Category Archives: Contract drafting

Should clients prefer a non-specialist lawyer?

screenwritingVia Ken Adams and the wonderful world of Twitter, IP Draughts was alerted to this article:
The Business of Screenwriter: Get a damn good lawyer!

The article discusses the lack of foresight of a lawyer who drafted a screenwriting contract for the author in the 1980s. The contract provided for bonus payments for sequels in specified formats, but had failed to include generic language that would cover “direct to DVD” sequels – a format that didn’t exist when the contract was made. As a result of this omission, when a sequel was made in the 2000s, the author failed to secure two bonus payments, each of $150,000, to which he thought he was entitled.

The punchline (punch-paragraph?) of the article was as follows:

So when you sell your script and you get an agent and/or manager, and they talk to you about how you need to get a good entertainment attorney, you smile, and gently correct them:

“No, I want a damn good lawyer.”

The article seems to be suggesting that the lawyer who drafted the contract was too close to the entertainment industry as it existed in the 1980s, and followed convention rather than thinking carefully about what the contract should say, and future-proofing it against new technologies.

It should, of course, be possible to be a damn good lawyer and a good entertainment attorney. Any entertainment attorney who keeps abreast of case law will be aware of a steady stream of cases where the court was asked to apply contract language to new technologies that didn’t exist when the contract was made. See, for example, this article, which provides a short overview of the subject.

specialist2But perhaps in some market sectors, the lawyers who specialise in that sector aren’t very good lawyers. If you have to choose between good and specialist, which should you go for? It is difficult for a lay client to know whether she is choosing a damn good lawyer (a qualitative assessment). It is easier to find evidence of prior experience of the industry sector (a quantitative assessment). In IP Draughts’ experience, many clients prioritise prior experience, sometimes to an excessive extent. He has encountered clients who prefer a lawyer who has done exactly the same type of deal before (eg the development of a particular type of medical device), rather than one who has advised on many other types of development contract in the medical sector. Viewed from afar, the latter category may be thought already very specialist, and perhaps sufficiently specialist for the contract in question.

About 25 years ago, a former senior partner of a leading IP law firm discussed with IP Draughts the choice of barristers (advocates) for a major case. His view was that, if he couldn’t get one of the very top barristers at the intellectual property bar, he would not go down to the second tier, but would instead instruct a high-quality barrister at the commercial bar, and instruct them in the technology and IP issues, with assistance from junior IP counsel. His priority was a damn good lawyer rather than a specialist.

goodenoughComing back to contract drafting, rather than IP litigation, in an ideal world one would choose a lawyer who is both good and specialist (as well as having other qualities like fitting in with the client’s approach, being a good negotiator, etc etc). For a major transaction, it may be worth a client’s time to research carefully who might fulfil all of these criteria. For more routine matters, if you have a lawyer whose abilities and integrity you trust, and they tell you that they are comfortable with the task, then you may prefer to stick with them than find someone more specialist.

Sometimes, you should be reassured when your lawyer tells you “I’m not a specialist in this field (but I think I can help you).”

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Use restrictions in contracts of sale

pink or black for court?

pink or black for court?

Long-term readers of this blog may recall earlier articles about whether a seller of a product may restrict the use that the purchaser can make of that product, and whether such restrictions are binding on subsequent owners of the product. For example, may the original seller exercise its IP rights against a subsequent owner to enforce any such restrictions? This subject raises questions of public policy that, in different jurisdictions, are channelled into legal principles such as exhaustion of rights, non-derogation from grant, and the first sale doctrine. See, for example, the EU UsedSoft case, discussed here in 2012.

This subject was forced back into IP Draughts’ mind by the recent spat between two artists, Sir Anish Kapoor and Mr Stuart Semple, reported here.

Apparently, Sir Anish has acquired an exclusive licence, in the field of art, to use Vantablack, the “blackest black” in existence, which is a technology based on carbon nanotubes. According to an FAQ on the website of Surrey Nanosystems, the creator of Vantablack, it seems that what Sir Anish has a licence to is a variant of Vantablack, known as Vantablack S-VIS:

Vantablack is generally not suitable for use in art due to the way in-which it’s made. Vantablack S-VIS also requires specialist application to achieve its aesthetic effect. In addition, the coating’s performance beyond the visible spectrum results in it being classified as a dual-use material that is subject to UK Export Control. We have therefore chosen to license Vantablack S-VIS exclusively to Kapoor Studios UK to explore its use in works of art. This exclusive licence limits the coating’s use in the field of art, but does not extend to any other sectors.

Let’s leave the interesting export-controls point to another day. It is not entirely clear what IP is being licensed, though presumably there is at least some know-how involved. Another FAQ indicates that:

Vantablack is a globally registered trademark and recognised brand owned by Surrey NanoSystems Limited. Companies would need written permission from SNS to use the Vantablack name in their products.

Incensed by Sir Anish’s actions in taking this exclusive licence, and the consequent restraint on artistic freedom, fellow artist Mr Stuart Semple has created the “pinkest pink” and is selling pots of the stuff, subject to the following condition:

Note: By adding this product to your cart you onfirm [sic] that you are not Anish Kapoor, you are in no way affiliated to Anish Kapoor, you are not purchasing this item on behalf of Anish Kapoor or an associate of Anish Kapoor. To the best of your knowledge, information and belief this paint will not make it’s [sic] way into that [sic] hands of Anish Kapoor.

Sir Anish has apparently responded to this provocation with a photograph of (inter alia) his hand:

pink

According to Surrey Nanosystems, one of the stated benefits of Vantablack is “its ability to absorb light energy and convert it to heat”. Mmm…

Readers are invited to comment on whether they think the contractual restriction on supply to Anish Kapoor is enforceable, and what the measure of damages for breach of contract might be.

 

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Jurisdiction clauses and Twenty20 vision

deccanThis is a sad tale about an international business venture. When the deal goes sour, and it is near impossible to recover the millions that you are owed (despite a court order in your favour), what should you do? Ah yes, sue the lawyer who advised you on the deal. He must have done something wrong, he has insurance and he is based in a jurisdiction where the legal system works.

Specifically in this case, what should your lawyer advise in relation to choice of jurisdiction in the contract? We now have some guidance from the Court of Appeal.

The case of Wright v Lewis Silkin LLP [2016] EWCA Civ 1308 (21 December 2016) was reported on BAILII this week. Mr Wright was advised by the well-known London law firm, Lewis Silkin, on a contract under which Wright was hired as the chief executive of an Indian company, Deccan Chargers Sporting Ventures Limited (DCSV). DCSV held the Hyderabad franchise of the Indian Premier League, which runs a Twenty20 cricket league across India. DCSV also had ambitious plans to create a “sports city” in India.

To err is human...

To err is human…

While this contract concerned an employment relationship, the same issue could easily have arisen in other types of international business contract, and would likely have been treated by the court in the same way.

The contract, described as Heads of Terms, included the following terms:

Severance Guarantee
In the event that TW’s employment is terminated by the Company (including as a result of a constructive dismissal) at any time, TW will receive the immediate payment (to include contractual notice entitlement and the value of then vested equity (“total package”)) of the higher of the then value of his total package or £10 million.
Law
These terms to be governed by English law.

The contract did not contain any clause stating which courts would have jurisdiction.

Later, Mr Wright was dismissed. He sued DCSV in the English courts. DCSV unsuccessfully challenged the jurisdiction of the English courts. There were other procedural difficulties. Eventually, the English High Court awarded Mr Wright the £10 million referred to above.

Mr Wright sought to enforce his award in the Indian courts, but the Indian courts are very overburdened with work. It is likely to take many years before he stands any chance of the Indian courts recognising and enforcing the English court decision.

So, he sued his solicitor. At trial he alleged that his solicitor should have advised on the following:

  1. To obtain a bank guarantee from the Indian party for the £10M.
  2. To include an exclusive English jurisdiction clause in the contract.

At trial, the judge rejected the bank guarantee point. Thank goodness! In IP Draughts’ view this was a commercially unrealistic argument, for the reasons stated at paragraph 38 of the Court of Appeal’s judgment.

On the second point, the trial judge found that the solicitor had not advised on jurisdiction and was in breach of duty for this failure.

The facts in relation to the second point are a little complicated, but can be summarised briefly as follows:

  • Mr Wright had been recommended to take business advice on the transaction from someone referred to by the parties as the “wise Indian”. The wise Indian had advised Mr Wright to ensure that disputes were resolved in England, “because …India very slow, no good, must be here”.
  • Mr Wright had wrongly assumed that the above-quoted reference to English law meant that disputes would automatically go to the English courts.
  • If the solicitor had advised on this point, he would have indicated, perfectly reasonably, there were pros and cons of including an exclusive jurisdiction clause.
  • But Mr Wright would probably have insisted on exclusive English jurisdiction in light of the wise Indian’s advice.
  • A first action was brought in the English courts for the £10M but was abandoned after DCSV challenged jurisdiction.
  • A second action was brought in the English courts and was successful (as mentioned above), despite a further challenge to jurisdiction.
  • Mr Wright argued that if he had been successful in the first action, he would have been able to bring pressure on DCSV to pay up at an earlier time. At that earlier time, DCSV was a thriving business and would not have wanted to prejudice its business by resisting payment. However, DCSV’s circumstances had changed by the time of the award of damages under the second action. It lost its franchise for Hyderabad in 2012.
  • The trial judge (in the negligence action) held there was a 20% chance that DCSV would have paid up voluntarily if the first action had been successful, and therefore held that the solicitor’s firm was liable for 20% of the £10M judgment debt, ie £2M. There were also some wasted costs in relation to the first action, of a few tens of thousands, for which the solicitor’s firm was liable.

jacksonJackson LJ, a very senior English judge, gave the lead judgment in the Court of Appeal. He dismissed the appeal on the bank guarantee point.

On the jurisdiction clause point, Jackson LJ accepted the trial judge’s view that there was a 20% chance of Mr Wright having recovered his judgment debt if the first action had proceeded. However, he disagreed with the trial judge on whether the £2M was recoverable.

Citing the Court of Appeal case of Wellesley Partners LLP v Withers LLP [2015] EWCA Civ 1146; [2016] Ch 529, he held that where a solicitor owes duties concurrently in contract and in tort, the test for recovering damages should be the contractual one. Applying the principles set out in Hadley v Baxendale and subsequent English cases, he considered that the £2M damages were too remote to be recoverable, in that a reasonable person would not have had damage of that kind in mind as “not unlikely to result from the breach”. [Apologies for the double negative.]

Thus, the solicitor’s firm, Lewis Silkin LLP, was only liable for the approximately £40,000 of wasted costs that had been incurred as a result of abandoning one action and starting another.

Instinctively, this decision feels right. Mr Wright wanted English jurisdiction and he got it, despite the absence of a clause that said so. If DCSV’s challenge to English jurisdiction had been successful, a more predictable loss might have occurred. There was a risk that DCSV would have refused to include an exclusive jurisdiction clause, if asked. Litigation involves all kinds of delays. It would have been difficult to predict, at the time the contract was made, that a delay in enforcement of several months would make it much less likely that DCSV would voluntarily honour an English judgment.

This judgment prompts several thoughts for IP Draughts:

  1. Non-lawyers sometimes need to be reminded that choice of law and choice of jurisdiction are distinct points.
  2. In many or most cases, it is desirable to have both a choice of law and a choice of jurisdiction clause in the contract.
  3. It is good to get a judgment from a respected court. But if the defendant has no assets in that jurisdiction, enforcement will need to take place in the defendant’s home jurisdiction (assuming he has assets there). Is it better to get a judgment in the same court that will enforce the award? Perhaps not, as in this case.  A court decision in India would likely have taken many years as well.
  4. Even if there is no perfect solution, it is better to discuss the issue with the client and decide on something than overlook the point.

withersThe point about concurrent liability in contract and tort is an interesting one, which also arises in the context of warranties. Where a party “represents and warrants” that a fact is true, some lawyers consider that this gives the recipient of the promise a right to sue in contract or for misrepresentation (ie in tort). IP Draughts has never been comfortable with this idea, and sees little in the case law to support it, though there have been several obiter dicta. He wonders whether the principle in Wellesley v Withers points us in the opposite direction, ie that in such a situation the contractual test for damages is the one to apply. In the words of Floyd LJ in that case:

Nevertheless, I am persuaded that where, as in the present case, contractual and tortious duties to take care in carrying out instructions exist side by side, the test for recoverability of damage for economic loss should be the same, and should be the contractual one. The basis for the formulation of the remoteness test adopted in contract is that the parties have the opportunity to draw special circumstances to each other’s attention at the time of formation of the contract. Whether or not one calls it an implied term of the contract, there exists the opportunity for consensus between the parties, as to the type of damage (both in terms of its likelihood and type) for which it will be able to hold the other responsible. The parties are assumed to be contracting on the basis that liability will be confined to damage of the kind which is in their reasonable contemplation. It makes no sense at all for the existence of the concurrent duty in tort to upset this consensus, particularly given that the tortious duty arises out of the same assumption of responsibility as exists under the contract.

 

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The lawyer’s role as scribe

sketchIn olden times, long before document-scanning software was invented, a scribe was someone who was employed to make manuscript copies of documents, including legal and religious texts.

In a modern legal setting, IP Draughts uses the term to refer to the contract drafter’s job of converting conversations between commercial negotiators into clear, legally-accurate contract language.

The importance of this role varies between market sectors and types of agreement. Some financial transactions rely on industry-standard agreements, as do some agreements dealing with commodities, such as the shipment of grain. The drafter’s job may be simply to record a few ‘variable factors’ such as specification, price and delivery times.

Moving a little down the scale towards freehand drafting, lawyers who advise on business sale agreements typically start with a favoured template. But they make detailed changes to particular clauses, eg converting an absolute warranty into a knowledge-based one, or carving out exceptions and qualifications to the template terms.

In the field of R&D agreements, commercial parties often agree tailored deal terms that cannot readily be found in any single template. For example, R&D collaborations frequently include ‘what if’ clauses that deal with a range of possible outcomes to a collaborative research project. An obvious example of this is the Lambert research agreements, which now have 7 or 8 variants. The variations deal mostly with one issue – intellectual property. If further standard agreements were prepared to deal with variations in other clauses – payment terms, say, or dispute resolution – the number of templates needed would quickly multiply.

In this world, the commercial parties tend to focus on negotiating the headline issue. Once this has been agreed, there may be numerous points of detail and logic surrounding that issue that the drafter needs to address, if the agreement is not to be full of holes. Sometimes, it may even be necessary to tell one’s commercial colleagues that their solution may work for the scenario that they discussed, but is unworkable in other possible situations, and therefore should be rethought.

Identifying these issues, prioritising them, anticipating what the client is likely to want, and then drafting suitable wording, all take skill and effort. Often this work is done under time pressure.

One of the skills required for this work is the ability to draft clear, accurate contract wording. This skill is not learnt overnight, and some lawyers are concerned that insufficient training in freehand drafting is given in large law firms, where the priority may be to ‘get the deal done’ and where many deals are of the commoditised type referred to at the start of this article.

monkey-pastePractising this skill can sometimes seem a lonely occupation, particularly when one is surrounded by lawyers who have not been sufficiently trained in it, commercial parties who just want to get the deal done, finance directors who are focussed more on the numbers than the words, and procurement managers who see their task as avoiding changes to their companies’ templates. It requires some strength of mind to insist that the drafting is important.

Our recent panel discussion at UCL on Dysfunction in Contract Drafting reminded us that there is a community of professionals who think drafting is important, even if people disagree about some of the details. If you would like to see the recording of that discussion, it is available on YouTube here. Over 400 people have already viewed it, in addition to the 150 or so people who attended the live event. Persuade your colleagues to view it too, and let’s get the viewing numbers up to well over …1,000?

 

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