Revolting pedants: why contract nit-picking (sometimes) matters

Having previously written about the need for a pragmatic approach to risk in contract negotiations, it seems logical to follow up with a post about the importance of nit-picking pedantry in drafting. Right?

No, wait, don't go. Let me explain...

Sure, those interminable debates about whether to use 'and' or 'or' are, well, interminable. And is it really worth spending 40 minutes (as I once did) arguing about whether a particular clause is 'subject to', 'without prejudice to' or 'notwithstanding' another clause?

Well, as the eye-rolling and shoulder-slumping of colleagues shows, those conversations are usually pretty tedious for the non-lawyers in the room. But they do (sometimes) matter.

As it happens, the ever-entertaining commodities group Glencore has obliged with a demonstration, by inadvertently asking its CEO to work for a non-existent company. In this case, no harm done beyond the media joshing, but it could easily be different.

In fact, it sometimes seems that recent contract case law is almost entirely about how to interpret some bit of drafting or other. Take exclusion clauses: what's the difference between these two examples?

"The supplier shall not in any event be liable for any indirect, special or consequential loss, howsoever arising (including but not limited to loss of anticipated profits)..."

"The supplier shall not in any event be liable for any loss of anticipated profits or for any indirect, special or consequential loss, howsoever arising..."

Answer: a few million pounds*. Worth arguing about, just possibly?

Or (this one always gets the salesmen sighing loudly), what's the difference between 'reasonable endeavours' and 'best endeavours"'? Again, it could be a substantial sum of money**.

But my sales managers are optimists. It's a firm rule in our industry never to get into litigation with your customers, so why worry? (This rule is occasionally broken, with hilarious consequences. Disclaimer: levels of hilariousness may vary.)

It comes back to risk again, but this time it's a risk that lawyers seem to find really difficult to articulate to their clients: the risk that your contract doesn't mean what you think it means. Or, even worse, that it doesn't mean anything at all.

An illustration: I once agreed a clause that provided for a price increase "on each anniversary of the date of this contract". Seems clear enough - just look at the date on the front page, right?

But our failure to use either of the defined terms set out in the contract ("Effective Date" for date of signature and "Commencement Date" for date of service commencement) allowed our customer to claim that their intended meaning wasn't the same as ours. So we could litigate, or we could compromise in the interests of the relationship.

Guess which we chose? And so the price increase was delayed, and my failure to insist on accurate drafting cost my client about £100,000.

Our how about this clause, courtesy of my fellow blogger Miss TS:

"All property assets and goodwill will be transferred to the buyer, except for such assets that are not to be so transferred."

So, which assets are to be transferred?

I've seen the same confusion arise from the failure to capitalise "intellectual property rights" (so you must mean something separate from the defined term, right?). Even a misplaced comma can change the meaning of a clause. (My favourite example EVER of comma pedantry is in this Guardian cricket liveblog, at the 22nd over of the England innings. But please don't read it if you're easily offended.)

The sales guys always say something along the lines of "Look, we all know what we mean, so stop nit-picking and get the damn thing signed". Except that, as my £100,000 mistake shows, we don't always all know what we mean.

The point of accurate drafting is to ensure that both sides have a clear mutual understanding of what is meant by a clause, and have each agreed to its principles. It's almost always best to let the lawyers debate the commas and colons at the outset, than to have relationship-affecting arguments about interpretation later on.

That's not to say that it's always helpful to get into long discussions on minor points of grammar during negotiations, or to try and get every last punctuation mark right. You still need to take a risk-based view of each point, informed where possible by experience of what sort of things are the subject of disagreement on a day to day basis.

But the small stuff can and does matter. And I'm happy to say it loud: I'm a pedant, and I'm proud.

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*Boring law bit: the first one doesn't exclude liability for direct loss of profits, whereas the second one does. See Pegler v Wang and a whole load of other cases.

**More boring law: "reasonable endeavours" means that you don't have to sacrifice your own commercial interests to achieve the desired end, whereas "best endeavours" means that you must do your best regardless of cost. See Yewbelle v London Green Developments and, again, a whole raft of other decisions.

Legal Bizzle is an in-house lawyer who blogs at The Bizzle. Click here to follow Legal Bizzle on Twitter.