“Except as Provided Below”

In the dispute addressed in the recent opinion of the Second Circuit in In re Lehman Bros. Holdings (here), the following contract language was at issue:

Nothing in this Agreement shall create or be deemed to create any third party beneficiary rights in any Person or entity not a party to this Agreement except as provided below.

One of the litigants argued that the phrase “except as provided below” was ambiguous, in that it wasn’t clear whether it referred to the section in which that sentence occurred or to the contract as a whole.

As arguments go, that was pretty feeble. But why give a disgruntled contract party even a sliver of argument? Be specific in your cross references.

  • Eddie Walker

    Good post Ken. This is a really common problem on far more significant issues as well. Just this morning I was reviewing an agreement where the warranty exclusion says [paraphrasing here] “Except as otherwise provided in this Agreement, vendor disclaims all warranties of any kind….etc etc” and there is another clause regarding IP rights that is designed to say that each party keeps their preexistign IP rights but says [again paraphrasing] “Except as provided in this Agreement, no rights to IP are granted”. You leave the door wide open for someone to argue about whether Seciotn X or Y provides a stealth warranty or a stealth grant of IP.
    It is tempting to be lured by the Dark Side of the Contract Drafting Force and get the quick and easy solution to your cross referencing needs, but the ambiguity can often swallow up your goals.

    • Maciej T. Sawicki

      BTW: accoding to the Guru: “this agreement” should be NOT capitalised as it is not a defined term.

      • http://www.adamsdrafting.com/ Ken Adams

        Thank you for being my enforcer!