Drafting contracts

(a) Short sentences

Short sentences are easier to read. Everyone knows that short sentences are much easier to read than longer ones. Contracts are amongst the least readable texts one can imagine. Apart from the abstract language, the typical reason for this is the use of lengthy sentences. Therefore, be concise and to the point and address only those matters that must be elaborated on to avoid surprises or confusion, or those matters which have relevance in litigated disputes.

Adopt a contract drafting convention. Some organisations have a rule that no sentence should exceed 17 words and that no word should exceed five syllables. This may be excessively prescriptive but it imposes an excellent discipline. It certainly requires the drafter to express ideas one at a time. A true dragon is the following sentence:

Exclusivity.  The Seller covenants and agrees that for a period of ninety (90) days after the date first written above (the “Effective Date”) or such shorter period as set forth below (as the case may be, the “Exclusivity Period”), none of the Seller, its affiliates or subsidiaries will, and they will cause their respective shareholders, directors, officers, managers, employees, agents, advisors or representatives not to, directly or indirectly, solicit offers for, encourage, negotiate, discuss, or enter into any agreement, understanding or commitment regarding, a possible direct or indirect sale, merger, combination, consolidation, joint venture, partnership, recapitalization, restructuring, refinancing or other disposition of all or any material part of the Company or its subsidiaries or any of the Company’s or its subsidiaries’ assets or issued or unissued capital stock (a “Company Sale”) with any party other than Purchaser or provide any information to any party other than Purchaser regarding the Company in that connection; provided that, (i) for the time period commencing on the Effective Date and ending at 11:59 p.m. Central European Time on 7 July 2007 (the “Bid Confirmation Date”), the Parties shall work together in good faith and use commercially reasonable efforts to facilitate due diligence by Purchaser and their advisors to confirm, based on the information made available to Purchaser or their advisors prior to the Bid Confirmation Date, the intent of Purchaser to implement the Transaction pursuant to the terms of this Heads of Agreement and if Purchaser does not deliver notice to Seller of such intent by 11:59 p.m. Central European Time on (or otherwise prior to) the Bid Confirmation Date (such notice, a “Bid Confirmation”), then Seller shall have the right to terminate the Exclusivity Period effective as of (but not prior to) the Bid Confirmation Date by providing written notice to Purchaser by no later than 5 p.m. Central European Time on (but not prior to) the day following the Bid Confirmation Date; and (ii) if Purchaser delivers the Bid Confirmation or if such termination notice set forth in the preceding clause (i) is not given, the Seller shall have the right to terminate the Exclusivity Period effective as of (but not prior to) 11:59 p.m. Central European Time on the sixtieth (60th) day following the Effective Date by delivering written notice of such termination to Purchaser by no later than 5 p.m. Central European Time on (but not prior to) the sixty-first (61st) day following the Effective Date.

Techniques to simplify such sentences are to think first and to conceptualise: does it really increase ‘certainty’ if you draft the long lists of persons, actions or matters?! A list also has drawbacks such as encouraging creativity towards the grey areas of the listed matters; concepts are more likely to capture any failing manifestations; a list of concepts lacks conceptuality.

The above contract clause can be shortened easily by a better use of definitions, by separating out the condition (i.e. the second half), by defining:

  • the exhaustive (?) list of related persons (e. “their respective shareholders, directors, officers, managers, employees, agents, advisors or representatives”);
  • several or all (?) of their prohibited actions (e. “not to, directly or indirectly, solicit offers for, encourage, negotiate, discuss, or enter into any agreement, understanding or commitment”); and
  • all (?) the possible transaction structures (e. “a possible direct or indirect sale, merger, combination, consolidation, joint venture, partnership, recapitalization, restructuring, refinancing or other disposition of all or any material part of the Company or its subsidiaries or any of the Company’s or its subsidiaries’ assets or issued or unissued capital stock”).

In other words, a quasi-exhaustive list could be reduced into concise wording addressing the relevant concept rather than its manifestations.

Uncertainty can be taken out if abstract references are made concrete. A reference to time (e.g. “5:00 p.m. Central European Time on (but not prior to) the sixty-first (61st) day following the Effective Date”) can replaced by the actual date and time.