it a binding contract? Some readers may be surprised that this point is placed first in the list. After all, isn’t the law of the contract a deal point that gets traded during negotiations? Perhaps, but in order to give legal advice on a contract, it is first necessary to establish which law applies. If the adviser is not qualified to advise on that law, he should point this out to the client and suggest that he takes advice from a suitably-qualified lawyer, unless he already has an understanding with the client that these points are to be taken as read and that advice is being given on the assumption that the law of the contract is one that the adviser is familiar with. If the agreement does not appear to meet the requirements for a binding contract, eg because it is an ‘agreement to agree’, this should be pointed out to the client.
  2. Has the right type of template been used? Most contracts nowadays are prepared using a template. Very few agreements, in IP Draughts’ experience, are written entirely ‘freehand’. A useful point for the adviser to consider is whether an appropriate template has been used. Sometimes the drafter picks the wrong template, and it may speed negotiations to suggest a different template before the detailed wording is reviewed. Linked to this point is whether the template has been prepared to be suitable for a different system of laws. For example, US templates are sometimes seen, even when neither party to the proposed contract is based in the USA. While it may not be possible to change the template, recognising its origins may flag up to the adviser some general points that will need to be considered. For example, do terms such as “represents” and “indemnifies” have meaning under the law of the contract, particularly in civil code countries? Generally, liability-related clauses may require additional scrutiny to ensure that they are effective under the law of the contract.
  3. Do the terms seem to be generally well-drafted? An initial, high-level review of the draft agreement may reveal whether it seems to be generally well-drafted and how much work might be required to bring the drafting up to an acceptable standard. The client may wish to know the adviser’s views on this point before time is spent in extensive redrafting. There are many reasons why the drafting may be sub-standard. For example, the drafter may not be a specialist in contract drafting, and may have bolted poor-quality wording into a well-drafted template. Or the drafter may have used the text of a previous agreement, and have failed to modify it appropriately to reflect the different circumstances of the present transaction.
  4. Have the right entities been named as parties? Has the client considered which legal entities should be the parties to the contract? In the case of a group of companies, does the contracting party own the relevant IP and other assets that are needed for the contract, and does it have sufficient financial and other assets to meet any liabilities that it may incur under the contract, or should a parent company guarantee be sought? In too many cases, IP Draughts finds that the name of the party at the top of the agreement is different from the name above the signature blocks. Or that the name is incomplete, eg missing “Ltd” or “Inc”, the place of incorporation, or some other identifier. Who the parties are is of critical importance to any contract.
  5. Do the definitions make sense? Many of the contracts on which IP Draughts is asked to advise have detailed definitions of terms such as intellectual property, products, field, and so on. These definitions are key to interpreting the parties’ rights and obligations under the contract. Sometimes, definitions don’t make sense or are circular, eg because two definitions cross-refer to one another in a logic loop. In some cases, definitions are not used in the contract, or terms are capitalised but not defined. These points may be overlooked by a careless drafter, but they may be critical to the interpretation of the contract.
  6. Are the main terms of the contract – work, payment, etc – clear and sufficiently precise? If the client has not provided detailed instructions, any review of these terms may have to be limited to a general sense check.
  7. Are there ‘odd’ terms: very onerous, one-sided, unusual or missing? An experienced contract drafter will recognise terms that stick out like a sore thumb, and which a client will probably expect you to point out. For example, in a licence agreement, if the licensor is being asked to license improvements without any limits on the scope of the improvements or the duration of the obligation, this would be something that IP Draughts would wish to point out to a licensor client. missMissing terms, such as an absence of a limitation of liability clause, may be more difficult to spot on a quick review, but the reviewer will generally want to stand back from the draft and consider whether any obvious terms are missing.
  8. Are there anti-competitive terms? A legal review of a draft agreement will usually include spotting whether there are any obviously anti-competitive terms in the agreement, which might fall foul of competition (antitrust) laws. Common examples might include exclusivity provisions in a research collaboration agreement, or obligations on a licensee or distributor to charge a particular price for products, which would amount to price-fixing. There are many other examples of terms which should ring alarm bells in the mind of the legal adviser, when reviewing a draft agreement.
  9. Are the liability terms (warranties, indemnities, limits of liability) acceptable? There are several issues here, including (a) are there appropriate warranties or disclaimers for each party, (b) should the client be limiting liability for breach of contract, etc, (c) is it acceptable for the other party to limit liability, (d) are the liability clauses clear and legally effective, (e) are there indemnities, and do they make sense, and are they acceptable and have suitable conditions been included, eg as to conduct of claims, and (f) are the indemnities subject to the clauses that limit liability? Unfortunately, some liability terms, particularly indemnities, are drafted in a dense, legalistic manner, and their meaning is not always as clear as it should be.
  10. How can the agreement be terminated, and what happens after termination? In some contracts, this topic is far more important than its placing in this list would suggest. For example, a sponsor of research work may need to be able to stop the work on short notice if poor results are obtained from the research or if its priorities or budgets change. The consequences of any early termination, including financial consequences, should be spelt out in the contract. Don’t accept a clause that simply says that clauses that are meant to survive termination will survive. This is very lazy drafting. The clauses in question should be identified.

4 Comments

Filed under Commercial negotiation, Contract drafting