Contract drafting tips to avoid interpretation disputes

Contract interpretation disputes often arise when the text of the contract is not sufficiently clear. The contract must then be interpreted on the basis of other factors. The so-called Haviltex yardstick is used for this purpose. This Haviltex yardstick means that when interpreting a contract, it comes down to the meaning that the parties could reasonably understand and expect from each other’s statements under the given circumstances. The circumstances of the specific case are of decisive importance. You will understand that this can lead to unforeseen or undesirable outcomes. It is therefore wise when drafting a contract to take into account how the agreement will be interpreted. In this article, I provide some tips for contract drafting in the context of contract interpretation so that disputes can be avoided afterwards.

Pay attention to the literal text

The first tip for contract drafting is to word carefully. Problems of interpretation usually involve the most obvious meaning of what the contract says, even if the parties may have meant something else. Keep in mind that in the event of a dispute, the contract will first be interpreted using the literal text. Indeed, based on the literal text, a particular interpretation may be so obvious that it is difficult to argue otherwise.

Also, the nature of the contract and the manner in which it came about may mean that the literal text is looked at more closely. This is especially true of agreements negotiated between professional parties and/or with expert (legal) assistance, such as with the help of a lawyer.

Provide background information

When explaining an agreement, the background of the agreement can be important. This is why it is often included in the preamble or recitals at the beginning of the agreement. It is therefore advisable to pay attention to the preamble and record in it the principles and considerations that guide the explanation of the agreement. Consider considerations that describe what the parties want to achieve with the agreement, why they want to cooperate with each other, and the expertise of the parties.

It is also advisable to record the negotiation process. How did the parties reach the agreement? Have the parties previously entered into an agreement of intent? How did the negotiations go?

Exclude negotiation process

Often several drafts of the contract have gone back and forth between the parties. In these, changes will have been made and comments made that can be used to argue a particular interpretation of the agreement. Drafts are also often discussed by e-mail or orally. Many contracts therefore include an “entire agreement clause” stating that the agreement constitutes the entire agreement between the parties and that previous agreements between the parties lapse or are superseded by the agreement.

Conduct after the conclusion of the agreement

Conduct of the parties after the conclusion of the agreement may also be relevant to the interpretation of the agreement. Indeed, it can be inferred from certain conduct that the parties seemingly intended a certain intent of the contract.

An amendment clause is often included in the contract stating that the contract can only be amended in writing with the consent of all parties. This clause is intended to protect one party from a possible position by the other party that different or additional agreements were made orally or otherwise informally after the date of the agreement. Note, however, that post-agreement conduct that does not so much reveal further agreements but that does reflect a particular interpretation of the agreements made does not fall within the scope of the amendment clause.

Conclusion

It is advisable to pay sufficient attention to the drafting of the agreement so that no problems arise later. In doing so, it is important to take sufficient account of how the agreement will be interpreted. This requires the agreement to be drafted carefully.

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