Via Twitter, I came across a blog post entitled “Effective Contract Drafting: A Subversive Manifesto.” It’s by William Carleton, partner at a Seattle law firm.
It begins as follows:
It’s always best to say what you mean as clearly and as simply as you can, right?
Maybe.
…
Ambiguity, however, is indispensable to the drafter of commercial contracts.
At this point you might expect me, as a painstaking chronicler of contract ambiguity, to start hopping up and down in rage. But I believe that what we have here is differences in terminology.
The point William makes in his blog post is that contract negotiation can often be as much about what you don’t include in a contract as what you do include. I certainly wouldn’t argue with that. For example, it’s been suggested that Conan O’Brien’s lawyers intentionally didn’t ask that his contract with NBC specify that The Tonight Show would start at 11:35 p.m. (That’s discussed in this American Lawyer article by Brian Baxter.)
Since the tactic William writes about is based on omitting issues from a contract, it’s best understood as not involving ambiguity, which is a function of alternative meanings offered by a given word or phrase. Instead, it creates a void that the parties can fill with their competing interpretations if the issue subsequently raises its head.
In particular, that’s very different from what I refer to as “creative ambiguity”—intentionally adding ambiguous language to a contract so that you can, if it works to your advantage, reopen an issue that the other side assumed had been settled. That’s something I discussed in this January 2009 post.
In chapter 6 of MSCD I discuss the tendency of lawyers and judges to attribute to ambiguity all sources of uncertainty in contract language. This March 2008 blog post contains my first crack at this topic.
One of the things that bothers me about these strategic drafting considerations is that it assumes someone later will be able to discern your intent from the four corners of the document or, for that matter, that you remember why you chose x and y word to preserve an argument.
Moreover, if it is an issue about which strategic drafting is worthwhile, then it’s very likely the other side can see your game, if not play right along with you. As I see it there are a few applicable scenarios that make strategic drafting an option rather than specifically adding it to the contract, none of which favor strategic drafting:
1. You asked, but were rejected
2. The parties cannot agree and remaining silent is an option
3. You think that asking directly will doom the agreement
In each case, there is a “bonus” to your side if you can sneak the idea into the contract in some other manner to fight about it later. In cases 1 and 2, the party is already on to you so they are likely planning the same game. In the case of 3, you have to somehow add (or omit) some clause without tackling the issue directly such that a judge/jury will understand that the parties intended there to be this unwritten (or not expressly stated) something. It could happen, but is that really a effective?
And leaving notes in a file is not likely to help your side at litigation since a judge/jury will see your strategic preservation of an argument as not good faith (if not fully bad faith).
I think that the Conan example is illustrative. The post hoc analysis reads into the absence of a time as strategic drafting. But that’s pure speculation. It’s almost as likely that no one considered that they’d move the time of the Tonight Show–it had been in relatively the same time slot since at least Johnny Carson. It seems to me that Conan’s position would be greatly strengthened if he could say, “uh no, you can’t move my time slot because you’d breach section 9.12(B)(i)(2). Now give me $300M.” And, if they had asked during negotiation, Conan would know, going into the contract, that there’s a good chance that they’d bounce him to a later time slot (again) if they chose and he should ask for some more $ or other guarantees.
I’m dubious.
Mike: My default mode is to address in a contract all signficant issues that might arise. I leave to those who actually do deals the question of whether in a given context leaving an issue to one side is a valid approach.
But as a general matter, I could imagine a situation where the parties decide that skirting an issue is the best approach, given (1) the high transaction costs involved in negotiating that issue and (2) the fact that the issue is unlikely to arise.
Ken
Ken, as you say, choosing not to address an issue is not the same as ambiguity in a term that is included in the contract.
My sense is that “constructive ambiguity” arises where parties find it difficult to agree on the wording of a clause/section. One or both parties allows imperfect wording to be included, hoping that any ambiguity: (a) gives them a plausible argument, and therefore a bargaining position, in negotiations if the issue becomes important, and/or (b) will be decided in their favour by the Court.
As legal advisers to a commercial client, we should focus on (b). The contra proferentem rule (which seems to have developed in subtly different ways in the US and the UK) points towards advising clients against relying on (b), and instead making the wording clear and unambiguous, even if this requires more negotiating effort.
Ken, your comment about parties ‘creating a void that the parties can fill with their competing interpretations’ reminds me of Apple Corps Ltd. v Apple Computer Inc. which was heard in the High Court of England in February 2004.
This was a Trademark dispute in which the court had to decide both the jurisdiction and the governing law in circumstances where the parties had not provided expressly for these – due to their inability to agree. Therefore, the parties conducted elaborate steps to execute the contract (allegedly) so that it could not be said that it was made in one jurisdiction before it was made in the other.
As the judge said: ‘If their intention in doing so was to create obscurity and difficulty for lawyers to debate in future years, they have succeeded handsomely.’
In the end the judge conducted a balancing exercise and narrowly decided that the appropriate jurisdiction and governing law were England. However, the reasoning is a joy to read.
http://www.hmcourts-service.gov.uk/judgmentsfiles/j2468/apple-v-apple.htm
Gil: Thanks; this is a great example of an instance where in not addressing an issue the parties may have bungled the cost-benefit analysis. Ken