In this comment to a recent post, longtime reader Chris Lemens mentions what he refers to as “no-contest” provisions. That sent me scurrying to
the Bantar Gebang trash dump EDGAR, where I found the following examples (emphasis added):
Each party hereto agrees and covenants that it will not contest the validity or enforceability of any exculpatory provision of this agreement and the other loan documents on the basis that the party had no notice or knowledge of such provision or that the provision is not “conspicuous.”
The parties may enter a judgment rendered by the courts of New York under this Agreement for enforcement in the courts of New York and the party against whom such judgment is taken will not contest the authority of such courts to enforce such a judgment.
Licensor owns all rights, title and interest in and to Marks, and throughout the Term of this Agreement and thereafter, Licensee shall not contest the validity of the Marks, or claim adversely to any right, title and interest of Licensor in and to the Marks; …
An alternative to contesting what the other guy says is to offer your own contention. In effect, shall not contend is equivalent to shall not contest:
The Sub-Contractor shall not contend that any person to whom the benefit of this agreement is assigned under clause 11.1 may not recover any sum under this agreement because that person is an assignee and not a named party to this agreement.
Each party acknowledges and agrees that it has not relied on or been induced to enter into this Agreement by a representation, warranty or undertaking (whether contractual or otherwise) that is not expressly set out in this Agreement and it will not contend to the contrary.
Executive further agrees that the provisions of Paragraphs 13 and 14 are reasonable and necessary for the protection of the Company’s legitimate business interests, and Executive agrees that Executive will not contend otherwise in any lawsuit or other proceeding.
Drafters use shall not claim and shall not allege (and perhaps other alternatives) to the same effect. Given the varying terminology, I’ve decided to call all such provisions “no-dispute” provisions.
So, are no-dispute provisions good, bad, or indifferent?
Precluding someone from disputing something is an indirect way of addressing an issue. If you want to establish something in a contract, it’s best to address it directly, using whichever category of contract language is appropriate, instead of seeking to preclude the other guy from arguing about it. For example, instead of having a contract party say they won’t contest the validity of a given contract provision by claiming that it isn’t conspicuous (see the first example above), it would be simpler to have that party acknowledge that the provision is conspicuous.
But you can address an issue directly and also have the other guy agree not to argue about it. The second, third, fifth, and sixth examples above offer instances of that. Presumably the aim is not only to stake out a position but also to make it costly for the other guy to argue about it later.
Courts might have held that in particular contexts, a no-dispute provision is enforceable—that’s too big a topic for me to wade into at the moment. But I have two reservations about no-dispute provisions generally.
First, no-dispute provisions could in theory be tacked on to every single provision in a contract: whatever the provision is, you could get the other guy to agree not to dispute it. In fact, you could rig up an internal rule of interpretation saying that each party agrees not to dispute anything in the contract. That seems so broad as to be silly. But on the other hand, why single out just specific provisions for this sort of treatment?
In that respect, it’s relevant that the term “no-contest” when applied to contract provisions is generally understood as referring to a provision in a will to the effect that if you challenge the will, you’re barred from receiving whatever you would have otherwise gotten under the will. Such provisions have broader implications than no-dispute provisions, and as such they make more sense.
Second, contract disputes generally happen when something is unclear. It seems unfair to use no-dispute provisions to preclude someone from seeking to clear up such uncertainty. Although I’ve thought about it for all of five minutes, I think I could put together a strong public-policy argument against no-dispute provisions.
So generally, I suggest that no-dispute provisions are indirect, overbroad, and unfair.
Now, would anyone like to tell us how no-dispute provisions have been received in particular contexts?
Updated 5 January 2016: I’m contemplating calling these provisions “won’t-dispute provisions” instead of “no-dispute” provisions.