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Creativity versus redundancy in contract drafting

In 1997 a paragraph in an Australian business magazine jumped off the page. As I recall it stated: "At a time when intellectual property is rapidly rising in value, in business it is remarkable how the greatest value is being derived by those who give it away."

This seemed a paradox. It was two years after Netscape's August 1995 Initial Public Offering and Navigator, Netscape's free web browser software.

However those of us who were watching closely noted that the software product development, testing and release pattern for Netscape was an innovation.

Netscape was ahead of its time. It's only really been since about 2006 that the Netscape free way became common for many software companies, most notably for social networks such as Facebook, Twitter, LinkedIn.

Their "free" online business models, supported by incredible business and technology infrastructures, have illustrated entrepreneurship at work and commercial creativity.

Each typically provides "free" services in return for something from which they've worked out how to get tangible outcomes from. In the cited social media examples, that has involved gathering user data or eyeballs and reselling it to advertisers. Others too have seen value in the data, eg the U.S. National Security Agency.

Commercial creativity is rare. What's common is at best tried and true ways of working and at worst - myopic, naive or uncreative views about what works in business or business law. As a law firm we see these views reflected in draft agreements supplied to us for advice or review.

Redundancy in contract drafting

An obvious and common cause of these weaknesses in draft agreements is that clients, business advisers and lawyers are working with outdated ideas about law, deal making and business process and how to reflect them in business documentation.

Evolution thrives on diversity. So too do business models and the legal template agreements.

The simple fact is that the more up-to-date templates, options and understanding you have, generally the better placed you are to find a tailored effective solutions for market needs today.

However, many lawyers and others involved in contract drafting in business:

  • Rely on a very small library of templates and business models, many of which have long ago passed their "use by" date.
  • Labour under misconceptions about what and how to negotiate for the target products and services and how to properly track all of that in negotiation documentation.
  • Feel compelled to be conservative, believing that older document structures, formats and wording are more reliable. They are especially held back by not recongising that contracts can be built with Lego parts or modules, eg:
    • types of clauses for each specific topic (eg clauses with optional or alternative wording that is short, long, generic or specific, biased or mutual);
    • types of signature blocks (eg with a witneses, with no witnesses, or with no signature requirement); and
    • types of layouts for contracts (eg letter layout, memo layout, traditional tombstone layout, and schedulised layout).

These weaknesses add to woolly thinking. The first weakness, the lack of diversity arising from having only a small library of templates etc, leads to meaningless reapplication of redundant models. The second weakness, leads to a lack of focus or misunderstandings and sub-optimum results.

The third weakness, ie not seeing an agreement as a situation-specific selection of modules and components, reduces code re-use and hence makes drafting work more expensive. Many areas of software development long ago moved towards modular approaches. Contract drafting remains in the dark ages.

Time, energy and money are wasted when an entire agreement must be thrown away to return back to the drawing board.

Competencies need to minimise redundancy

Are these weaknesses common? Unfortunately yes, and they are increasing in number in my experiece. Why?

Many factors are responsible, too many to capture here. One stands out. The pace of change has increased the prevalence of  weaknesses in contract negotiation and drafting. We see this in agreements originating from Australia, the United States, India and elsewhere. It's a delight when agreements are very well drafted to suit specific circumstances. It is frustrating that we feel this delight less often.

A breadth of knowledge and business creativity are needed to steer away from dead ends. Instead of looking to legal knowledge alone or relying on old know-how, in contract negotiations and drafting seek service providers who can integrate new thinking about the law, business and even technology and apply it with ethics, commerciality and practicality. Do this before negotiations begin, in fact call an experienced adviser at the concept stage of your venture.

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