It seems as if the list of definitions at the beginning of contracts gets longer and longer, and often they are very useful. However, they must be carefully constructed.
I have come across the following example today of a ‘circular’ definition:
Definition: ‘Protocol’ means the protocol which the supplier must provide to the client in accordance with Clause 2
Clause 2: The supplier will provide the client with the Protocol
This definition creates a perpetual loop. As the supplier, you would read to clause 2 and see that you have to provide a Protocol – you would then look to the definition to see what it means, and find that it is the document you have to provide under clause 2!
As a lawyer who focuses on the practicalities of contractual agreements – and on making them as short as is reasonably possible – if I was re-drafting this, I would firstly decide whether a definition was required at all. If it was, I would probably re-word it along the lines of the following:
‘Protocol’ means a protocol in the form set out in Schedule 1, or in such alternative form as the parties shall agree in writing from time to time.
The first part of the wording gives the parties certainty as to what is meant, and the second part gives them the flexibility to make future changes.
Do you have definitions in your agreements which don’t make sense to you or go around in circles? If so, I’d be pleased to hear about them.
Tags: certainty, Definitions, flexibility, practical
nice post. thanks.
Hi,this is Gus Iliff,just found your web-site on google and i must say this blog is great.may I quote some of the Post found in this site to my local buddies?i am not sure and what you think?in either case,Thanks!
Hi Gus,
I’m glad you like the Blog.
Please feel free to quote from it at any time – the more people are aware of these type of issues, the better protected they will be, so please spread the word far and wide!
My only condition is that you quote me as the source and that any written quotes are accompanied by a link back to the site.
Thanks.
Margaret
Hi Margaret
I found your blog and have had great fun in reading your writings and it almost sounds as if I were writing these things.
However may I comment on this Circular Definitions – and whilst I agree with you in your reword and bearing in mind that this is just under the definitions, I personally do not like to have any references within any clause that has the tendency to create the horrible dangerous “Agree to agree within a contract” without a mechanism to resolve the issue if the parties cannot agree to agree at a point in time when that clause is activated.
I find these “Agree to agree” in so many contracts that I have seen and it scares me when there is no provisions at all to resolve the issue if the parties fail to agree.
I remove all such clauses and state what will happen or what documents is what, by inclusion in an Appendix, and if one cannot get away from the “Agree to agree” then I always build in the remedy as to what will happen in the event of the parties failing to agree.
Going to your comments regarding that seminar and the so called clever clauses the so called expert was telling you to insert to confuse the issue – I also agree with you fully. However i have had circumstances where the other party, with or without their lawyer, disliked a clause I had in my contract and so I would then explain why it was there and in many cases it was then accepted but in some cases the other party is not prepared to give way, so of an ego trip, and so I would then rewrite the clause in other words which actually mean the same thing and then in most cases the other party is happy and we go forwards.
This is addressing your contention of Words and Communication – if the other party cannot see that the original clause is changed but has the same effect then this was just a one-upmanship argument or the other party and/or his lawyers are too stupid to recognize the rewording as the same meaning then that is their problem.
It all comes down to who is more on the ball than the other, and who is paying attention and keeping mentally sharp throughout the negotiations.
So I would be interested to hear your comments on this one.
Best regards
Gary Johnston-Webber
gjw.consulting@vodamail.co.za
Hi Gary,
Thanks for your comments.
As you say, ‘agreements to agree’ are to be avoided at all costs as they can result in an agreement being held invalid for uncertainty. However, there is no ‘agreement to agree’ in the wording I have suggested for the following reason:
Where a definition is phrased in words such as I suggested – “‘Protocol’ means a protocol in the form set out in Schedule 1, or in such alternative form as the parties shall agree in writing from time to time,” – there are only two possible scenarios.
1. The Protocol is as set out in Schedule 1 – either because the parties are happy with it OR CANNOT AGREE ON A CHANGE.
2. The parties have agreed a change to the Schedule and so ‘The Protocol’ means whatever they have agreed as the alternative.
In my wording, the definition is fixed UNLESS the parties agree a change. However, a very different effect – an agreement to agree – would arise, if the wording of the definition was changed to “‘The Protocol’ means the protocol agreed between the parites from time to time.” In this case, if there is no agreement, then there is no protocol and – because there is no mechanism for resolving the deadlock, – potentially the agreement is worthless.
I hope this clarifies things.
Margaret
Hi Margaret
Thank you so much for your clarification. I had seen that your proposed wording was indeed the answer since if there was an agreed Schedule 1 then if there is no agreement to an new protocol then the one in schedule 1 stands and has legal binding.
I was, however, just raising the general issue of the “Agreement to Agree” found in so many contracts, as you also agree could be a disaster.
I am glad I put my wording so badly as your clarification would be very good for other readers that are perhaps not quite aware of this trap, which always seems the easy way out of a conflict during a negotiation.
I really like the way you have with words as they are so clear and to the point there is no misunderstanding.
I wish I could develop such an understanding to may things brief and clear, but i still learn.
May I take this opportunity to raise another question that I would like your comments and anyone else that might be interested.
Where would you start a negotiation at the beginning??
I have found that it is better to iron out the scope and technology matters as guarantees and then proceed later to all he commercial matters etc. This usually lets me assess the risks of the venture before we get to clauses and what can go and what cannot.
Also would you send out a blank draft contract with the RFQ or not??
I have always sent it out by then again this gets to their lawyers and brick wall go up, so which is it chicken or egg??
Your comments will be appreciated.
Best regards
Gary
Hi again Gary,
I agree that ‘scoping’ the contract is the best place to start. If the parties aren’t clear what they want to achieve from the contract in terms of the nature and complexity of the other party’s obligations, then it is pointless agreeing the commercial aspects – only perhaps to have to start again when the parties’ responsibilities have been clarified. That said, there will be some cases where the obligations are pretty straight-forward and it is the commercial aspects that requires more work – so flexibility is the key. I always work on the fundamentals first and then work my way down to the detail!
Insofar as sending a ‘blank’ agreement out is concerned, I’m not sure what you mean by ‘blank’. If you mean sending some type of template document out, then I would personally say ‘no’. It’s unlikely to be totally relevant, and cannot deal with the important issues if these have not yet been fully negotiated – so it seems pointless. I know that some people do this to sort out the ‘copper-plate’ clauses as soon as possible – but again, how do you know which of these are important (and require a bit of extra attention or tweaking) until the full extent of the agreement is known? In this situation, I would probably send out a ‘Heads of Agreement’ document – being just a skeleton of what the agreement might comprise in terms of obligations, but with no actual drafting of the clauses. I’ve used this approach a lot – most recently with a US company, where the Heads formed the agenda for our subsequent negotiations of each point, as well as a basis to draft the final document from.
I prefer to draft from scratch. I don’t use template agreements, and although I do use some standard clauses, I have different versions, and choose the most appropriate one – in terms of ‘tightness’ and simplicity – to suit the case in point.
Going back to the question, if by ‘blank’ you mean sending a document which still contains some blanks in terms of detail, then I think that is fine – it indicates to both parties where information is still required.
I do think it is important to get your draft in first if you can. Firstly, you are then dealing with a document drafted in your (or your client’s) style, which makes it easier to work with and so saves the client time and money. Secondly, amending someone else’s draft contract is sometimes more time-consuming – and hence more expensive – than starting from scratch. This is especially the case if the contract you have been sent is very badly drafted, as this can also result in the further complication of you trying not to amend it too much (so as not to upset the other party,) and so finishing up with a document which is not as tight as you would like it to be!
I hope that answers your questions.