I’m at Tremblant, the Quebec ski resort, at the invitation of the Canadian Healthcare Licensing Association. I just finished giving a short version of my “Language and Layout” seminar to sixty business-development people from Canadian pharmaceuticals companies.
The participants included some lawyers, but for the most part this was a group of businesspeople. And although about a third of those present indicated that they do some drafting, their principal interest in contracts is as consumers of contract language.
Given that I speak mostly to lawyers, I thought it would be interesting to get their take on the contracts they work with. So at the start of the seminar, before offering any thoughts of my own, I invited them to jot down a single sentence summarizing their views.
At the bottom of this post is a selection of their submissions, but what they had to say boils down to this: Because drafters attempt to address all sorts of eventualities, no matter how remote, contracts are bloated. And the language used is convoluted and full of legalese. No one offered positive comments.
This shouldn’t come as a surprise. It’s typical for businesspeople to gripe about how lawyers are obstructionists and for lawyers to moan about how businesspeople turn a blind eye to legal considerations in order to get the deal done.
One can imagine that salespeople motivated by commissions might be quick to regard contracts as a nuisance. But today’s audience didn’t consist of salespeople. Instead, CHLA members are dealmakers, responsible for spotting interesting products and potential partners and for structuring licensing arrangements. And they work closely with lawyers.
If CHLA members are representative—and I think they are—the message for transactional lawyers is that it’s likely that your clients aren’t crazy about your work product. I wouldn’t be too quick to shrug that off. These days, a lawyer can’t assume that any client is captive.
Of course, any drafter that’s so inclined could change this state of affairs. As one participant noted, “Contract language can make a difficult transaction simple or a simple transaction difficult or even incomprehensible depending on the style or skill of the drafter.” Try using clear, modern, and efficient contract language—I think you’ll be gratified by the response.
Here’s a selection of what CHLA members had to say:
Typically the flow of ideas is not sufficiently clear and fluid.
Contract language seems designed to protect the parties against ambiguities that may exist in the term sheet. As such contracts are often extensive and complex but unnecessarily confusing and unclear.
Attempt to cover all future eventualities—onerous.
Contracts tend to be convoluted and address potential problems more than truly focus on clarifying the transaction and what the parties want to accomplish.
Legal babble!
Painful necessary evil.
By trying to cover everything it creates holes that further need to be filled. 1 page becomes 15.
KISS. Keep It Simple (Stupid)
10% of contract focusses on the intent of the agreement. 90% of contract attempts to predict what can go wrong.
The contract language I come accross is utterly convoluted and dry. Furthermore, the main problem I see is inconsistencies in contract language.
Interesting observations from the users, I suspect that you would get harsher views from those who have to use a franchise contract for business guidance.
There is a core problem here for all lawyers that write contracts. I have two ways to describe it to my business people:
You are focused on the one thing that we hope will happen. I am focused on the hundred things that we hope won’t happen.
This language is unlikely to matter in any particular deal, but is nearly certain to matter if we do enough deals.
Chris Lemens
Chris: As I mentioned in my post, CHLA members aren’t salespeople whose concerns can be written off as being motivated by zeal to close a sale. I’m with them on this one. Ken
Ken:
I don’t disagree with your post or your comment. I use these same explanation for executives. And it is an explanation, not an excuse (especially for bad drafting). Assuming that the contract is well drafted, the lawyer will should still have a different focus from the business person. Isn’t issue-spotting one of the core skills they drummed into us in law school?
It is certainly right that the contract needs to make the business to be done central in the contract. The thing that I find most frustrating about most people’s commercial form agreements is that, if they have 5 or so pages of legalese, they devote one line to identifying and describing the product. My form agreements tend to have between a third and a half of their length devoted to describing what it is we are selling.
But even if you cover that well, there are areas where lawyers have to focus that most business people don’t care about. Limitations of liability and disclaimers of warranties in commercial software contracts are the classic example. Frequently, no one below the top executives really cares about this; they are focused on their individual business goals. I can’t count the number of times that a business development person has told me he doesn’t care about some potential outcome because (a) he won’t be here then, (b) if it happens, we’re bankrupt anyway, or(c) it is a risk beyond his planning horizon. Really.
So, I’m constantly educating our people about why I focus on these things. And when I do that, I use one of the explanations above. It helps to explain the different roles we must play in the deal to achieve the company’s objectives (as opposed to the business person’s more narrow objectives). It also helps them understand that they don’t need to understand everything I want in the agreement for them to play theiir role effectively. Some decisions are made above their pay grade or by people whose compensation is not dependent on just part of the possible outcomes (e.g., how a division executive’s bonus can ride on meeting an annual target through a bad acquisition).
So, whether I’m with them on this one really depends on what the case is. If I’ve drafted the contract badly, then I’m with them. If the contract fails to give central place to the business to be done, I’m with them. If it protects the company against risks that the particular business person doesn’t care about, I remind myself that the business person is not my client. The company is. And that kind of conflict is inevitable if you do enough deals.
I suppose I should also note that I’m general counsel, and it might not be very politic for outside counsel to use these same explanations.
Chris
Ken:
Of course, long convoluted contracts slow business people down, and ironically cost more to draft! But what I have also seen in my practice are:
i) clients who serve up their own first draft of a contract which is ambiguous, illogical and often wrong. I have seen some of the pharmaceutical contracts that members of the group you were speaking to have drafted on their own (some of my clients were there!). Often, you cannot figure out whether it is an agency relationship or distributor relationship. There is no clear duration. You may not be able to determine who owns the IP, or who is responsible for product recalls. As long as nothing is wrong in the relationship, then these simple contracts are fine! In other words, they work perfectly well as long as you never have to look at them.
ii) litigations that arise when something in a relationship goes wrong. That is when the client wants to know that you covered everything!!
Like most things in life, balance is what is needed. Capture the deal succinctly an in an organized fashion. That often means simple things such as breaking down lists into numbered paragraphs, and having some logic to the contract (general to specific). It also shows how valuable experience is. Years of practice can allow you to ask the half dozen or so key questions that a young lawyer will not identify: is the commission calculated on accounts receivable or on collected receivables, is the relationship exclusive, etc.? This also shows the importance of having a good knowledge management system that allows practitioners to find good samples and models quickly: you lever off of other people’s experience.
Kevin
Kevin: No argument. I’m the last person to suggest that having businesspeople—even sophisticated ones—banging out contracts would represent progress.
But I suspect that if CHLA members are unhappy about the general level of contracts they work with, it’s in part because many drafters don’t have your approach.
Ken
Hey Ken, thanks again for the seminar — and the book!
As one of the businesspeople in question, let me say that my biggest turn-off about contract drafting is when the drafter can’t resist adding/padding layers of safety devices to the point of burying the business at hand when in fact, the downside of the deal is, in the great scheme of things, minor.
Say we need a simple loan agreement for a piece of equipment costing a few thousand dollars. We just want to make sure that the client does not treat this thing as its own. If things go sour, we’re even prepared to bite the bullet and write it off. Perhaps we don’t even need a contract after all, but this is not so simple in corporate life, so we drafted one. Painful experience. Client is mad, I am mad, but counsel thinks he did his job. I’m not so sure about that.
However this issue is not strictly related to language, obviously.
Another observation. I have had the pleasure (or frustration!) to be involved in deals with european parties (French and British). The business culture over there is quite different when it comes to drafting. They seem much more open to the idea of using “looser” language, less detailed, sometimes even ambiguous. They seem to accept some kind of common sense in case of conflict. Of course this is not necessarily a good thing but I just wanted to point out that I was stricken by the contrast with North American approach to drafting.
Merci
Czar33: You might find of interest this November 2006 blog post comparing civil-law and common-law approaches to contract drafting. Ken
UK lawyers – who are both European and common law lawyers – often like to draw a distinction between their style and the American style. We think we are more concise and less concerned by irrelevancies. But perhaps everyone just likes to flatter themselves.
Drafting can’t be done in a vaccuum, and I believe there are perfectly good reasons why drafting styles differ. For example, am I right to think that there is a US rule of construction that ambiguity is construed against the drafter? In the UK any doubt would be resolved by the intention of parties, however that may best be ascertained. The UK rule makes parties happier to rely on common sense for obscure possibilities. The US rule would enforce certainty at the expense of brevity. A lawyer should draft accordingly.
But I do think that a longer style has its problems regardless of the environment. Extra wording, while intended to cover off possibilities, tends to give parties more pegs on which to hang their litigation hat – if a phrase doesn’t quite work, it is better to redraft than add a proviso. Assuming that the intent is expressed, a shorter provision will be legally sounder, and better understood by the parties.