United States: Minding Litigation: Strategies For Document Drafting

Trial lawyers and instructors Nicole Westbrook and Cash Parker have developed strategies for more effective contracts. Here they share what works and what doesn't, what reduces the risk of litigation and what issues are likely end up in court. 

As trial lawyers and instructors for the National Institute for Trial Advocacy, we are constantly dealing with contractual issues to forestall litigation. Over the years, we have seen what works and what doesn't, what reduces the risk of litigation and what issues likely end up in a court battle.

We have developed strategies to take some of the guesswork out of contracts. These include ways to make provisions more concrete and reduce the risk of future litigation at the drafting stage by being methodical about what stays and what gets jettisoned in a contract.

In these strategies, the old adage is true: an ounce of prevention is worth a pound of cure. On every contract page are opportunities to improve your client's position. The strategies deployed in drafting contracts must maximize a client's advantage should litigation become unavoidable.

Relying on canned provisions and boilerplate language ignores the unique nature of each contract. Each clause needs to be assessed with the client interests in mind as well as an eye toward litigation.

LITIGATION-MINDED MOVES

Approach each contract and clause clear-eyed on client interests. The easiest way to do this is to involve your client, rely on them for some of the answers in clarifying language and contract provisions that involve their field of expertise. A contractor in construction or a coder in software development is going to know the vernacular, pain points and some of the hidden issues by virtue of their expertise. The client may see something in a clause that a lawyer as an outsider to the construction or software industry might not see as readily.

In writing or revising contract language, less is more. Simplified language is clear language. So the more complicated a contract or provision is, the more room there is for various interpretations. When interpretations vary on both sides, and issues become more complicated, the case usually ends up in a costly court battle.

Overlapping and interlocking agreements are another area to tread carefully. A contract may be contingent, reference or incorporate part or all of other complex agreements.

The interaction between these agreements has to be crystal clear. Consider integrating them as an exhibit to the contract itself. For example, in a contract between a major railroad and a smaller railroad that do business together or lease a railroad track, there are typically a number of different agreements that need to be considered by in-house attorneys and must be referenced in any related contracts to reduce disputes.

Keep agreements and exhibits together in a single document when negotiating or finalizing a contract. Review related contracts to delete and manage anything inherently contradictory between the two contracts as ambiguity leads to disputes. Indemnity clauses, exceptions and arbitration provisions in attendant contracts all need to be considered.

IS IT LEGAL?

Presumably, your client would not have come to you without thinking you can answer these questions. So, make sure the provisions you write into a contract are legal. For example, there are cases where fees can be shifted unilaterally and other situations where they cannot. Jurisdiction can (and should) be selected but a court will not enforce jurisdiction that it simply does not have. Master agreements and forms often contain terms that once were legal but later become incomprehensible or entirely inappropriate in a considerably modified draft.

When considering shortcuts, know whether the shortcut or money-saving device is on the right side of the law to avoid a lawsuit. Can liability be limited by contract?  Is your client required to indemnify another party? If so, is there a cost of defense clause required? Does the cost of defense permit another party to hire separate counsel at considerable expense to your client?

There are often other parties who will need to review and understand the contract you draft. For example, a bank funding a construction project may rely upon the contract between the owner and contractor or contractor and sub-contractors. Understanding the third-parties who may rely on your contract might inform additional contract clauses or require separating clauses into separate documents. Confidentiality concerns should be considered.

In addition to these types of third-parties, an attorney drafting a contract should consider how the contract will be understood by neutral third parties like a judge and the jurors. Few judges or jurors are likely to be transactional lawyers or have great experience reading and understanding complicated contract provisions. A contract should be drafted in a way that is easily understood by these third-party, neutral individuals. Language that is reasonable, comfortable, and natural, unambiguous and intentional, is key to contracts that stand up in court.

Draft each contract from scratch and avoid throw-away provisions that do not apply to your particular circumstance. But reconsider old provisions. For example, in the age of COVID-19, every business in every sector has been impacted in ways that were not predictable over the last two years, giving attorneys insight into the legal pitfalls of pandemic management. What might need to be added to the contract to protect your client's interests? This includes addressing force majeure issues and performance contract language that needs to be considered for natural disasters and business disruptions. Where once these terms were common in contracts - then often deleted - now the necessity returns.

AMENDING CONTRACTS

When amending contractual language, start with the original documents to make sure old and new are consistent. Ask your client to weigh in on these amendments and make sure the obligations of the modified clauses are a responsibility the client can undertake and deliver. Amendments put in place without client approval can undermine future claims. It happens, especially in big projects such as commercial real estate where there's no scope of work in a contract and an agreement is approved without the knowledge of the general contractor.

Indemnity is a promise to compensate for harm or the boss' risks that could be incurred by a party under the agreement. These include leased property and injury claims that may come up in the course of fulfilling the contract. Particular attention should be paid to who's indemnifying the purchase, whether appropriate insurance coverage is in place to cover claims, and who is additionally insured, and in which locations under the contract. Finally, be clear about what triggers indemnity, the number and nature of policies and any exclusions that apply.

When litigation is unavoidable, choose a forum to arbitrate or litigate that gives your client the best home field advantage. Where is the client's home base?  Wherever most of the witnesses potentially live as that consideration reduces travel costs and business downtime. Avoid neutral forums where nobody knows the rules.

And, just because you have designated a forum, you have not delineated the choice of law. Choice of law can be a complicated, expensive fight if there are questions in this area. Choose a forum, choose a law, and make them both clear in the contract. Remember: if you want these choices to be mandatory (and you should), your contract language must leave nothing for the imagination.  Designate "The Exclusive" venue and law.

SIMPLIFY THE CONTRACT

Finally, before allowing your client to sign any contract or addendum, consider whether the contract is comprehensive enough. Is language clear? Have contingencies been covered adequately? Are protections in place for X...? Can the clients named in the contract fulfill the bargain? Has the contract been reviewed by a qualified attorney?

These are just a few of the common contract provisions that can lead to litigation. Tight clauses and preventative strategies that view contracts from a litigation perspective hold up better in court, should litigation become unavoidable. While contracts are a way to get parties to agree to proceedings, there are ways to minimize risk to the advantage of a client. The simpler the contract, the less room for multiple interpretations.

Cash Parker is member at Hall and Evans, where he represents a broad spectrum of clients from major railroad companies to individuals in commercial, real estate, personal injury, regulatory and employment litigation and deals with complicated contracts all the time.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.