Tag Archives: drafting

Settlement without Penalty

Every day thousands of disputes are settled by agreement. Written Terms of Settlement are entered into by those who want to be sure they have a clear enforceable agreement in relation to the relevant issues.  Often the deal done is that one party to the Terms  of Settlement (A) will pay the other (B) a sum of money.  In order to encourage payment on time there is another provision that if A doesn’t pay that sum, then A needs to pay more.   In legal circles, it is known as the default provision – what is agreed to happen if A defaults in making the promised settlement payment.  Normally the default provision includes agreement to judgment being entered by consent for the larger amount if the lesser amount is not paid on time.

The way the default provision is drafted in the context of the Terms of Settlement makes all the difference to whether it is enforceable or not.

Any clause in a contract which includes a financial penalty for not making a payment in time which is held by a court not to be a “genuine pre-estimate” of the loss suffered by the payee because the payment does not make the payment, is void as a penalty.  It cannot be enforced.  So, for example, if A has agreed to pay B $100 for a box of items, and agrees to pay $200 if the payment is a day late, and that extra $100 payment is not what A and B genuinely think represents the loss to B of having to wait an extra day, then that agreement about the $200 payment will be unenforceable.

However, if A really owes B $200 but B agrees to accept $100 if it is paid by a certain day (and only if it is paid by then) it is not void as a penalty.  There is the same effect of encouraging A to pay the $100 on time or pay $200 if late – but the crucial difference is that in this scenario B has agreed to accept less than is in fact owing to him, only on condition of payment by a certain date.

One way to avoiding the default provision being void as a penalty in if A does not pay up on time is to ensure the Terms of Settlement include the concession by A that A owes B the larger amount ($200, in this example).  This should be set out upfront as part of what is agreed.  Another clause then needs to set out that B will accept payment of a lesser amount (in this example, $100) by a certain day, but that if A does not pay by then, B can obtain judgment for the $200.

There needs to be acknowledgement, either express or implicit, that A owes B the larger amount at the time of the Terms of Settlement.

See the recent Victorian Supreme Court case of Legal Practice Management (Vic)(In Liq) v Simms Corp Hotels & Leisure Pty. Ltd. [2013] VSC 734 for a helpful discussion of relevant cases on this issue, starting with the well known High Court decision of  O’Dea v Allstates Leasing Systems (W.A.) Pty Ltd [1983] HCA 3; (1983) 152 CLR 359.

 

Keeping It Simple. The KISS* principle in drafting.

A young law student emailed me after a recent talk I gave about principles of good drafting. (I know, not the most exciting topic, but as I have mentioned in an earlier blog, an important one for lawyers and anyone else wanting to get a clear message across).

She wrote: “I found it to be very useful, especially the ‘keeping it simple’ point. I am a law student and have been constantly battling with those long, single-sentence-per-paragraph type judgments. I have to confess that I have been imitating that writing style to a certain extent because nobody at the law school teaches students how to
 do legal writing.”

That took me back in time to my first couple of years in law school when I too struggled to come to terms with what to make of this new world of legal writing, and tried to learn how to write in this new language of ‘legalese’. Finding out what actually was relevant in lengthy judgements or submissions sometimes took some doing. The same thing can occur reading some letters, affidavits and pleadings. What is the real point being made by the author?

The more simple the document you draft, the less the scope for confusion. Even difficult and complex factual issues can be drafted simply, although it will take time to put those complexities clearly. The principles of plain English drafting come into play.

One of the best books I have found on this subject is James C Raymond’s ‘Writing for the Court’ (Carswell, Canada 2010). [1] It gives some excellent examples of matters to take into account in drafting. Although it is written in the context of drafting submissions and judgments most of what it says is equally applicable to drafting contracts, letters and emails.

As Raymond says:

Think about how you would explain what you are asking the clients to agree to in common language and as much as possible reduce it to that. When you go home you do not say ‘pass the salt please, and the pepper therewith.’ You do not write to your dearest spouse ‘hereinafter called honey lips.’[2]

 

Raymond gives an example of an exchange he had with a judge who he was assisting in judgment writing.

‘I once had the following exchange with a gracious judge who allowed me to review his work in a tutorial session.

‘I had trouble figuring out what’s going on in this case until I got to page 15,’ I said. ‘This is where you get around to mentioning the issues.’

‘Yes, professor I can see that.’

‘And now that I know what the issues are, it seems to me that probably twelve of the first fifteen pages could be omitted, since they have nothing to with any of the issues.’

‘Yes professor, I agree.’

‘Just out of curiosity, why did you wait until page 15 to enunciate the issues?’

‘Well professor, to tell the truth I didn’t know what the issues were until I got to page 15.’

It was an instructive admission. Writing is often a means of discovering what we think. It is not unusual for judges and lawyers to discover the case as they write it.

 

If what you have written has become more complex as you are still working out what you want to say, then go back afterwards and make it as simple as possible. Use that red pen on your writing – or the delete function on your computer – and get your point across as simply, and persuasively, as possible.

Simple.

 

* KISS – According to that most prominent of authorities, Wikipedia, KISS is an acronym for “Keep it simple, stupid” as a design principle noted by the U.S. Navy in 1960. The KISS principle states that most systems work best if they are kept simple rather than made complicated; therefore simplicity should be a key goal in design and unnecessary complexity should be avoided.

 

[1] Available via Thomson Reuter Australia.

[2] Raymond, Writing for the Court, page 4.

 

Drafting to Avoid Litigation

Recently I was asked to assist a client who had purchased a business for some millions of dollars, on the basis that the person he was paying the money to would not compete with him for five years.  The vendor had now set up in competition a year or so after the purchase. My client wanted to stop him, or be paid damages for the loss it was causing his business.

Unfortunately, the more I looked at the lengthy contract and its many annexures, the more obvious it became that my client had not purchased the protection from competition he had paid so much to obtain.

The contract was long, but it was missing crucial elements.  Someone had clearly copy-pasted from another contract of a similar type and then added in some further clauses in their own version of legalese…without stopping to check that the new clauses did not contradict the original ones or to make sure that definitions of key elements made sense when read in their new context.  Even worse, the original clauses had been added to, in ways that meant they no longer made sense.

What should have been a clear claim for breach of a restraint of trade clause became far more difficult as a result of the drafting of that contract.  On this occasion, happily there was another cause of action that could be relied on, and my client was able to obtain some relief for the losses he had suffered.  But it was not as much as he would have obtained if the contract had been thought through more in the first place. Frankly, his initial lawyer had let him down by not drafting the contract more carefully.

Drafting documents is not a topic that most of us get particularly excited about.  We do not tend to wake up in the morning and leap out of bed with joy: “Today I am going to settle a statement of claim!” Or, “I can’t wait to get stuck into that 80 page contract and make sure it protects my client every which way”! The reality is, though, that it is one of the most important things that we as lawyers can offer our clients.  Done correctly, our documents protect them at the outset of their business dealings, (offers and contracts), along the way (letters of demand), in the course of litigation (pleadings, emails and letters to opposing lawyers, written submissions), and at its conclusion (terms of settlement).  Done incorrectly, our documents can fail to protect and can set our clients up for further litigation and costs.

The longer I practise as a lawyer the more I realise how right Lord Denning was when he said:

“To succeed in the profession of the law you must seek to cultivate command of language. Words are the lawyer’s tools of trade. When you are called upon to address a judge, it is your words which count most. It is by them that you will hope to persuade the judge of the rightness of your cause. When you have to interpret a section in a Statute or a paragraph in a Regulation, you have to study the very words. You have to discover the meaning by analysing the words—one by one—to the very last syllable. When you have to draw up a will or a contract, you have to choose your words well. You have to look into the future—envisage all the contingencies that may come to pass—and then use the words to provide for them. On the words you use, your client’s future may depend”.  

(Lord Denning: The Discipline of Law, Butterworths, 1979, page 5).

“On the words you use, your client’s future may depend”.  Now there is a call to action, and an encouragement to keep working at making your communications as clear as possible.  Perhaps you even will start to leap out of bed with pleasure, knowing that today you will be drafting again….protecting and advancing the causes of your clients, who are relying on you.