CONTRACT DRAFTING - MISCONCEPTIONS

contracts

CONTRACT DRAFTING - MISCONCEPTIONS

This article addresses the subject that what people understand to be an instruction for us to draft a “simple contract” (termed by them as “a one pager”), by what they understand must be short and brief and couched in uncomplicated language, they labour under the misconception that “simple” contracts:-

1.    defeats the object of its purpose;

2.    invites disputes which may result in complicated, extensive, expensive and time consuming litigation.

A contract serves two purposes namely that:-

1.    in the process of negotiating the contract, the parties’ minds are applied to       establish an understanding between them on what both parties must perform to avoid disputes that they possibly did not even consider may eventuate;

2.    reciprocal rights and obligations are established so that, in the event of a dispute, the dispute is capable of being resolved with reference to the wording of the contract and in the remote event that this cannot be achieved, to have certainty as to how a Court would determine the resolution of such disputes.

This misconception illustrates a wrong understanding as to the purposes of a contract as stated above. To put it in simple terms, the “simpler” the contract, the higher are the probabilities that whenever a dispute between the parties may arise in its performance, it would be incapable of resolution.

The drafter of a contract must contemplate each and every eventuality, even those that the parties do not foresee, that may occur in the performance of the contract and ensure that the contractual terms are formulated in such a manner that a dispute arising from the occurrence of an eventuality  would be capable of resolution with reference to the wording of the contract.

Clients often perceive that there are standard contracts which they may simply download from an example / template of a contract found on e.g. internet and simply complete the variables. This is a dangerous approach, as a contract needs to be customised, even when it comes to contracts which are generally standard, such as e.g. a lease or purchase of an immovable property. No example / template of a  contract can simply be adopted, as there are always aspects that require customization.

There are many contractual terms that are common in all contracts , such as e.g. how a dispute would be resolved, e.g. arbitration, a non variation of the contract unless reduced into writing and signed by both parties, a no representation clause, etc.

When it comes to contracts regulating subjects which are of technical complexity, understandable only by persons in a specific trade,  the challenge in drafting such contracts is to convert such technically complex information into words and phrases which may be understood by legal minds. There are certain rules of interpretation of a contract, the most important being the primary rule, namely that words and phrases must be understood in its ordinary grammatical meaning within the context in which they appear. It is also important to be aware that a Court will not admit evidence explaining words and phrases which are not grammatically understood in a specific trade.

Some words and phrases in such technically complex contracts do not have a clear grammatical meaning or the grammatical meaning does not cover specifics. The parties, being experts in their field of business may, in their own minds, have an understanding as to what words and phrases mean (but some cases even then there may be differences of opinions between the parties). In this regard it is important to note that from a legal perspective such terms are incapable of understanding. Therefore, if there is no clear grammatical meaning that can be applied to understand words and phrases as these are recorded in vague language or do not cover as many specifics as possible, these are the very issues that leave scope for disputes.  

In some cases a Court shall declare that a term/s of a contract are void for vagueness, which would either render/s a specific term/s unenforceable or in the event that the non enforcement of the term/s has a material impact on the agreement as a whole, even the entire contract may be declared void for vagueness, with the end result that there is effectively no contract at all and both parties must render restitution of what had been performed by the both parties in terms of the “non-existent” contract.

For for information or assistance in drafting a contract contact our Randburg, Pinetown or Durban offices.