Table of contents

Drafting contracts

(b) Examples of improved accuracy

Example 1. For example, in a contract for creating a piece of work, a drafter will probably address how and when delivery and acceptance of the piece of work takes place. Applicable statutes will probably provide that any shortcomings must be claimed “within a reasonable period of time” or “without undue delay” and that a claim assessment also takes into account the rules of the particular marketplace. It may help to investigate how such deadlines actually work in the given context and provide for customised (i.e., precise) timeframes. A contract attempting to address the vagueness of such statutory provisions should align with the wording of the statutory provisions accurately, and deviate from them precisely. Likewise, such deviation is easier to accept by the other party. Also, if the deviation is at first sight incompatible with mandatory law, being precise may well justify the settlement of an uncertain element of such mandatory provision.

Example 2. A similar example can be found in share purchase agreements with a price adjustment mechanism. Typically, such mechanisms provide for strict timeframes within which a party must deliver (or respond to delivered) financial accounts. If the preparation is no more than the push of a button, a short period may well suit both parties’ interests, but if the work is much more complicated than producing quarterly or annual results (e.g., because the cut-off date is potentially a random day of the month), a longer period of time seems to be inevitable. Such informed proposal is easy to explain and probably very acceptable (and if the other party bluntly responds with a doubled or halved timeframe that may well be countered). The period desirable for reviewing financial statements delivered to a purchaser, on the other hand, requires that the purchaser becomes acquainted with the applied accounting principles, the way they are adopted in reality, as well as the reported facts and valuation assessments actually being true and accurate.

Example 3. For another example, if the contracting parties are unable to completely describe the desired end-result (‘content’), they may define milestones (‘procedure’) ascertaining that certain procedural steps will be taken in a pre-described manner, as this would enable each party to interfere at appropriate times and places. The quality of an end-result will certainly improve if the parties have established (and adhered to) a procedure ascertaining adequate evaluation. If contract parties are unable to foresee all possible events of default or all circumstances in which very considerable damages may occur, it would probably be more appropriate to provide for notification procedures and subsequent obligations to cooperate, than to say that in case of Events A, B or C, the seller will indemnify the purchaser. The latter manifestations will frequently trigger liability-avoiding behaviour (often including passivity and hence even greater damages).

Example 4. For a final example, a services contract would address all compliance-related aspects of a service by addressing the desired service level, as well as the procedural aspects of a service (which standard of conduct the service provider must adhere to whilst performing the services). The procedural aspects would ascertain that the agreed quality would not be achieved by incompliant behaviour that cannot possibly be foreseen in the context of the service agreement (or even a reference to an exhaustive set of supporting principles).

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Drafting contracts

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