Category Archives: Contract drafting

Efficient and effective use of the university contracts manager

Picture the scene. You are responsible for reviewing hundreds of draft research-related contracts on behalf of your university (or other public body, eg NHS Trust). You don’t have time to do a “Rolls-Royce job” on all of them.

You are expected to manage as best you can, with the resources available. You are under pressure to get the contracts quickly through to the stage of signature, and to keep your academics happy. You also have a responsibility to protect the university’s interests in the terms that are negotiated. But you don’t have a list of “deal-breaker” terms that the university can never accept. Or if you do, the list is expressed in sufficiently vague terms that it leaves you room for manoeuvre. And anyway, the terms proposed by industry are sometimes complex, and don’t fit into neat boxes in the way the list suggests.

You can refer difficult points “upstairs” to your boss, but he or she has less experience of detailed contract terms than you do, and their boss is even more naive on this subject. Past experience tells you that they don’t always give you clear guidance, and don’t always support you if the academic pushes for the contract to be signed, however imperfect it may be. Part of the “problem” as you see it, is that the university doesn’t have much experience of legal disputes where the terms of a contract affected the outcome of the dispute, so there is perhaps an institutional assumption that the terms aren’t that important. You rightly point out that a remote risk of a major catastrophe deserves to be managed properly, and people nod when you say this, but you can see that they aren’t really that interested. Identifying, managing and taking responsibility for legal risk is an alien concept within many universities.

This combination of circumstances may lead to sub-optimal management of contracts. Or, put another way, you apply a sniff-test to them, and point out major and obvious issues, but pressure of time prevents you from giving each agreement a more thorough and rigorous review. And anyway, it is difficult to get clear information from the academic department about the underlying facts, risks, strategy, etc.

One way of dealing with this issue (and IP Draughts has seen others, including getting the department head or dean to formally sign-off on contracts that don’t comply with the university’s standard approach) is for the contracts manager to undertake a triage exercise, in which each contract that comes in to the university is formally placed in one of three categories, namely:

  1. Major importance (e.g. because of financial value or risk) – these contracts should be dealt with thoroughly.
  2. Medium importance – these contracts should be given a light-touch review.
  3. Minor importance – these contracts should either be on standard university terms, without negotiation, or left to the department to negotiate if they wish, or the department should confirm that they are happy to accept any risks that arise. Either way, the contracts manager should not be required to devote valuable resources to negotiating them.

For this approach to work:

  1. There need to be clear criteria under which the triage process takes place, and preferably the academic department is involved in agreeing the categorisation of each agreement.
  2. The contracts managers need to have sufficient resource to deal with the resulting workload, particularly for contracts of major importance.

IP Draughts really feels for the contracts manager who doesn’t get clarity from their superiors as to what they are expected to do with the limited resources available. Sometimes, a solution is to get some training, not for the contracts manager in this case (though all of us benefit from training) but for their superior who is supposed to manage and guide the contracts manager, and take the difficult decisions that are referred up to them.

Do readers have their own solutions to these problems?


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Clinical trial agreements: thriving in ambiguity?

IP Draughts has recently advised several clients on clinical trial agreements (CTAs) and related contracts, including manufacturing agreements and agreements with clinical research organisations (CROs). The experience has left him reflecting about how this area of practice is an odd mixture of precision and vagueness, of formal procedures and finding ad hoc solutions, of strict regulatory compliance and muddling through the best one can, and where the scientific values of accuracy and taking a long-term view often run up against a commercial need to advance one’s product through trials ahead of the competition and before the development money, or investors’ patience, runs out.

In the UK, there is also sometimes a contradition, not found in some other countries, between the commercial aspects of running trials and paying fees to a hospital, and the non-commercial values and attitudes of National Health Service (NHS) hospitals and the people who work in them.

Instances of these contradictions include:

  1. Worldwide documentation. The need to comply strictly with national or regional (eg EU) regulations governing the conduct of trials, data protection and privacy, freedom of information, insurance and indemnities. But some of these regulations are complex, subject to change (eg EU data protection regulation), and vary between countries, while many clinical trials are conducted on a worldwide basis, using a single set of documentation wherever possible. Some of the language used in this documentation has clearly been designed under a different regulatory system to the one in which it is being used.
  2. Different skill-sets. The contracts that one encounters usually attempt to be in alignment with the regulatory system with which the drafter is familiar, at the time of drafting. But often they are drafted by non-lawyers and/or negotiated by non-lawyers, and used for several years without substantive review. They can and do end up with incorrect, misleading or outdated references to regulatory compliance, e.g. referring to guidelines rather than the relevant law, using terminology designed for a different type of trial, or a trial in a different country, or incorporating contradictions between obligations in documents designed for the same trial by different professionals, e.g. the Protocol (medical and ethical drafters), the Technical Agreement (regulatory and manufacturing drafters) and the CTA (financial, commercial and, one hopes, legal drafters).
  3. Poor source documents. This blog has previously commented on some of the oddities in the model NHS CTAs, e.g. the limit of liability for deliberate breach to twice the contract price. IP Draughts finds it difficult to believe that this strict limit, which he has never encountered in any other contract in over 30 years of practice, would be upheld by a court. Though he has no case authority directly to support this argument, he wonders whether a court would find such a limit unenforceable under the Unfair Contract Terms Act 1977, in view of the need for liability terms in written, standard terms of business to be reasonable. There are plenty of other examples of oddities in the NHS CTAs, which seem to be have been driven by commercial or financial priorities and to underplay the importance of clear, accurate, and legally-valid drafting. And yet he is told that the template CTAs in use in many other countries are much worse than the UK templates.
  4. Varying quality and availability of advisers. It is sometimes difficult for trial sponsors to find advisers and consultants who have significant experience of clinical trials and the associated legal issues in the jurisdiction in which the trial is taking place. For example, one of IP Draughts’ clients is currently looking for a legal adviser in Finland. Is any reader able to recommend someone suitable? A separate issue relates to CROs. Although he has not studied the subject in depth, IP Draughts has the impression that the market for CROs is dominated by a few international providers. He has heard stories of some large CROs taking weeks to respond to requests and being very bureaucratic in their approach.

The skilled clinical trials manager learns when to insist on strict compliance with the rules and when to bend, when to take one’s time and when to rush headlong, and when to stick and when to compromise in contract negotiations. It is not an easy task. In the UK we seem to have plenty of people who have these skills, and a thriving eco-system of life-science companies, service providers, hospitals, universities and regulators.

Whether this eco-system will survive Brexit is yet to be seen. There is a real danger of damage to the lagoon, its coral reef and its colourful species of fish.



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Interpreting a liability clause

Since Finola o’Farrell became a High Court judge last year and joined the Technology and Construction Court, IP Draughts has taken to looking out for her judgments on BAILII.

Last week Dame Finola published two judgments that concerned contractual interpretation. This posting is about one of them, The Royal Devon and Exeter NHS Foundation Trust v ATOS IT Services UK Ltd [2017] EWHC 2197 (TCC) (31 August 2017).

The case is about the supply of a health record scanning system (comprising hardware and software) by ATOS to a hospital trust. The contract price was approximately £5M. The trust became dissatisfied with the system and eventually (after several years) terminated the contract. It claimed approximately £8M for breach of contract, including wasted expenditure.

The judgment concerns two preliminary issues that were ordered to be tried before the main hearing. In summary those issues were:

  1. Is the claim for wasted expenditure excluded by a contract term that stated that neither party would be liable for lost revenues?
  2. Is a limitation of liability clause so badly drafted that it cannot be interpreted, and therefore is ineffective?

On the first point, Dame Finola reviewed case law on when wasted expenditure can be claimed and concluded that the losses were “reliance losses” and not lost revenues. This is a technical point about recoverable damages and difficult to summarise in headline terms – read the judgment!

On the second point, IP Draughts puts aside his usual moan about courts being too ready to damn contractual language as badly drafted. Here, the trust’s barrister had a point. The wording in question was as follows:

Clause 8.2.1:
8.2.1 … the liability of either party for Defaults shall be limited as stated below:

(b) the aggregate liability of either party under the Contract for all Defaults, other than those governed by sub-clause 8.1.2 (a) above, shall not exceed the amount stated in schedule G to be the limit of such liability.
Schedule G, paragraph 9.2:

The aggregate liability of the Contractor in accordance with sub-clause 8.1.2 paragraph (b) shall not exceed:

9.2.1 for any claim arising in the first 12 months of the term of the Contract, the Total Contract Price as set out in section 1.1; or

9.2.2 for claims arising after the first 12 months of the Contract, the total Contract Charges paid in the 12 months prior to the date of that claim.

How do you interpret paragraph 9.2 in the situation where there are multiple claims, e.g. one in the first 12 months, one at the end of the second 12 months, and one at the end of the third 12 months of the contract? Is the cap:

  1. Total Contract Price + year 2 Contract Charges + year 3 Contract Charges? or
  2. Total Contract Price + year 2 Contract Charges? or
  3. Total Contract Price + year 3 Contract Charges? or
  4. Total Contract Price? or
  5. Something else?

And does the answer depend on when the trust submits its claim, or when the act of Default occurred?

Answers on a postcard, please.

There are at least 3 problems with the above-quoted wording for paragraph 9.2:

  1. 9.2.2 starts with the word “claims” but ends with the phrase “that claim”, which doesn’t take account of multiple claims.
  2. The paragraph refers to “claim arising” (which sounds like insurance industry jargon) but what it should probably refer to is “Defaults”, which is the term used in clause 8.2.1 above.
  3. The relationship between 9.2.1 and 9.2.2 is not clear, particularly in the case where claims (or defaults) arise under both sub-clauses.

It seems as though the drafter only thought of the situation where there was one claim. He or she didn’t think around the wording, and test it against different scenarios.

Dame Finola (IP Draughts can’t tire of using this form of address, for someone he encountered in a first-year law tutorial 38 years ago) ran quickly through the case law on interpreting contracts. Her summary of the leading cases on this subject such as Arnold v Brittan is admirably concise, taking in aggregate not much more than half a page; IP Draughts wishes other judges could be so concise!

Her conclusion is equally concise and clear:

89. In my judgment, paragraph 9.2 imposes one aggregate cap on the liability of ATOS for all Defaults (excluding claims for personal injury or property damage). The level of the cap is determined by the timing of the first Default. If a Default occurs in the first twelve months of the Contract, the level of the cap is the Total Contract Price. If no Default occurs during the first twelve months of the Contract, the level of the cap is the total Contract Charges paid in a twelve month period prior to the first Default.

This could be viewed as being generous to the poor drafter (in more than one sense) who came up with paragraph 9.2, but in IP Draughts’ view this decision is consistent with the recent approach of the courts to be more willing to give effect to limitation of liability clauses rather than strike them down for imperfect drafting, as happened too often in the past.

But we should not read too much into this sensible interpretation: other judges (including the Court of Appeal in this case, if this decision is appealed) may take a less benign view of such drafting imperfections.

A better solution than hoping that the judge sees it your way is to get the drafting right in the first place. IP Draughts is groping towards a rule of thumb for contract drafting and negotiation. A possible formulation is: you should spend at least as much time thinking about and drafting a clause as you will spend negotiating it. This won’t work for all clauses and all negotiations, but it may be a start.



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What are “standard terms of business”?

Readers who are English commercial lawyers, and perhaps some others, will be familiar with the provisions of the Unfair Contract Terms Act 1977 (UCTA). Specifically, they will be aware of section 3(1) which, in business-to-business contracts, requires exclusion clauses that form part of “written standard terms of business” to be “reasonable”. Separate requirements apply to consumer contracts, both under UCTA and under consumer legislation more generally. Section 3 of UCTA provides:

3(1) This section applies as between contracting parties where one of them deals on the other’s written standard terms of business.

(2) As against that party, the other cannot by reference to any contract term—

(a) when himself in breach of contract, exclude or restrict any liability of his in respect of the breach; or

(b) claim to be entitled—

(i) to render a contractual performance substantially different from that which was reasonably expected of him, or

(ii) in respect of the whole or any part of his contractual obligation, to render no performance at all,

except in so far as (in any of the cases mentioned above in this subsection) the contract term satisfies the requirement of reasonableness.

[emphasis added]

These provisions raise a number of questions, including when is a term reasonable. But today’s blog article is on the question of when a party contracts on its written standard terms of business.

For example, consider the following scenarios. In which of these am I required to justify my exclusion clause as reasonable, and in which am I free to impose unreasonable terms?

  1. I send you my standard contract and tell you it is not negotiable.
  2. I send you my standard contract and tell you that it is negotiable, but no change is made to the clauses dealing with liability.
  3. I send you my standard contract and tell you that it is negotiable, and offer to change the limit of liability from the price paid (in the standard contract) to twice the price paid.
  4. I send you my standard contract and tell you that it is negotiable, and agree to something close to your request for liability to be limited to the level of my insurance cover.
  5. I send you a draft contract and make no comment on whether it is a standard contract (but it does bear my company’s logo), and you think it might be based on a template from the PLC database. When negotiating liability issues in this draft contract, I take one of the positions outlined in 1-4 above.

This type of thought process may be relevant to a company that is seeking to limit its liability, eg through standard terms of sale and through standard contracting processes that seek to win the “battle of the forms”.

It may be unrealistic to reach definite conclusions on these points. To date, there has been little judicial guidance. But even if there were a body of case law, the court’s interest in doing “justice” in the individual case may be of more practical importance than general categorisation of this kind.

The recent case of African Export-Import Bank & Ors v Shebah Exploration & Production Company Ltd & Ors [2017] EWCA Civ 845 (28 June 2017) was one of the first times that the Court of Appeal had been asked to consider what are written, standard terms of business. Longmore LJ, giving the unanimous judgment of the court, went through the limited case law that touched on this subject. He approved a judgment in an earlier case which decided that a party relying on UCTA must establish:

  1. the term is written,
  2. it is a term of business,
  3. it is part of the other party’s standard terms of business, and
  4. the other party is dealing on those written standard terms of business.

Usually, he thought, there would be little controversy about points 1 and 2. On point 3, and where the contract was based on an industry-standard contract, he approved an earlier decision in which it had been said:

I shall not attempt to lay down any general principle as to when or whether the Unfair Contract Terms Act applies in the generality of cases where use is made of model forms drafted by an outside body. However, if the Act ever does apply to such model forms, it does seem to me that one essential for the application of the Act to such forms would be proof that the model form is invariably or at least usually used by the party in question. It must be shown that either by practice or by express statement a contracting party has adopted a model form as his standard terms of business. For example, an architect might say, “My standard terms of business are on the terms of the RIBA Form of Engagement”. Without such proof, it could not be said that the form is, in the words of the Act, “the other’s” standard terms of business.

On point 4, he quoted various earlier decisions, including the following quote from a judgment of HHJ Seymour:

…it is not enough to bring a case within Unfair Contract Terms Act 1977 s.3 that a party has established terms of business which it prefers to adopt, as, for example, a form of draft contract maintained on a computer, or established requirements as to what contracts into which it entered should contain, as, for example, provision for arbitration in the event of disputes. Something more is needed, and on principle that something more, in my judgment, is that the relevant terms should exist in written form prior to the possibility of the making of the relevant agreement arising, thus being “written”, and they should be intended to be adopted more or less automatically in all transactions of a particular type without any significant opportunity for negotiation, thus being “standard”.

He also quoted some comments from Nourse LJ in St Albans District Council v ICL, a leading case from 1996 in which the terms were held not to be reasonable:

The fourth requirement is that the deal must be done on the written standard terms of business. That raises the question whether the Act applies in cases where there has been negotiation between the parties the result of which is that some but not all the standard terms are applicable to the deal. In St Albans City and District Council v International Computers Ltd [1996] 4 All E R 481 (the only other case, so far as counsel were aware, which has come before this court on this issue since the Act was passed), the party relying on the Act submitted that, if there were any negotiation of any kind, the Act could not apply. That broad submission was rejected by this court in an obiter passage of the judgment of Nourse LJ with whom Hirst LJ and Sir Iain Glidewell agreed, but Nourse LJ went on to approve (at page 491g) the statement of Scott Baker J at first instance that the deal in that case had been done on the defendant’s standard terms of business because those terms remained “effectively untouched” by the negotiations that had taken place. That leaves open the question of the correct approach when some of the standard terms are not part of the deal.

Longmore LJ concluded:

I would also approve these first instance decisions and hold that it is relevant to inquire whether there have been more than insubstantial variations to the terms which may otherwise have been habitually used by the other party to the transaction. If there have been substantial variations, it is unlikely to be the case that the party relying on the Act will have discharged the burden on him to show that the contract has been made “on the other’s written standard terms of business”.

On the facts, he concluded that the parties did not contract on standard terms of business, and therefore UCTA didn’t apply. He commented:

A party who wishes to contend that it is arguable that a deal is on standard business terms must, in my view, produce some evidence that it is likely to have been so done. …It cannot be right that any defaulting borrower can just assert that business is being done on standard terms and that the lender then has to disclose the terms of other (how many other?) transactions he has entered into before he is entitled to summary judgment.

At one level, this case is very specific to its facts. But it does indicate that:

  1. It is for a party that seeks to rely on UCTA to show that the other party was contracting on its standard terms of business. This may seem harsh, but presumably on different facts, where a party puts forward its own template agreement, this may be slightly easier to establish than when a party drafts an agreement based on a third-party template.
  2. If standard terms of business are used, but are substantially changed in negotiations, UCTA doesn’t apply.

There is nothing very earth-shattering about these conclusions, but it is useful to get some guidance from the Court of Appeal on this subject.




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