Category Archives: Contract drafting

Why do we tolerate bad template agreements?

Yesterday, IP Draughts puzzled over an agreement that was based on a well-known, industry-standard template. He had read a clause one way, and his client helpfully pointed out that it could be read another way. He realised that he had been making assumptions based on what he thought it should mean, and what similar clauses meant in other agreements, rather than what it actually said. It only became apparent after looking carefully at the clause that the quality of the drafting was poor. It helps to have several pairs of eyes look critically at contract wording.

This problem could have been solved at birth if more attention had been paid by the original drafter of the template. Why do we persist in using mediocre templates?

People like what is familiar. In the case of a template agreement, they like it even more if it has the cachet of an independent authority. Take a bow, Lambert Agreements, Brunswick Agreements, DESCA consortium agreements, NHS Trust clinical trial agreements, and the British Venture Capital Association standard subscription and shareholders agreement. IP Draughts could go on.

Some of these documents are better than others. Some are revised more regularly than others. But in IP Draughts’ experience, and to generalise, not enough attention is given to pure drafting issues, as distinct from issues of commercial negotiation.

Whether a contract term is clear and accurate tends to come into sharp focus if there is a dispute, or if one party wants to terminate another party’s involvement in a contract. But disputes are few and far between. People comfort themselves with the false argument that “we’ve never had a problem with this contract” as if using a contract a few dozen times proves anything about whether clause 7.21 is ambiguous.

IP Draughts has encountered several types of problem, including:

  1. The template that is used because it is convenient, and familiar. It never gets a critical drafting scrutiny, and much of the core document is poorly drafted.
  2. The template that is updated periodically by a committee, but the focus is on improving the commercial content: the committee lacks an independent, high-quality drafter who is paid to focus on drafting issues. Or there is no systematic method of identifying problems encountered in practice. IP Draughts has never been asked for his opinion on detailed issues arising from the use of industry-standard templates, though he has been working in fields such as university contracts for several decades.
  3. The template that is modified, because the drafter of an individual contract inserts changes, not always for the better. But still it is claimed to be the template – perhaps a header or footer identifies the original template.

An argument that is sometimes used is that no-one gets into disputes over the interpretation of these agreements. But that is simply not true, in IP Draughts’ experience, and he suspects other law firms could provide examples from their experience. There may not be large numbers of disputes, compared with the number of times that the template is used, but there are enough to make it efficient to get the drafting right.

Perhaps IP Draughts shouldn’t be raising this issue. After all, he and his colleagues have written several hundred published template agreements, and some have acquired a familiarity, and perhaps a credibility, through use over many years. For example, his licence agreements tend to have a schedule that identifies the procedure for referring certain disputes to an expert, and he has seen versions of this schedule in other people’s agreements. He remembers working this schedule up around 30 years ago, with input (though IP Draughts is responsible for what became the final version) from Matthew Warren of Bristows.

To take a more recent example, he feels a certain sense of pride that one of his template material transfer agreements has been used by organisations collaborating on research on the coronavirus.

Given the amount that universities and companies spend on commercial transactions using industry-standard templates, wouldn’t it make good economic sense for organisations to chip together to pay for better drafting? And then agree to stick with the template rather than making individual changes for each transaction.

This is not a pitch for work. There are plenty of good contract drafters in law firms across the country (and also plenty of mediocre drafters) – you just need to find the right person. But it is a pitch for greater recognition that the skill of contract drafting is important and valuable, particularly in the case of industry-standard templates that are used many times.

 

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Insurance policies: why the terrible drafting?

IP Draughts was asked to review and comment on an insurance policy this week. It was a business-related policy rather than one for consumers. It was drafted in the traditional style and structure for such documents, which IP Draughts has come to know and hate.

The structure alone made it largely incomprehensible to anyone who isn’t a specialist in interpreting and deconstructing complex drafting. Come to think of it, why would anyone be a specialist in this subject? Oh wait, that’s what IP Draughts does for a living (some of the time)!

The (mind-boggling) sequence of sections was:

  • a cover sheet with a heading that included the word “policy” and a couple of sentences of text, without punctuation and with liberal use of words such as “consideration”, “hereon” and “herein”, and with an illegible signature (with no printed name) on behalf of the insurer. The presence of a signature was slightly weird, as the document was a template with a large watermark with the word “sample” across every page.
  • A “Schedule” page for certain details to be completed. The details were left blank, and  appeared to overlap with those set out in a separate document headed “Risk Details”.
  • Two pages of General Definitions, numbered (1) to (11).
  • A page of General Extensions, numbered (1) to (3). Extension (1) used the defined term Principal, but there appeared to be no definition of this term, and certainly not in the General Definitions.
  • Two pages of General Exclusions, numbered (1) to (12). At the bottom of this section there is a date (2010).
  • Four pages, comprising Section 1, Extensions to Section 1, and Exclusions to Section 1.
  • Two pages, comprising Section 2, Extensions to Section 2, and Exclusions to Section 2.
  • Five pages, comprising Section 3, Exclusions to Section 3, and Extensions to Section 3 (in that order), followed by Conditions  of Compensation for Section 3.
  • Two pages, comprising Section 4, Exclusions to Section 4 and Extensions to Section 4.
  • One page, comprising Section 5 and Exclusions to Section 5.
  • Two pages of General Conditions (for the whole policy), numbered (1) to (13). Apparently randomly, some of the text is typed in red, including a sentence in paragraph (1), a single word in paragraph (3) and the entirety of paragraph (13).
  • One page headed (Re)Insurers Liability Clause, which has some inpenetrable text about how liability is allocated between insurer and re-insurer and between multiple insurers or re-insurers.
  • One page headed Notice to Policyholders, which starts with a sentence that asks the reader to read the Policy and the Schedule(s) to ensure that they meet their requirements. It is not clear to IP Draughts which parts of the above-listed items comprise the Policy or the Schedules or neither. This sentence is followed by a complaints procedure.
  • One page headed Fair Processing Notice, which seems to be intended to highlight that the insurer will pass your personal information around the market. It provides a link to the insurer’s Privacy Statement.
  • Ten pages that don’t have any heading in the style of earlier pages, but the first word of the text is printed in red and says “Endorsements”, and is followed by paragraphs numbered 1 to 25. This section seems to be a dustbin of clauses that the insurer couldn’t think whether else to put. Some of these clauses variously include in their headings the words “extension”, “exclusion”, “restriction”, “warranty”, “condition”, “coverage” or “liability”, while others are boilerplate clauses dealing with issues such as third party rights, and law and jurisdiction. Some of these clauses apply to only part of the policy (see sections 1-5 above) while others apply to all parts. At the end of this section, the same signature block and signature appears as on the cover sheet mentioned at the start of this article.
  • A separate pdf file is a four-page document that comprises the following:
  • The first two pages, as mentioned earlier, are headed Risk Details, and set out the financial limits of cover and other details. A section headed Conditions mentions a random selection of the Endorsements mentioned above (and possible other Endorsements not mentioned in the document referred to above – it is too tedious to check). IP Draughts had assumed that all of the Endorsements are part of the policy terms, but perhaps not in light of the wording of this section. Some of the text is written in a way that suggests it is directed to people in the insurance market, rather than the policy holder.
  • The third page of this pdf is headed Subscription Agreement, has gone into blue rather than black text, and is almost certainly directed at the insurance market.
  • The fourth page is headed Duty of Fair Presentation, has reverted to black text, and appears to repeat text in the other policy document.

WTF to the power of infinity.

We haven’t even got on to the wording of the policy. IP Draughts will give just one example, which is a definition of Product, which is central to the policy coverage. It reads:

Product (or Products where applicable) shall mean labels instructions and all services provided by the Insured whether on a fee basis or otherwise goods including containers and packaging manufactured sold supplied distributed altered constructed erected repaired serviced designed tested installed or processed by or on behalf of the Insured or goods including containers and packaging alleged to have been manufactured sold supplied distributed altered constructed erected repaired serviced designed tested installed or processed by or on behalf of the Insured and which are not in the possession of the Insured at the time of the Occurrence

IP Draughts repeats the rude comment he made earlier. Clearly the drafter is stuck in a time warp (1970s? earlier?) when punctuation was frowned upon in English contracts. And he doesn’t seem to like using numbering to make the meaning clearer. There are so many other things wrong with the drafting of this definition, but just dealing with those two points would make an enormous difference to readability. With some guesses at the drafter’s meaning, and the addition of punctuation, numbering and a few words to aid clarity:

Product (or Products where applicable) shall mean:

  1. labels, instructions and all services provided by the Insured [in relation to the goods mentioned below?] whether on a fee basis or otherwise;
  2. goods, including containers and packaging, that are manufactured, sold, supplied, distributed, altered, constructed, erected, repaired, serviced, designed, tested, installed or processed, by or on behalf of the Insured; or
  3. goods, including containers and packaging, that are alleged to have been manufactured, sold, supplied, distributed, altered, constructed, erected, repaired, serviced, designed, tested, installed or processed, by or on behalf of the Insured, and which are not in the possession of the Insured at the time of the Occurrence.

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Plain and intelligible words, but complex meaning

The latest edition of Legal Studies, the journal of the Society of Legal Scholars, has appeared on IP Draughts’ home desk. Curiously, it has not been caught by the Post Office’s filter, which is redirecting professional correspondence to his firm’s new offices, including the Orvis catalogue.

The contents page of Legal Studies is on the back cover, and this month lists 10 research articles, 9 of which are of no interest to IP Draughts. The 10th looks more promising. It is titled Assessing plain and intelligible language in the Consumer Rights Act: a role for reading scores. The reference is Legal Studies (2019), 39, 378-397.

The authors are academics at the University of Nottingham. Two of them, Conklin and Parente, are from the School of English, and the third (and “corresponding author”), Hyde, is from the School of Law. More and more promising.

Dr Richard Hyde

As the title of the article suggests, it examines whether techniques that are used to measure readability, and which produce “reading scores”, could usefully be applied to determine whether consumers are likely to understand the contracts that they are asked to sign. And whether reading scores might be used by a court when deciding whether a consumer contract meets the requirement that it be written in “plain, intelligible language” as required by the EU Unfair Terms Directive, implemented in the UK by the Consumer Rights Act 2015.

The authors ran an experiment. First, they set up a method of averaging out the reading scores produced by 5 standard techniques, including the well-known Flesch-Kincaid test. Then they applied the techniques to 7 examples of consumer travel insurance contracts found on the internet. One of the outputs of their research was a “grand weighted mean” that decided how many years of education a person required in order to understand the contract terms. These varied between 13.86 years (second year of university) for one of the contracts, and 19.06 years (beyond a masters degree) for another.

Of course, these extraordinary results may be partly down to imperfections in the standard techniques for calculating reading scores, rather than being solely attributable to the impenetrability of insurance contracts. But the results should make the lawyers who draft insurance contracts sit up and take notice.

The article is more thoughtful than the above summary might suggest. At the start of the article, the authors seem doubtful about the multi-factoral tests applied by judges in such cases, which make it difficult for a business to predict what a judge will accept. They seem to be suggesting that plain, intelligible language  might best be decided by an algorithm. But by the end of the article they seem to acknowledge that the subject is more complex than existing tests are able to address. So, perhaps there is a role for human judges, after all.

IP Draughts is not an expert in reading tests. But he wonders whether they can do anything other than assess clarity of expression. If the underlying concepts are difficult to grasp, that is a separate issue and one that is unlikely to be testable by an algorithm. Protecting the consumer from terms whose concepts are difficult to understand may be more of a question of whether the term is “fair” rather than whether it is clearly expressed.

 

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You can’t be both accurate and clear. Really?

This post is prompted by two events. First, IP Draughts is preparing course materials for a new, one-day training event that he will be adding to his suite of courses on IP and contract subjects. Contract Drafting: Skills Workshop will be advertised on the UCL Laws Events pages in the coming weeks.

This practical course will focus on four aspects of contract drafting – clarity, accuracy, conciseness and consistency – of which the first two are the most important. He has found lots of examples of really bad drafting (including some in industry-standard agreements) for students to work on and improve during the day. The potential conflicts between clarity and accuracy, in the context of contract drafting, are on his mind.

Second, a tweet of his from 2016 has come back to bite him. He disagreed with, and replied robustly to, someone who opined:

If you know enough to say it’s correct, you know too much to say it’s clear. No one can judge both clear and correct.

Recently, he was called out on his comment. In the echo-chamber of Twitter, people take sides. So be it.

Of course, context is all, and the context of the comment quoted above was forms that explained medical matters to patients. The general theme was that experts – in this case doctors – could judge the accuracy of the information that they provided but not whether it was understood. Being an expert, and knowing how to make the information accurate, precludes you from judging whether the information is clear.

IP Draughts disagrees with this opinion. But he can see where it is coming from. He occasionally sees patient information leaflets, e.g. those used in clinical trials. Often, they are unclear and poorly drafted, and seem too complex for a member of the public to understand. When he has raised this with clinicians, the reaction has been that ethics committees require all the information to be provided. The attitude of many in the medical profession seems to be that accuracy is more important than clarity.

Many lawyers that IP Draughts knows could improve the clarity of those documents. Understanding complex technical information, reducing it to its essentials, and communicating it clearly to the non-specialist – whether it be the judge or the businessman – are some of the core skills of a good IP or commercial lawyer. Perhaps those skills are not often directed to what a member of the general public would understand (though our colleagues in countries that have jury trials for IP cases may disagree). But the general idea of translating expert information for use by the non-expert is a familiar one. Some lawyers, and some clinicians, are better than others at this skill.

With an organisation as large and sluggish as the UK National Health Service – the fifth biggest employer in the World – changing attitudes and behaviours can be very difficult. Perhaps we should be more supportive of those who are trying to improve the clarity of patient information. The irony is not lost on IP Draughts that his Twitter comment was objecting to the accuracy of a statement, when perhaps he should have been focussing on its clarity and whether it conveyed the right message to its intended readers.

But can’t we have both? Coming back to contracts, can’t we expect the wording to be both accurate in its description of contractual obligations, and clear to the reader, whether they be a commercial manager, lawyer or judge? There may be some areas – liability clauses spring to mind – where the drafting uses legal terms of art that may not be understood by non-lawyers. This may be inevitable in a limited number of areas. But on most subjects, contracts should be both clear to the non-specialist and technically accurate. That is the balancing act that we all have to keep practising.

 

 

 

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