Many large agreements devote the second part of the interpretation article (where the first part contains the definitions) to commonly used phrases and address how certain standard words and phrases are to be defined. (In such case, the header of article 1 is often renamed Definitions into Interpretation).
This paragraph addresses these provisions and criticises how useful they are. In a European style contract (but likely also in a U.S. style contract), none of these interpretation guidelines are crucial; only a few of them are somewhat useful; and most of them are redundant. Finally, a few of them even disturb a reader by being exaggerated or legalese, or by addressing the obvious.
Many contract provisions require a notice to be given in writing. The obvious intention of the requirement is to require that a party is firm and accurate as regards its intentions. A party who needs to notify an event of force majeure will prefer to do so informally rather than putting everyone on the side of the other party in a position in which a formal response becomes inevitable (e.g. a firm and final warning with a deadline for remedy). In joint ventures, informal communications between the partners are the rule. A question that may arise is whether communications by e-mail or fax are in writing (and satisfy the criterion provided in a contract clause). In view of modern practice, it would be hard to argue that this is not the case, but avoiding any discussion may still be helpful:
A reference to a communication in writing shall be construed so as to include any communication in the written form, whether by letter, fax or a scanned and signed document sent by e-mail;
Singular and plural.
Even though an agreement should be interpreted as a normal and reasonable person would read it, some drafters believe that a normal and reasonable person could say (after reading a contract provision that talks about one person required to do or omit something) that the contract provision does not apply to cases where two or more persons would omit or do what is written in it. They alone will need the following clause (for their comfort):
A reference in this agreement to the singular includes the plural and vice versa.
In order to avoid (risks of) ambiguity, as explained in paragraph 1.1(d), draft as much as possible in the singular.
The following phrase would allow a drafter to use gender-specific language in a contract without running the risk of a court holding that, for example, use of only masculine pronouns in that contract excludes corporations from the scope of certain provisions.
References to words importing one gender include both genders and the neuter.
You might agree that the phrase is rather funny and fairly redundant, in particular in commercial agreements where the parties are legal entities (referred to as “it”).
Article and Section references.
A meticulous contract drafter may refer to the articles and sections of the agreement by adding of this Agreement or above or below, as the case may be, or hereof to each such reference. There might theoretically be confusion about whether the reference may accidentally point to a provision outside the body of the agreement. To ensure () that this is only the case for non-capitalised references include the following:
References to Articles, Sections, Annexes, and Schedules are references to articles or sections of, or annexes or schedules to this Agreement.
Clause headings and captions.
A drafter may sometimes want to ascertain that contractual provisions cannot be summarised in the two or three words of an article heading or the caption immediately preceding a contract section. Although it is difficult to argue that one party misunderstood a contract clause because the caption or article heading gave it a certain meaning, the following clause would attempt to diminish such argument:
Headings in this Agreement and captions to Sections are provided for convenience only and do not affect its meaning.
Hereof, thereof, everywhereof.
See also elsewhere in this online book about:
The words hereof, herein, hereunder; and hereby refer to this Agreement as a whole and not to any particular provision of this Agreement.
Amendments, supplements and addenda.
A written amendment of an agreement will almost inevitably state that as of such amendment, supplement or addendum the agreement needs to be read in the amended, supplemented or extended manner. Some people feel more comfortable if the agreement itself anticipates its amendment:
A reference to an agreement means that agreement as amended or supplemented, subject to any restrictions on amendment in that agreement or any restrictions in such amendment or supplement, as the case may be.
Applicable laws and regulations.
When a party warrants that it is not in breach of a particular statute or undertakes to continue acting in compliance with a particular act or regulation, the other party may want to ascertain that such non-breach or compliance is measured against that statute, act or regulation as it is in effect at the time in question. This provision would allow a drafter to accomplish that without adding as amended or supplemented or from time to time after each reference to such a statute, act or regulation.
Except as provided otherwise, a reference to a statute or regulation means that statute or regulation as amended or supplemented from time to time.
Times and time zones.
In a multinational context it may be helpful to specify which time zone should be referenced in case the parties failed to identify it.
Except as provided otherwise, a reference to a time of day is a reference to the time in Amsterdam, the Netherlands.
Actions on non-business days.
If a contract provision identifies several periods of time within which a certain action needs to be taken, there is a possibility that such action will be required to be taken at a weekend or on a public holiday. The following provision creates an allowance for taking such action on the immediately following business day.
If any date specified in this agreement as a date for taking action falls on a day that is not a Business Day, then that action may be taken on the next Business Day.
Modified following adjusted clause.
A similar provision, slightly more advanced, is the ‘modified following adjusted‘ clause used in loan agreements.
If a payment under this Agreement is due on a day which is not a Business Day, the “modified following adjusted” convention shall be applied such that the due date for that payment shall instead be the next Business Day unless this day falls in the next calendar month, in which case the due date for payment of such sum shall be the immediately preceding Business Day. During any extension of the due date for payment of any principal amount under this Agreement, interest is payable on that principal amount at the rate payable on the original due date.
A person who is qualitate qua careful and continuously in search of a maximum level of security, is a notary. In order to prevent a notarial deed not being able to be executed due to the notary being appointed personally (and him/her being absent on the desired date of execution), the following clause provides for a discretionary right of substitution:
A reference to the Notary must be construed as a reference to the person named in this Agreement as civil law notary or, if applicable, any other civil law notary working with [notary firm name] and any of their deputies;
What about the following? Is it really necessary to make sure that if you refer to a third party, this is substituted by the defined term Person, defined as:
an individual, a corporation, a partnership, a limited liability company, a joint venture, a joint stock or other company, an association, a trust or other entity or organisation, including a local or national government or an agency, institute or instrumentality thereof?
The elements that might trigger some uncertainty, if any, are probably the inclusion of (informal) partnerships and various governmental bodies. Rather than the use of a definition, a clarification in the interpretation section would be more appropriate. But reconsider first: if a warranty states that neither Seller nor Target received a notice of any Person relating to the status of X, would you consider that there is a likelihood that, whilst a local governmental authority might fail to qualify as a ‘person’ within the strict meaning of the word, a liability claim will fail (if Target actually did receive a warning notice) on the ground that the warranty did not specify the authority as such ‘Person’?
Assignees and successors.
Particularly in U.S. style contracts, it seems, the drafter may want to ascertain that a reference to a person includes such person’s assignees (or other successors in title). In legal systems where a right of ownership transfers in its entirety, the following clause is redundant:
A reference to any Person is to be construed to include that Person’s successors and assigns.
As discussed elsewhere in this online book, a party might fear that a court will say that the contract is not a negotiated agreement but rather a set of general terms and conditions (the interpretation of which could potentially be scrutinised and interpreted against the drafter). The following may be included to reduce such risk (albeit that its effect may be very limited):
Each party has participated in negotiating and drafting this agreement, so if an ambiguity or a question of intent or interpretation arises, this agreement is to be construed as if the parties had drafted it jointly, as opposed to being construed against a party because it was responsible for drafting one or more provisions of this agreement.