Drafting Contracts Like a Pro: Familiarisation (or Re-Familiarisation!) for Junior Lawyers and Business Managers

Understanding the Basics of Contract Drafting

To draft effective contracts, it is essential to have a solid understanding of the fundamental elements that make up a legally binding agreement. At its core, a contract is a promise or set of promises that the law will enforce. For a contract to be valid, it must include the following key elements:

1. Offer: One party must make a clear and definite offer to another party.

2. Acceptance: The other party must unambiguously accept the offer.

3. Consideration: There must be an exchange of value between the parties (e.g., money, goods, or services).

4. Intention to create legal relations: The parties must intend for the agreement to be legally binding.

5. Capacity: Both parties must have the legal capacity to enter into a contract (e.g., be of legal age and sound mind).

In addition to these basic elements, contracts are governed by a range of legal principles that vary depending on the jurisdiction and the nature of the agreement. Some of the most important principles to be aware of include:

• Misrepresentation: A contract may be voided if one party makes a false statement that induces the other party to enter into the agreement.

• Duress: A contract may be voided if one party is forced or coerced into entering the agreement.

• Undue influence: A contract may be voided if one party uses their position of power or trust to unfairly influence the other party.

• Mistake: A contract may be voided if both parties enter into the agreement based on a shared misunderstanding or false assumption.

As a junior lawyer or business manager, you will likely encounter a wide range of contract types, each with its own unique requirements and challenges. Some of the most common types of contracts include:

• Employment contracts

• Non-disclosure agreements (NDAs) or confidentiality agreements

• Service agreements

• Lease agreements

• Loan agreements

• Intellectual property licences

By familiarising (or re-familiarising!) yourself with the basic elements and principles of contract law, as well as the specific requirements of different contract types, you'll be well-equipped to tackle any drafting challenge that comes your way.

Preparing to Draft a Contract

Before putting pen to paper (or fingers to keyboard), it's crucial to lay the groundwork for a successful contract drafting process. This involves identifying the purpose and objectives of the contract, gathering relevant information and documents, consulting with stakeholders and subject matter experts, and researching applicable laws and regulations.

Start by asking yourself: What is the primary goal of this contract? Is it to establish a new business relationship, protect intellectual property, or outline the terms of a service agreement? Once you have a clear understanding of the contract's purpose, you can begin to identify the specific provisions and clauses that will be necessary to achieve those objectives.

Next, gather all the relevant information and documents that will inform the content of the contract. This may include previous agreements, term sheets, letters of intent, or other correspondence between the parties. Don't be afraid to dig deep and ask questions – the more information you have at your disposal, the better equipped you'll be to draft a comprehensive and effective contract.

It's also essential to consult with stakeholders and subject matter experts who may have valuable insights or requirements that need to be incorporated into the contract. This could include colleagues from other departments, such as finance, HR, or IT, as well as external advisors like accountants or industry specialists. Remember, a contract is only as strong as its weakest link, so it's important to get input from all relevant parties.

Finally, be sure to research any applicable laws and regulations that may impact the contract. This could include industry-specific regulations, data protection laws, or consumer protection legislation. Failure to comply with these requirements could lead to legal challenges down the road, so it's important to get it right from the start.

Structuring the Contract

With the preparation phase complete, it is time to start putting the pieces of the contract together. A well-structured contract should be organised in a logical and coherent manner, with clear headings, subheadings, and numbering to guide the reader through the document.

At a minimum, most contracts should include the following essential sections:

1. Parties: The full legal names and addresses of the parties entering into the contract.

2. Preamble / Recitals: A brief introduction that sets out the context and purpose of the contract.

   1. Note: I think this is an under-appreciated element of contracts. Whilst it may carry little legal weight, it challenges you to confirm to yourself whether you truly understand the what, why and how of the contract you are making. Similarly, by summarising the contract, it makes sure that you are seeing eye-to-eye with your counterparty.

3. Definitions: Clear and concise definitions of any key terms or acronyms used throughout the contract.

4. Terms and Conditions: The main body of the contract, outlining the specific rights, obligations, and responsibilities of each party.

5. Signatures: A space for each party to sign and date the contract, indicating their agreement to be bound by its terms.

Within the Terms and Conditions section, there are a number of key clauses and provisions that will typically be included, depending on the nature and complexity of the agreement. These may include:

• Scope of work or services

• Payment terms and conditions

• Intellectual property rights

• Confidentiality and non-disclosure

• Termination and dispute resolution

• Indemnification and limitation of liability

By organising the contract in a clear and logical manner, you'll make it easier for the parties to understand their rights and obligations, and reduce the likelihood of disputes arising down the line.

Drafting Clear and Concise Language

One of the most important skills in contract drafting is the ability to write in clear, concise, and unambiguous language. This means avoiding legal jargon and convoluted sentence structures in favour of plain English that can be easily understood by all parties.

When drafting a contract, consider the following tips:

• Use short, simple sentences and paragraphs.

• Avoid using words that have multiple meanings or are open to interpretation.

• Define key terms and acronyms the first time they are used, and use them consistently throughout the document.

• Use active voice instead of passive voice whenever possible.

• Avoid using unnecessary or redundant words and phrases.

Remember, the goal is to create a document that is easily understood by everyone who reads it, not just lawyers. By using clear and concise language, you'll help ensure that all parties are on the same page and reduce the risk of misunderstandings or disputes.

Addressing Key Clauses and Provisions

When drafting a contract, it's important to carefully consider each of the key clauses and provisions that will be included. These clauses will vary depending on the nature and complexity of the agreement, but may include:

Scope of Work or Services

This clause outlines the specific tasks, deliverables, or services that one party will provide to the other. It should be as detailed as possible, including timelines, milestones, and any relevant specifications or requirements.

Payment Terms and Conditions

This clause sets out the financial arrangements between the parties, including the amount to be paid, the payment schedule, and any applicable interest or penalties for late payments.

Intellectual Property Rights

If the contract involves the creation or use of intellectual property (e.g., trademarks, patents, or copyrights), it's important to clearly define who owns those rights and how they can be used by each party.

Confidentiality and Non-Disclosure

This clause prohibits the parties from disclosing confidential information obtained during the course of the agreement, and may include specific requirements for handling and storing sensitive data.

Termination and Dispute Resolution

This clause sets out the circumstances under which the contract can be terminated by either party, as well as the procedures for resolving any disputes that may arise.

Indemnification and Limitation of Liability

This clause allocates risk between the parties by specifying who will be responsible for any losses, damages, or legal claims arising from the contract, and may include limits on the amount of liability each party can incur.

By carefully considering each of these key clauses and tailoring them to the specific needs and circumstances of the parties involved, you can create a contract that is both comprehensive and effective.

Tailoring the Contract to the Specific Situation

While it's important to have a solid understanding of the standard clauses and provisions that are typically included in contracts, it's equally important to recognize that every agreement is unique. As such, it's crucial to tailor the contract to the specific needs and circumstances of the parties involved.

This may involve adapting standard clauses to fit the particular transaction or relationship, or even creating entirely new provisions to address specific concerns or requirements. For example, if the contract involves the sale of a business, you may need to include clauses related to due diligence, warranties and representations, and post-closing obligations.

When tailoring a contract, it's also important to consider the balance of risk and reward between the parties. In some cases, it may be appropriate to allocate more risk to one party in exchange for a higher reward, while in others, a more even distribution of risk may be necessary.

As a junior lawyer or business managers, don't be afraid to think creatively and propose novel solutions to address the specific needs of your clients. By taking a tailored approach to contract drafting, you'll demonstrate your value as a strategic advisor and problem-solver.

Reviewing and Revising the Contract

Once you have drafted the initial version of the contract, it is essential to review and revise it carefully to ensure that it is free from errors, inconsistencies, and ambiguities. This process should involve a thorough proofreading of the document to identify any grammar, spelling, or punctuation mistakes, as well as a more substantive review to ensure that all necessary clauses and provisions have been included and that the contract is consistent and coherent throughout.

Tip: try to be jarring in your approach, as you can know a document ‘too well’. Start reading at different sections, out of sequence, or leave a document to ‘rest’ overnight and take a look at it with ‘fresh eyes’ the next day.

When reviewing the contract, consider the following questions:

• Does the contract accurately reflect the intentions and expectations of the parties?

• Are there any gaps or inconsistencies in the language or structure of the document?

• Have all relevant laws, regulations, and industry standards been taken into account?

• Are there any potential risks or liabilities that have not been adequately addressed?

It can also be helpful to seek feedback from colleagues or mentors during the review process, particularly if you are drafting a contract in an area that is new or unfamiliar to you. Fresh eyes can often spot issues or opportunities for improvement that you may have overlooked.

Remember, the review and revision process is an iterative one, and it may take several rounds of edits and refinements to arrive at a final version of the contract that all parties are satisfied with.

Negotiating the Contract

Once you have a draft contract that you are happy with, the next step is typically to enter into negotiations with the other party (or parties) to the agreement. This can be a delicate process, as each side will likely have their own interests and priorities that they are seeking to protect.

To navigate the negotiation process successfully, it's important to:

1. Identify potential areas of disagreement or concern: Review the draft contract carefully to identify any provisions that the other party may object to or seek to modify.

2. Develop a negotiation strategy: Consider what concessions or compromises you may be willing to make in order to reach an agreement, and what points are non-negotiable for your client.

3. Communicate effectively: Be clear and concise in your communications with the other party, and listen carefully to their concerns and proposals.

4. Find mutually acceptable solutions: Look for ways to bridge gaps and find common ground between the parties, while still protecting your client's interests.

Remember, the goal of contract negotiation is not to "win" at all costs, but rather to arrive at a mutually beneficial agreement that meets the needs and expectations of all parties involved.

Finalising and Executing the Contract

Once the terms of the contract have been agreed upon, the final step is to incorporate any agreed-upon changes and prepare the document for execution. This typically involves:

1. Drafting the final version of the contract: Ensure that all agreed-upon changes have been accurately incorporated into the document, and that the contract is free from errors and inconsistencies.

2. Obtaining necessary approvals: Depending on the nature of the agreement and the parties involved, you may need to obtain approval from senior management, legal counsel, or other stakeholders before proceeding with execution.

3. Arranging for signature: Coordinate with the other party to arrange for the contract to be signed by all necessary parties, either in person or via electronic signature.

4. Storing and managing the executed contract: Once the contract has been signed, it is important to store a copy of the fully executed agreement in a secure location, and to implement any necessary processes for ongoing management and compliance.

Best Practices for Contract Drafting

As you continue to develop your contract drafting skills, there are a number of best practices that you can implement to improve the quality and efficiency of your work:

• Develop a checklist or template for common types of contracts: Having a standardised template or checklist can help ensure that you do not overlook any key provisions or requirements when drafting a new contract.

• Stay updated on relevant laws, regulations, and industry standards: The legal and regulatory landscape is constantly evolving, so it is important to stay informed about any changes that may impact your contract drafting work.

• Collaborate with colleagues and learn from experienced practitioners: Do not be afraid to seek guidance or feedback from more experienced colleagues, and look for opportunities to collaborate and learn from others in your field.

• Continuously refine and improve your drafting skills: Like any skill, contract drafting requires ongoing practice and refinement. Look for opportunities to take on new challenges and stretch your abilities, and be open to feedback and constructive criticism.

By implementing these best practices and continuing to develop your skills over time, you'll be well on your way to becoming a confident and effective contract drafter.

Conclusion

Drafting contracts can be a complex and challenging task, particularly for junior lawyers and business managers who are still developing their skills and expertise. However, by understanding the key elements and principles of contract law, following a structured drafting process, and implementing best practices for review, negotiation, and execution, you can create agreements that are clear, comprehensive, and legally sound.

Remember, the goal of contract drafting is not just to create a legally binding document, but to build and maintain strong, mutually beneficial relationships between the parties involved. By approaching the process with a spirit of collaboration, creativity, and attention to detail, you'll be well-equipped to navigate even the most complex contract drafting challenges.

So, the next time you are faced with a new contract drafting assignment, take a deep breath, channel your inner British stiff upper lip, and remember: with a little knowledge, a lot of practice, and a dash of gallows humour, you're all over this one!