Category Archives: Contract drafting

Where do you find good drafters?

IP Draughts wishes to offer thoughtful commentary but not to offend. Postings are works in progress, drafted in a few hours, rather than polished publications. On this occasion, the post prompted some discussion and reflection, as a result of which he has decided it would be best to delete it. He may return to the subject at a later date.

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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.

 

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Indemnities are often misconceived

When will we three meet again:
cause, remote and mitigate?

Why are there so many contracts in circulation that include indemnities?

The short answer may be that the drafter thinks they are expected, and doesn’t want to be criticised for omitting them.

But too often the wording seems misconceived, as if the drafter doesn’t really understand the principles behind them, or just has a vague idea that they somehow provide greater protection than a contract that merely has warranties and other obligations.

The classic way of looking at indemnities is to say that they provide stronger protection to the beneficiary of the indemnity than a contractual obligation on the other party. For example, being entitled to an indemnity against third party claims for IP infringement may provide greater protection than being the recipient of a warranty that no third party IP is infringed. This argument assumes that the indemnity provides, in effect, a “blank cheque” for the amount of any damages or settlement payment to the third party IP owner. By contrast, if there is merely a warranty, the recipient of the warranty can only recover if the “holy trinity” of contract claims are satisfied, namely:

  1. Causation. The loss suffered must have been caused by the breach of warranty.
  2. Remoteness. The loss must not be too remote from the breach.
  3. Mitigation. The recipient of the warranty must take reasonable steps to mitigate, or minimise, the loss.

There is some case law that suggests that mitigation, at least, may be required, even in the case of an indemnity. But, in general, drafters feel that an indemnity of this kind may provide stronger protection than a warranty, and in some types of negotiation a possible advantage is enough to justify including a clause, even if the precise extent of that advantage in an individual case is not clear.

While this argument is understandable using the above examples, there are many other examples, seen in practice, where the argument is much less clear. Sometimes, an indemnity is given against breach of warranty. Adapting the previous examples, a party warrants that no third party IP is infringed, and indemnifies the other party against its breach of warranty.

In this example, it is much less clear that the indemnifier is giving a blank cheque to the other party. The party asking for the indemnity is, no doubt, hoping that the indemnity will provide greater protection than the warranty, otherwise what is the point of the indemnity? But are they clear in their mind what that greater protection is? Are they expecting that the court will say that, because an indemnity against breach of contract is given, the party in breach no longer has the protection of causation, remoteness and mitigation?

In IP Draughts’ view, the case law on this point is far from clear. See further Wayne Courtney’s excellent book, Contractual Indemnities, for a discussion of the case law.

Even if it might be possible to persuade a court that an indemnity against breach strips away the protection of causation, remoteness and mitigation, why would the party in breach want to agree to removing their rights under contract law, which arguably provide a reasonable balance between the interests of the parties?

This type of indemnity, which has gradually crept into many English contract templates from overseas, notably from the USA, is arguably misconceived and should be avoided. Of course, the counter-argument is that it depends on which party you are acting for, but we shouldn’t just put stuff in contracts because others do, and where the rationale is not clear.

Once you start including this type of indemnity, the next question and area of confusion is whether liability under the indemnity should be limited. If the indemnity is viewed as a bolster or flying buttress for a breach of contract claim, then yes, liability probably should be limited in the same way that the contract typically limits liability for breach of warranty. But if the indemnity is designed for a different purpose, namely to allocate responsibility for third party claims (as in the first example given above) then different considerations apply. Some of this confusion can be avoided if the indemnity is drafted not as an indemnity against breach of contract, but as an indemnity against a third party claim.

Or the contract might not need any indemnities. In IP Draughts’ view, the contract drafter should start from the assumption that no indemnities are needed, then add them if there is a good reason to do so, rather than the other way around.

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Oxford commas are for wimps

Are you tired of seeing articles about whether the absence of a comma changed the interpretation of a law or a contract? If so, look away now.

As tomorrow is International Workers’ Day, and some of the sentiments expressed below are a touch radical, you may wish to listen to the Internationale while reading this article.

There seems to be a spate of cases and articles on this subject, many coming from the USA. IP Draughts has a confession to make: he hadn’t even heard of an Oxford comma until a few years ago. As far as he remembers, they weren’t discussed when he was taught grammar at school. Yes, he is old enough to have been taught the rules of grammar, or at least a version of the UK version of the rules as they existed before the UK joined the Common Market, adopted decimal currency and the SI system, and generally went to the dogs. Or not.

It seems that many people in the USA have been taught about the Oxford or serial comma, including many judges who are called upon to interpret legal language.

Consider the following instruction from the Maine Legislative Drafting Manual:

Although authorities on punctuation may differ, when drafting Maine law or
rules, don’t use a comma between the penultimate and the last item of a series.

Do not write: Trailers, semitrailers, and pole trailers

Write: Trailers, semitrailers and pole trailers

To IP Draughts’ eye, this advice is correct – it looks weird to put a comma after “semitrailers” (whatever they may be). But if you are going to use a comma there, it is known as an Oxford or serial comma. Or should that be an Oxford, or serial comma? Or Oxford, or serial, comma? Choices, choices…

The State of Maine’s legislative drafting hit the headlines recently, in the case of O’Connor v Oakhurst Dairy, heard in the United States’ Court of Appeals for the First Circuit. Starting his lead judgment, Judge Barron commented:

For want of a comma, we have this case.

The case was about whether delivery drivers were entitled to overtime payments under Maine legislation, or came within a statutory exemption. The relevant part of the legislation provided that overtime payments would not be required in the case of:

The canning, processing, preserving, freezing, drying, marketing, storing, packing for shipment or distribution of:
(1) Agricultural produce;
(2) Meat and fish products; and
(3) Perishable foods.

Okay, Cannery Row is in California, not Maine, but you get the point…

The question before the court was essentially whether “packing for” qualified just the word “shipment” or also qualified “distribution”. In other words, was the exemption for “packing for distribution” or for “distribution” of the numbered items? The drivers argued that it was “packing for distribution”: as they didn’t do this work, the exception didn’t apply and therefore they were entitled to overtime.

In the words of Judge Barron:

Each party recognizes that, by its bare terms, Exemption F raises questions as to its scope, largely due to the fact that no comma precedes the words “or distribution.”
In other words, if a comma had been present, it would have been clear that the exemption was for “distribution” and not “packing for distribution”.

Even if this is true, the absence of a comma does not automatically mean that the exemption is for “packing for distribution”. In context, the wording is unclear. To make it clear(er), and without fundamentally changing the sequence, IP Draughts would have added an “or” before “packing” (but see also his further suggestions below).

Judge Barron’s judgment considers the linguistic arguments, but in the end he resolves the ambiguity in the drivers’ favour, unlike the courts below, by looking to the “remedial purpose” of the statute.

In IP Draughts’ view, if a dispute requires a court to consider the effect of an Oxford comma, the drafter has failed. Other drafting techniques should have been used to avoid getting to that point. In fact, this is also the view of the drafter of the Maine Legislative Drafting Manual. After the passage quoted above, the Manual states:

Be careful if an item in the series is modified. For example:
Trailers, semitrailers and pole trailers of 3,000 pounds gross weight or less
are exempt from the licensing provisions.
Does the 3,000-pound limit apply to trailers and semitrailers or only to pole trailers? If the limit is not intended to apply to trailers and semitrailers, the provision should read:
Pole trailers of 3,000 pounds gross weight or less, trailers and semitrailers
are exempt from the licensing provisions.
If the limit is intended to apply to all three, the provision should read:
 If a trailer, semitrailer or pole trailer has a gross weight of 3,000 pounds or
less, it is not required to be licensed.

Excellent advice! It is such a shame that the drafter of Exemption F to the Maine overtime law didn’t follow it, as the wording would then have become clear.

In this example, changing the word order removed the ambiguity. Other techniques that may be sometimes appropriate include numbering and indentation. Applying those techniques to the above example:

(a) Trailers;

(b) semitrailers; and

(c) pole trailers of 3,000 pounds gross weight or less;

are exempt from the licensing provisions.

In the overtime case, adding more numbering would have been clunky, given the numbering already there in the extract quoted above. On balance, and to make sure that there was no ambiguity, IP Draughts might have been tempted to repeat the words “packing for”:

The canning, processing, preserving, freezing, drying, marketing, storing, packing for shipment or packing for distribution of…

Clarity overrides elegance in contract drafting.

In summary, don’t rely on the Oxford comma. It is a feeble drafting technique, and liable to have sand kicked in its face. Oxford commas are for wimps!

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