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Rae Nield: When bad language is expensive

Rae Nield: When bad language is expensive

There are some banned words in my office. The use of “hereinbefore”, “hereinafter” and “the said” (as in “the said goods are to be delivered as set out hereinafter”) amounts to a serious misdemeanour. “Such” is permitted only after “any” and then only if there is no alternative.

It’s my reaction to contracts that look as if they are written in Klingon. Clients are often surprised to find you can have plain language in a contract, but even plain language can be a trap if you don’t check it out. Just like computer code, contracts have their own special language in some places. Functional contract language, just like computer language, works properly only if the code is precise and correct, and if the code is followed. Having a “she’ll be right” attitude makes for bad software and worse contracts. Words I often hear: “But we all agreed that was how it would work” when it’s not written into the contract. Or “But we trusted each other”. Worse, “We were mates”. Quite. Note the use of past tense in the above examples. In a recent case, an IT contract quickly turned pear-shaped after people didn’t do what the contract told them to do. On one side of the case was a phone hardware supplier. On the other side was a company and two employees “TJ & the Managers”. TJ & the Managers negotiated a contract to help the hardware supplier sell and install integrated voice and data systems using customers’ PABXs and VoIP voice-internet software. As part of the precontractual negotiation, an informal budget was created. However, the actual contract that was signed clearly said a second official budget needed to be written and would form part of the contract. The contract even set out some requirements for the new budget. That critical second budget was never written. The contract had a clause stating the hardware supplier could cancel if sales were below 80 percent of budget revenue or 90 percent of budget gross profit. Towards the end of the first year sales were well below target, based on the informal budget, so the hardware supplier canned the contract, and required the Managers to clear out their desks and hit the road. Problem: the budget that the hardware supplier had relied on was the wrong budget. Only the official budget that was part of the contract gave the supplier the right to cancel the contract. Bizarrely, the hardware supplier started a court case against TJ & the Managers over costs. It didn’t get very far: it hadn’t followed the contract rules for ending the agreement so the attempted cancellation wasn’t valid. TJ & the Managers won. The contract reared its ugly head one more time. It said that if one side won a court case then the other side would have to pay “solicitor – client costs”. In English, this means “pay 100 percent of the actual legal costs that the successful party had shelled out”. Without a clause like that the winning party usually only gets scale costs – about two-thirds of your costs even if you are very lucky. What should have happened? Well, the hardware supplier should have read the contract carefully and comprehensively before cancellation, sought advice and followed the exact process set out in the contract. The special language needed to be respected too: “solicitor-client costs” is a hefty line of code – it’s rather like the day when your six-year-old child first discovers “format c:”. Do remember that a contract will usually tell you what to do when things go wrong. Read it carefully and follow it line by line. It can save you a heap of money!

This article is intended for general information, and should not be relied on as specific legal advice. You should consult a lawyer for advice relating to your own specific legal problems. Rae Nield can be contacted at raenield@marketinglaw.co.nz.


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