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Friday, 10 July 2009

Trial judge says "Boileau" to patent licence; appeal court agrees

The draft judgment of the Court of Appeal for England and Wales in Oxonica Energy Ltd v Neuftec Ltd [2009] EWCA Civ 668 has started circulating, though the final, approved text has yet to reach this member of the IPKat team and awaits posting on BAILII. This appeal relates to a contractual dispute, heard by Peter Prescott QC acting as a Deputy Judge. Peter Prescott summed up the whole matter up in the first two paragraphs where he said:

"How do we interpret a formal commercial agreement if it is ambiguous and we have reason to believe that its draftsman did not have a deep understanding of the relevant law? I think that is what this case is about.

The secret of drafting legal documents was best described by Nicolas Boileau, who was not only a literary critic but a qualified lawyer: "Ce que l'on conçoit bien s'énonce clairement et les mots pour le dire arrivent aisément". What one conceives well can be stated with clarity and the words to say it come easily. We should all have that framed and displayed on our desks. But too often the opposite precept is followed. Bits of legal boilerplate are bolted together so that it is the words that are allowed to shape the concept instead of the other way round. In that regard the invention of the word processor has worked wonders. Sometimes, I fear, it has dispensed with the 'concept' altogether. Misfortune not infrequently follows."
The Court of Appeal (Lord Justice Jacob giving the judgment with which which Judge and Arden LJJ concurred) dismissed the appeal, adding this comment concerning the interpretation of the patent licence:
"16. Each side supported its position with what I can call “big” arguments supported by various subsidiary arguments based on inference from other clauses. The latter have minor significance here given the poor drafting and the Mitsui principle of construction [".. the poorer the quality of the drafting, the less willing the court should be to be driven by semantic niceties to attribute to the parties an improbable and unbusinesslike intention, if the language used, whatever it may lack in precision, is reasonably capable of an interpretation which attributes to the parties an intention to make provision for contingencies inherent in the work contracted for on a sensible and businesslike basis": Mitsui Construction Co Ltd v A-G of Hong Kong (1986) 33 BLR 14)]. So it is not necessary to deal with these in detail. What matters are the big arguments.
17. Not surprisingly, each side said that the other’s position amounted re-writing the document rather than construing it. I do not agree with either view. Given that neither side suggests the agreements are void for ambiguity (a position of last resort in relation to the construction of any contract) the search is on to ascertain what the reasonable reader would make of the disputed phrase in the context of the two documents and the background".
The IPKat has complained about bad drafting on numerous occasions and continues to do so. Sometimes they are the result of inappropriate welding together of boilerplate terms; on other occasions they reflect a failure of licensor and licensee to reach agreement on certain issues or -- even worse -- an agreement not to flesh out some specifics, in case the attempt to do so should reveal a lack of consensus concerning them. But, given the regularity with which fudged and fuzzy contract terms get litigated, is the short-termism that leads to the signing of a botched job a better policy than nailing down the foreseeable issues before signing the licence?

Cure for bad drafts here

4 comments:

Justin Watts said...

I can't agree with equating "ambiguous" and "bad". Commercial deals work because (to paraphrase Robin) what matters are the big arguments. In many - perhaps most or even all - deals, there are possible future issues on which the parties would not agree. But it is rare that these things materialise and cannot be sorted out commercially - I doubt more than 0.001% of contractual clauses end up litigated.

The complaints from the courts about poor drafting arise because the courts deal ex post with individual agreements, and are not concerned ex ante with efficiency of expenditure or with maximising benefit from the statistical mass. Ex ante, there are many issues where the investment in sorting them out is outweighed by the remoteness of the chance the issue will materialise, the consequences if it does, and the potential of the discussion to undermine the parties' trust and confidence in each other. It's often the case that both parties know there is a botch, and don't want to touch it. A botch job that both sides can live with, to sort out in court if and when things go sour, is often preferable to negotiations on a theoretical point. Even if the theoretical point later turns out to be realised.

Then again, if the ambiguity is not entered into with eyes wide open, it's bad drafting and there's no excuse.

Jeremy said...

Justin: I stand by my comments. At the point at which commercial deals are concluded, the 'big arguments' are obviously the drivers. But down the line, when one party is unhappy with (i) the deal itself or (ii) the other party, the 'small arguments' are often the fulcrum upon which leverage into variation of the terms, or a completely new deal, turns. To say that "it is rare that these things ... cannot be sorted out commercially" seems to miss the point, which is that they have to be sorted out at all -- which can be at the cost of inconvenience and uncertainty to one or both parties even if, as is fortunately usually the case, there ends up being nothing to litigate.

The ex ante issue can be addressed in much the same way. Clauses can get litigated not because they're bad clauses per se but because one or possibly both parties are unhappy with what the 'big argument' has left them with.

I agree with you that, where an ambiguity is not entered into with eyes wide open, it's bad drafting and there's no excuse -- but I'm reluctant to agree that the fact that a party enters into a contract fully conscious of the ambiguity of a provision suddenly cures it of being bad drafting.

Mark Anderson said...

Justin, nice try, but I don't think bad drafting can be justified on the basis that the parties didn't have the time or energy to get it right in negotiations. It may be a plea in mitigation of sentence, but it is not a good defence.

I wondered whether you were referring, in part, to what is sometimes called "constructive ambiguity", ie where the parties reach an effective stalemate in their negotiation of a point, and leave the wording ambiguous, each party hoping that the court will interpret it in their favour (notwithstanding the contra proferentem rule). Commercial pressures may lead to this outcome, but I think the draftsman should try to minimise its occurrence.

There is another type of bad drafting, which (according to Prescott) is illustrated by the Oxonica case, namely that cutting and pasting wording from old agreements, without careful thought, can lead to disaster. This issue has little to do with negotiating pressures, particularly where we are talking about the first draft that is presented for negotiation.

Having said this, some of the judicial comments about bad drafting stick in my throat, particularly when they come from judges who, one suspects, have little experience of contract drafting. Lewison J is an honourable exception to this (I keep his book under my pillow), and I wish he were given all the cases concerning the construction of IP agreements, even if they do concern complex technology.

gyges said...

"The IPKat has complained about bad drafting on numerous occasions"

An incredible amount of bad drafting comes from ignorant arrogant business types who crib together agreements from every contract they've ever seen.

Subsequent attempts to negotiate arouse suspicion and antagonism.

Subsequent attempts to seek clarification arouse resentment (for example, references to non-existent paragraphs).

This is the sort of environment (factual matrix, if you will) that gives rise to these contracts. I think that this is the world that Justin sees, as do I.

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