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Commercial Contract Drafting : Back to Basics


Given the impact of COVID-19, it is not surprising that lawyers have found themselves taking on work that is outside of their usual scope. The legal industry, like so many, is doing its best to adapt as quickly as possible. Lawyers are undoubtedly remarkable creatures, but all skills are limited to experience - or lack thereof. Some lawyers may find themselves doing work that they may not necessarily be comfortable with or used to, for example, writing commercial contracts. To assist we have put together the below basics as a refresher (or a welcome for new lawyers) to commercial contract writing. Please remember that this is not a comprehensive guide - commercial law is broad and if you aren't fully comfortable, refer the client elsewhere. There is no shame in making sure that clients get the best possible help.


Immediate Clarity


The days of legal jargon are behind us. Now, to be clear, this does not mean we are dispensing with proper legal terminology - only that we are stripping back everything that is unnecessary and 'over the top' in a contract to ensure that a reader is able to immediately grasp the meaning and intention of provisions by (ideally) having to read each provision only once. It is important to note that this is different from being able to read a provision and assess whether or not it operates to the benefit of a client’s commercial interest.


A clearly drafted contract allows the reader to scan the document, and through this process alone, be able to obtain a thorough understanding of the document as a whole. This means, purposefully drafting provisions which call for minimum interruptions to the reader. One way to ensure that the document flows, is to minimise references back to previous provisions and avoiding a need for the reader to jump ahead to a subsequent provision.


Say what you mean and mean what you say

Don't be afraid to be clear, the purpose of any contract is to document the agreement between parties. For the avoidance of doubt, you can say "This clause applies if..."


Coherence in the Layout


The clauses in your contract should follow a logical sequence. For example, the order of clauses for a sale agreement should reflect the plot chronology of the transaction: sale and purchase agreement, conditions precedent, warranties, pre-completion undertakings, completion, remedies, post-completion undertakings such as competition restrictions or intellectual property protection.


In terms of keeping the layout clear, be mindful of the formatting and numbering. This may seem like common sense, but if you have ever read a contract which has errors in the numbering or worse, incorrect references in a clause to its alternates, you know how frustrating and troublesome it can be - not to mention the fact that it looks like poor and lazy craftsmanship. A practical way of avoiding this mistake is to leave the document for a short period, come back to it and then re-read and cross-check the numbering and referencing by focusing only on that.


Definitions


It is important to pay close attention to the terms and expressions that are specific to the particular commercial deal being documented in the contract. This is not to say that you should skim over general definitions, of course not, but the "deal specific" terms which you are defining are especially important and should be well thought out and, you guessed it, clearly written. For example, in a share sale agreement, the “Sale Shares” ought to be appropriately defined. Are all shares held by the seller in a specified company being sold or only particular shares specified by reference to share certificate numbers?


Something else to be mindful of is 'unnecessary defining'. In the age of precedents, you should make sure that the definitions in the contract are relevant and actually used in the body of the agreement. For instance, there is no point including and defining "Termination Payment" if that terms is seen nowhere else in the document and no termination payment is even being paid.


Precedents


The rule about checking your contract for redundant definitions extends to unnecessary clauses too. Precedents are a fantastic tool, particularly if you are unfamiliar with what a contract ought to look like, but beware, it is incredibly rare to be able to use a precedent "as is" and change nothing. It is also paramount that you familiarise yourself with your legal software and understand when to use short form or long form contracts.


Using a contract from another file as a precedent is asking for trouble, so try and avoid this if possible. If you are wondering why, it's pretty simple. You have no idea what the original was, how it was varied to apply to the other matter and at best, you run the risk of leaving wrong information (such as a party name, address or irrelevant date) in the document.


Precedents can be a really powerful tool, if used properly. It is important to only download and use templates that come from a reputable website, for instance, you can safely download a Contract of Sale from the Law Institute of Victoria website and (after checking that it is the most up to date version) use it as your precedent. You should not be relying on a google image result for 'Contract of Sale'.


Parties


Do not rely on your client to tell you who ought to be included as a party to the contract. You will save yourself a lot of headaches by getting the information from the client and then doing a company search through the Australian Security and Investment and seriously considering - who needs to sign this document and be bound by it? Not including a party in a contract, for instance a Deed of Settlement, when there is some sort of obligation conferred on that party (e.g. to sign separate documents or pay money) can be devastating to your client's claim and any potential enforcement action.


The above is only a sample of considerations. Commercial contracts can be complex and difficult to draft properly, even if the language is less complicated than it once was, it does not render the action easy. Lawyers looking to expand their capabilities are encouraged to undertake relevant CPD courses and reach out to other lawyers in the commercial law sector for guidance. Clients should always seek legal advice when signing legal documents and ought to avoid drafting their own documents.


Melbourne Law Studio operates on a fixed fee basis and does not charge for initial consultations. We are a 'customer first' firm and believe in working with our clients to achieve the best possible results.




If you have any questions or think you might need assistance with writing, reviewing or enforcing a contract, you can send us an email to info@melbournelawstudio.com.au or access our direct chat via our website www.melbournelawstudio.com.au.


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