Drafting Contracts from a Litigator's Perspective.

Introduction

The freedom to enter into contractual relationships is an integral aspect of human liberty.[1] Millions of people enter into various contracts daily that dictate how products and services are offered and the parties' obligations. Each contract is drafted to specify the obligations of the parties regarding the transaction at hand. However, one aspect that cuts across all contracts is the moral and legal obligation to abide by the contract terms.

Failure to properly draft clear and concise terms can lead to disputes between the parties relating to their contractual obligations. Therefore, a key contract drafting skill is to attempt to predict unforeseen circumstances and incorporate them into your contract.

?Overview of Contracts and standard provisions

The structure of a contract varies depending on the nature of the transaction between the parties. Professor George Kuney describes contract drafting as:

"…making a record of the parties deal and creating the mechanisms to?? foster agreement; foster performance; and provide for enforcement and dispute resolution."[2]

?This description by Professor Kuney depicts the structure of most contracts with certain standard provisions featuring in one form or the other. These provisions include:

• The Title. -The Title highlights the transaction involved and, where required, the parties.
• The Preamble- This part comes after the title and describes the transaction, the purpose of the contract, and key facts pertinent to the contract
• Definitions- Defining key terms used in the contract helps simplify the contract and avoid ambiguity when interpreting the contract terms.
• Parties- This entails a description of the parties to the contract
• Consideration- This is a key element for a valid contract and thus must be stated. It can be money, the exchange of goods, services, or mutual promises.?
• Covenants- Describes the obligations of the parties under the contract.
• Risk Allocation clauses- These include representation and warranties, insurance, and indemnity provisions.
• Events of default- Breach of contract clauses, dispute resolution, and remedies.
• Termination- This section describes the circumstances a party can terminate the contract and the procedure to be followed.
• Execution and attestation- This is where the parties or their representatives sign the document and any witnesses present.

Planning ahead to avoid litigation problems

The contract document is always used as a reference tool when a dispute arises between the parties. In any dispute resolution forum, the terms of the contract will determine whether there is a breach by one party and the available remedies to the parties. As such, the contract must be drafted meticulously to ensure that it addresses the key issues of the transaction. This will help prevent any disputes and to enforce the contract. This article has discussed some key steps to consider when drafting your next contract.

?1.??? Understand the audience

A drafter must first determine who will read and use the contract. At the drafting stage, the primary users of the contract are the contracting parties. Any drafter must adequately describe the parties to avoid enforceability challenges. Where one contracting party is a company, there must be proof that there is authority to act by that party.

?In the future, disputes may arise from the contract meaning the audience of the contract may include other parties such as the court and litigation advocates. If a drafter prepares a contract to favour their client, such a contract might be construed against them. In the event of litigation, the contract will be examined by an impartial third party. Therefore, the contract should have enough facts for the judicial officer to resolve the issue.

?Additionally, the drafter must ensure that the language of the contract reflects the parties' understanding of the agreement and their obligations therein. The drafter must identify the audience's perspectives and how they might change from time to time during the performance of the contract.

?2.?? Termination provisions

A dispute might arise when a party attempts to terminate a contract. Therefore, the drafter must ensure that the contract has well-drafted termination provisions, including the events triggering the termination of the contract. These events often include breaches of the parties' obligations under the contract. However, a skilled drafter should foresee other situations allowing his client to terminate the contract and avoid liability. These include:

???? i.??????? Changes in the governing law

??? ii.??????? Failure to meet certain set standards by the other party

?? iii.??????? Change in control of the contracting parties

?? iv.??????? Death or bankruptcy of one of the parties.

Secondly, a termination clause should also provide the means of notification of the alleged breach to the parties, and specific timelines. Finally, the clause should provide an opportunity to cure the breach before termination and the duration for such. Curable breaches will protect your client from any impromptu termination where they are in breach.

3.?? Risk Allocation in Contracts

Risk management refers to identifying, analyzing, responding to, and controlling project risk factors in a manner that best achieves the objectives of all" parties to the contract[3] Risk allocation correlates with impracticability events when performing the contract. If a party has assumed the risk of such an event and their performance is adversely affected, the other party can still enforce the contract. Therefore, a drafter must ensure that the contract includes specific clauses that assign risk where a future uncontrolled event affects performance. Examples of these clauses include force majeure clauses, representation and warranties, and indemnity clauses.

• Force Majeure.Force majeure clauses or 'acts of God' clauses allow the parties to suspend their obligations under the contract where performance is hindered by an unforeseen event, not within their control. These include floods, earthquakes, and car accidents.
• Representation and Warranties.A representation is an assertion as to a fact, true on the date the representation is made, that is given to induce another party to enter into a contract or take some other action.[4] A warranty is a promise regarding the accuracy of specific facts or the condition, quality, or quantity of a service/product.The parties might allocate risk regarding representation and warranties. An affected party can sue for misrepresentation if a representation is discovered to have been false when making the contract. If a warranty turns out to be false, the affected party can file an action for damages. ?The drafter should be careful when drafting representations and warranties since the one making them is at a higher risk of breach than the one receiving them.[5]
• Indemnity

Indemnity is defined as the obligation of one party (the indemnitor) to reimburse another party (the indemnitee) for losses the indemnitee incurs or the damage for which it may be held liable.[6] The indemnitor has some interest in, involvement, or control of the matter leading to the liability. As such, the indemnitor promises to take financial risk for any loss that the indemnitee may get due to the indemnitors breach of his obligations or any representation and warranties.

?When drafting an indemnity clause, the drafter should be careful to use the appropriate language that apportions risk as intended. For example, the indemnity clause can be in 'broad form' in which the indemnitor agrees to assume the financial risk regardless of who's at fault.[7] On the other hand, in an intermediate indemnity clause, the indemnitor does not assume responsibility for liability due to the indemnitees sole fault.

?4.?? Clauses that anticipate future litigation

When making a contract, the parties may not foresee the contract ending in a litigation battle. However, as an experienced drafter and litigator, you should always be prepared for such. A drafter should incorporate clauses that address the possibility of future litigation. These clauses are discussed herein in detail.

• The forum selection clause specifies where any case will be filed in the event of a contractual dispute. A drafter should select a forum closer to the region where the contract is performed or the parties' residence or principal place of business. This helps reduce litigation costs and prevent any contest to jurisdiction by the parties.
• Choice of law- The parties may agree on the laws governing their contract. Where the contract is performed in different jurisdictions, such a clause is important to determine under which jurisdiction the contract will be construed.
• Alternative dispute resolution clause- Many contracts provide a mandatory ADR clause that obligates the parties to pursue arbitration or mediation rather than referring the dispute to litigation. The drafter should carefully write the ADR clause to capture aspects such as how the arbitration clause will be triggered, the venue for arbitration, the selection of arbitrators, and the rules applicable to the proceedings. Additionally, the clause should state whether the outcome of the ADR process is binding or not and options available to a dissatisfied party.

?Conclusion.

Contract drafting requires one to pay attention to key provisions that will help avoid litigation or maximize the likelihood of enforcement in case the dispute ends up in court. As a skilled litigator and drafter, it is imperative to incorporate the clauses discussed herein to protect your client in the transaction and facilitate easy enforcement of the contract.

Prepared by:

Billy James Otieno

ADVOCATE

References

[1] C. Goddard, A. ‘Fellner Basic principles of contract drafting’

[2] Tina L. Stark & George W. Kuney, TRANSACTIONAL SKILLS TRAINING: CONTRACT DRAFTING – THE BASICS, 10 Tenn. J. Bus. L., 139, 155 (2009).

[3] Gerald I. Katz, ‘Contract risk allocation’ accessed at https://www.scribd.com/document/109852049/Contract-Risk-Allocation# on 10/02/2023 at 16.24?

[4] Representations and warranties- Practical Law. Thomson Reuters. Available at: https://uk.practicallaw.thomsonreuters.com/8-382-3760?transitionType=Default&contextData=%28sc.Default%29&firstPage=true#:~:text=A%20representation%20is%20an%20assertion,if%20the%20assertion%20is%20false. ?(Accessed: February 10, 2023).

?[5] T. H. Vidal , ‘A Litigator’s Perspective on Drafting Contracts that Keep You Out of Court’ – Part 1? ‐ 5? ‐? 2011

[6] N3 at pg 8.

[7] N3 at pg 11.