Risks of 'Light-Touch' Drafting

When in a hurry to get a transaction done, one may not see value in quibbling over words and syntax in the related documentation and may prefer an approach where agreed concepts are mentioned in the document with minimal elaboration. For the purposes of this article, we will refer to this approach as ‘light touch’ drafting.

This 'light-touch' drafting approach will save time before execution and may not have adverse consequences where the document has a short life and/ or the parties rely on their commercial understanding and relationships with each other, rather than on the legal niceties. However, documents built with this approach tend to carry several risks including, in the worst case, provisions that are void and unenforceable.

Some examples of such risky provisions in a typical agreement are:

1. Agreements to agree

Example - 'X will buy shares held by Y in Z at a price to be agreed between X and Y.' Until the price is agreed, Y is under no obligation to purchase X's shares in Z and Y cannot be compelled to come to an agreement with X on the price. If X and Y do not agree on price, X will not be able to enforce this provision against Y.

2. Contradictory provisions

Example - One provision says: 'A may not transfer any shares in C without offering B a right of first refusal.' Another provision says: 'A may freely transfer its shares in C to its affiliates.'  If A seeks to transfer its shares in C to its affiliates relying on the latter provision, it may be open to B to argue (relying on the former provision) that B was entitled to be offered the shares prior to such transfer.

3. Insufficient detail

Example - 'P will have a right of first refusal to purchase any shares held by Q in R.' Unless the mechanics of how this right will be implemented (notices, time periods, price etc.) are specified in the agreement, Q could potentially get away with giving P insufficient notice of a potential sale of its shares in R and claim to have honoured its obligation under the agreement.   

Other common 'light-touch' drafting errors that could carry adverse implications for one or more of the parties include failure to draft for all scenarios, the use of expressions like 'mutatis mutandis' and 'relevant' without clarification or explanation and casting obligations on persons who are not party to the document.

All the legal implications aside, one very good practical reason to avoid 'light-touch' drafting is to ensure that the parties can find their full commercial understanding in unambiguous words when they examine the document - weeks, months or years after the document is written. With 'light touch' drafting, parties are often left wondering what was intended and what rights and obligations they have. Our memories of what was said on a telephone call or in a meeting before the document was executed do not survive the ravages of time. If one is attempting to read and interpret a document that one did not negotiate or draft, this difficulty is compounded manifold. If courts have to consider the document, they will do their best to determine the intention of the parties based on evidence, but (at the very least) this will elongate proceedings.

To minimize these risks, in the first instance, care should be taken to avoid ‘light-touch’ drafting. In addition, after negotiations are complete and positions are agreed, it is advisable for all parties to take the time to thoughtfully read through the entire document before execution so that conflicts, unclear provisions and errors in the document can be identified and addressed with the benefit of clear memories of (and notes from) discussions. This is particularly helpful where there have been protracted negotiations, multiple re-drafts and/ or numerous parties. In the long run, this approach is likely to pay off better than 'light-touch' drafting.