Another Instance of an Ambiguous “Hereunder”

A latecomer to the MSCD family of ambiguity is antecedent ambiguity—uncertainty over what the antecedent is of a given element. But it’s certainly making up for lost time.

Today, thanks to that relentless source of leads known as Steven H. Sholk, I’m able to offer you an instance of antecedent ambiguity from the hot-off-the-presses opinion of the Delaware Court of Chancery in Medicis Pharmaceutical Corporation v. Anacor Pharmaceuticals, Inc. (PDF copy here.)

At issue was use of the word “hereunder” in the following contract provision:

Notwithstanding anything contained in this Section 13.2 to the contrary, each Party shall have the right to institute judicial proceedings against the other Party or anyone acting by, through or under such other Party, in order to enforce the instituting Party’s rights hereunder through specific performance, injunction, or similar equitable relief.

How broad was the carveout from the contract’s arbitration provision? Anacor asserted that in this context “hereunder” meant “under this section,” so the carveout was intended to allow for litigation only if necessary to enforce the terms of the arbitration provision. Medicis countered that “hereunder” referred to the entire agreement. (If this has a familiar ring to it, it’s because the same sort of argument over hereunder featured in this 2011 post.)

The court ended up siding with Medicis, but for contract drafters, that’s irrelevant: we don’t want to win fights, we want to avoid them. To reduce the odds of confusion, don’t use hereunder, or herein. And eliminating them has the added benefit of eliminating the stale, fusty tone they bring with them.

Another interesting aspect of this case is what it tells us about provisions specifying drafting conventions.

In favor of its argument, Medicis invoked the following “rule of construction” contained in the contract: “the terms ‘hereof,’ herein,’ hereby,’ hereto,’ hereunder’ and derivative or similar words refer to this entire Agreement, including the Exhibits hereto.”

But Anacor was able to point to an instance of hereunder in the contract that could only have been used to mean “under this section.” That led the court to conclude as follows:

Under these circumstances, I am not persuaded that use of the word “hereunder” to mean “under this section” in one or more sections in the parties‘ sixty-page single-spaced Agreement should raise a presumption that the parties intended “hereunder” to have this same meaning throughout the Agreement. A more likely explanation is that the drafters inartfully used the term “hereunder” one or more times in a way that was contrary to the expressed intent of the parties. Thus, based on the Agreement’s Rules of Construction, I will interpret “hereunder” in Section 13.2 to refer to the entire Agreement unless doing so would violate another recognized canon of contract interpretation.

So a rule of construction should be regarded as a statement of intent that can be at the mercy of how the contract is actually drafted. That’s why I’m not much of a fan of rules specifying drafting conventions, and that’s why the MSCD chapter on the subject is perhaps the least compelling one in the book.

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.