THE COSTLY CONSEQUENCES OF INELEGANT DRAFTING

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Emmanuel Bassey

 Emmanuel Bassey

 

  1. INTRODUCTION

It was the late renowned English judge, Lord Denning MR, that opined that “words are the lawyer’s tool of trade”. In nowhere is this more true than in contracts and legislative drafting, where words can make or mar any legislative and contractual instrument. Indeed, many high stakes cases have turned on the judicial interpretation of words used in a contract or statute. Millions of funds have been lost, whilst businesses and even lives have been imperiled because of one errant word or punctuation mark that was used unguardedly in a contract or statute.

The aim of this article is to review some of the cases where court decisions were hinged on the interpretation of a word or punctuation that was inadvertently used or not used in a contract or statute and make recommendations on how to avoid such pitfalls in legal drafting.

  1. UNILIFE DEVELOPMENT CO. LTD. v. ADESHIGBIN & ORS.

In this case, an arbitrator was appointed to, among other things, determine the revised rent payable by the Appellant to the Respondent pursuant to the provisions of a deed of lease executed between the two. At the hearing, there was a dispute between the parties as to the basis for the computation of the reviewed rent pursuant to the rent review clause contained in the deed of lease. The rent review clause provided in part as follows:

The amount at which the revised rent shall be fixed by an Arbitrator appointed under this clause shall be such as in the opinion of the Arbitrator is a fair and reasonable rent for the premises having regard to rents obtainable at the commencement of revision period for similar lands of similar area and amenities similarly situated. (emphases added.)

The Appellant contended that the clause requires that the reviewed rent should be computed based on the value of the bare land, without taking into consideration the buildings and developments on the land since the land was originally leased as a bare land before improvements were made on it, whilst the Respondent contended that the clause requires that the buildings and developments on the land should be taken into consideration in the computation of the reviewed rent. The Arbitrator was, therefore, asked to state a question of law for the decision of the High Court in the following terms: “On what basis should the revised rent be computed? Is it on the basis of the fair and reasonable rent which can be obtained for the premises in the open market? Or is it on the basis of the fair and reasonable rent which can be obtained for the bare site, without taking into consideration the buildings or developments on the site?”

The Respondent argued that the words “premises” and “lands” were used interchangeably to refer to the land and all the improvements on it, whilst the Appellant argued that the word “lands” as used in the clause was advisedly used to refer to the bare land as the basis for the computation of the reviewed rent.

The High Court determined the above question and found that only the bare land should be taken into account in determining the revised rent payable. Accordingly, the court held that the revised rent payable on the demised premises would be N30,000.00 per annum with effect from 1st April, 1981, being the rent payable for the bare land. Dissatisfied, the Respondent appealed to the Court of Appeal. The Court of Appeal allowed the appeal, reversed the decision of the High Court and held that the revised rent should take into consideration the improvements made on the demised premises and computed by the Arbitrator at N450,000 per annum. The Appellant, dissatisfied, further appealed to the Supreme Court. The Supreme Court in a considered decision set aside the decision of the Court of Appeal and restored the decision of the High Court. In coming to its decision, the Supreme Court, per Godfrey Achike, JSC, found that:

The use of similar lands in clause 7(b)(iii) rather than similar premises is telling. In my judgment, it produces the marked difference and effect that the revision in rent should relate to bare land in contradistinction to premises with its inherent elusiveness in meaning.

The apex court was of the opinion that if the parties had intended that the revised rent for the premises should be based on the fair market value of the whole premises with the developments on it in comparison with the market value of similar premises, the parties would not have used the phrase “rents obtainable …for similar lands” in the rent review clause as the basis for the computation of the review rent for the premises.

  1. IN Re HORIZON

This case is one of many cases that arose from the biggest oil pollution in the world, which occurred when an oil drilling rig, Deepwater Horizon, in the Macondo Prospect in the Gulf of Mexico, exploded and sank, resulting in the death of 11 workers and the leakage of an estimated 4,900,000 barrels of oil into the sea.

At the time of the incident, the Deepwater Horizon was engaged in exploratory drilling activities at the Macondo Well under a drilling contract between BP American Production Company (BP)’s predecessor and Transocean’s predecessor. This Contract required Transocean to maintain certain minimum insurance coverages for the benefit of BP as an additional insured. The contract also contained indemnity provisions whereby Transocean agreed to indemnify BP against liability for any pollution that occurs above the surface of land and sea whilst BP assumed liability for all risks not covered by Transocean.

Following the explosion of the Deep Horizon, BP sought to take benefit as an additional insured under the insurance contract which had been executed by Transocean. The umbrella insurance policies provided for at least $50 million of general liability coverage and at least $700 million of additional (excess) general liability coverage.

Indeed, those policies named BP as an “additional insured” entitled to coverage and the parties did not dispute this, but there was a dispute over the interpretation of the coverage clause in the insurance contract, which had an expected but omitted comma in the appropriate spot. Transocean and the insurers initiated proceedings and asserted that BP was not entitled to benefit from the insurance coverage since the Deep Horizon explosion occurred under water and Transocean only agreed to indemnify BP for pollution related liabilities which occurred above the surface. BP on the other hand argued that there was no such limitation in the coverage provided to BP under Transocean’s policies.

The contentious clause in the contract is reproduced below:

[BP], its subsidiaries and affiliated companies, co-owners, and joint venturers, if any, and their employees, officers, and agents shall be named as additional insureds in each of [Transocean’s] policies, except Workers’ Compensation for liabilities assumed by [Transocean] under the terms of this contract. (Emphasis added.)

BP read the emphasized language as excepting only workers’ compensation policies covering Transocean’s employees from Transocean’s obligation to name it as an additional insured. Transocean and the Insurers on the other hand read the language as excepting not only workers’ compensation liabilities, but also liabilities not assumed by Transocean under the contract. According to Transocean and the insurers the clause should be interpreted to mean that BP is entitled to be named as an additional insured under Transocean’s policies only in respect of above surface pollution liabilities which Transocean had assumed under its contract with BP. BP asserted that such an interpretation is unreasonable because there is a comma before, but not after, the phrase “except Workers’ Compensation” which shows that the clause only sought to exempt workers’ compensation liabilities assumed by Transocean and nothing more, and further contended that a comma cannot be inserted where it does not exist when it would alter the plain meaning of the contract (to restrict Transocean’s obligation to name BP as an additional insured only to liabilities assumed by Transocean under the contract).

The United States District Court for the Eastern District of Louisiana found BP’s proffered reading of this clause unreasonable, and read the clause as if there were a comma following the phrase “except Workers’ Compensation;” and concluded that the contract required Transocean to name BP as an additional insured only for liabilities Transocean explicitly assumed in the indemnity provisions of the drilling contract. The court then concluded that BP was not covered under Transocean’s policy for the pollution-related liabilities deriving from the Deepwater Horizon incident because the spill originated below the surface of the water.

On the appeal to United States Court of Appeals for the Fifth Circuit, the court overturned the decision of the district court and found that the umbrella insurance policy—not the indemnity provisions in the drilling contract between Transocean and BP controls the extent to which BP is covered for its operations under the drilling contract. Accordingly, since the policy imposes no relevant limitations upon the extent to which BP is covered, it reversed the judgment of the district court and remanded the case to the district court for entry of an appropriate judgment in accordance with its decision.

However, following a petition for rehearing of the case and due to a dearth of precedents on the narrow issues in the case, the Court of Appeals set aside its decision and certified questions (stated a case) to the Supreme Court of Texas to determine among other things the extent of BP’s coverage under the umbrella insurance policies.

The Texas Supreme Court in its decision found that reading the drilling contract as a whole, BP’s construction of the clause is not reasonable because it is either inconsistent with other provisions in the drilling contract or renders the words “liabilities assumed by [Transocean] under the terms of this contract” meaningless. It accordingly held that it “will not construe the absence of a comma to produce an unreasonable construction. In the end, the Texas Supreme Court read the clause as if there were a comma after the words “except Workers’ Compensation;” and agreed with the district court that the contract required Transocean to name BP as an additional insured only in respect of liabilities Transocean explicitly assumed in the indemnity provisions of the drilling contract.

Because of this decision, BP found itself unable to take coverage under the umbrella policies which provided at least $50 million of general liability coverage and at least $700 million of additional general liability coverage.

  1. KEVIN O’CONNOR & ORS. v. OAKHURST DIARY & ANOR.

This case arose from a dispute between a dairy company Oakhurst Dairy and its delivery drivers over the scope of an exemption from Maine’s overtime law. The drivers claimed that they were owed years of unpaid overtime wages, because of the way ‘commas’ were used in legislation governing overtime payments. The state’s laws declared that overtime wasn’t due for workers involved in “the canning, processing, preserving, freezing, drying, marketing, storing, packing for shipment or distribution of: 1) agricultural produce; 2) meat and fish products; and 3) perishable foods”.

The drivers argued that because there was no comma after “shipment” and before “or distribution”, they were owed overtime pay. If a comma had been there, the law would have explicitly ruled out those who distribute perishable foods.

At the trial, the United States District Court for the District of Maine held that, despite the absent comma, the Maine legislature unambiguously intended for the last term in the exemption’s list of activities to identify an exempt activity in its own right. The District Court thus granted summary judgment to the dairy company. On appeal to the United States Court of Appeals for the First Circuit, the Court held that since the exemption’s scope is not so clear as to whether distribution of goods was exempted from the application of the law, it construed the provision liberally in favour of the drivers and reversed the decision of the District Court.

As a result, Oakhurst Dairy settled the case by paying $5m to the drivers.

  1. RECOMMENDATIONS

Having seen the tragic consequences that can arise as a result of inelegant drafting, it becomes very essential for lawyers and other draftsmen to learn the essentials of good drafting in order to produce better contractual and legislative documents that reflect the real intention of the draftsmen. Some of these essentials include:

  • Understanding the instructions: the first step to good drafting is understanding the instruction. Every draftsman should invest the time necessary to understand what he has been instructed to do before taking steps to give effect to the instruction. If instructions are unclear, it is essential to ask clarifying questions in order not to end up producing a document that the client would disavow, or which could result in absurdity. The instruction should be considered in the context of general law and practicality so as not to end up producing a document that cannot be enforced because of its impracticability.
  • Use of precedents: established precedents should be used and adapted wisely according to the instructions received. As is often said, lawyers and indeed draftsmen are not slaves to precedents. Accordingly, precedents should always be adapted to fit into the context in which it is being used.
  • Clarity: make use of simple words and ensure clarity in the construction of your words. As much as possible avoid words that can be slightly misconstrued. Unnecessary legal jargons should also be avoided, whilst attention should be paid to punctuation marks in sentences. Where necessary, an interpretation clause should be used to delimit, extend, or narrow the meaning of words.
  • Brevity: brevity is about getting your meaning across in as few words as necessary. Avoid lengthy and uncommon words. This should, however, not be done at the expense of clarity. Your words should not be so few that it becomes vague or so many as to cause ambiguity. Striking a balance between the two is the desired approach.
  • Draft scrutiny: avoid assuming the drafter knows everything. Have someone else proofread or wait a few days to proofread with a fresh perspective. Also, experts in the relevant field should be employed to assist in drafting and reviewing contracts and legislations in order to produce a document that better reflects the practical realities of the sectors where the contracts or legislations would be applied.
  • Consistency: maintain consistency in terminology. Changing words can alter meanings and lead to confusion as we saw in Unilife Development Co Ltd v. Adeshigbin & Ors where confusion was caused by the use of the words “lands” and “premises” in reference to the same property.

Additionally, the courts should where necessary adopt a more purposive approach to the interpretation of contracts and laws in order to give an interpretation that accords with justice and the intention of the parties/draftsmen. The purposive rule of interpretation states that where a document or statute is amenable to more than one interpretation, the court should favour the interpretation that best reflects the objectives or purpose of the contract or statute. This was the approach that was adopted by the Supreme Court of Texas in the case of In re Horizon where the court interpreted the contentious clause in the drilling contract as if a comma had been inserted where it ought to have been because doing otherwise would have made the clause unreasonable and inconsistent with other provisions in the contract.

  1. CONCLUSION

Although, it may never be known whether the words and the punctuations used in the contracts/statute under review were carefully chosen or were unguardedly used, what is very obvious is the need to be very careful in the choice of the words used in a contract or statute because at the end of the day fortunes and livelihoods may depend on the interpretation to be placed on the words whether carefully or carelessly used. Given the important role that lawyers play in legal drafting, cases like the ones under review bring to fore the need for lawyers (and indeed legislative draftsmen) not to be narrow minded in drafting contracts and legislations. Apart from carrying out a thorough review of all documents to identify errant words and punctuations, lawyers should subject the clauses in their contracts and legislations to the most awkward interpretation possible to ensure they have covered and anticipated all possible scenarios as much as practicable, whilst also paying attention to the essentials of good drafting as set out above.

________________________________________________

For further information on this article and area of law,
please contact Emmanuel Bassey at:
S. P. A. Ajibade & Co., Lagos by
Telephone (+234 1 472 9890), Fax (+234 1 4605092)
Mobile (+234.703.805.9736, +234.815.088.2839)
Email: ebassey@spaajibade.com
www.spaajibade.com

 

Footnote

  1. Emmanuel Abasiubong Bassey, Senior Associate in the Dispute Resolution Department of S.P.A. Ajibade & Co., Lagos, Nigeria.
  2. Lord Denning, The Discipline of Law (London: Butterworths,  1979) p. 5.
  3. (2001) LPELR-3382(SC).
  4. 470 S.W.3d 452, 58 Tex. Sup. Ct. J. 330 (Tex. 2015).
  5. See, https://www.britannica.com/event/Deepwater-Horizon-oil-spill (accessed on 16 October 2023).
  6. No. 16-1901. (1st Cir. 2017).
  7. See, https://www.bbc.com/worklife/article/20180723-the-commas-that-cost-companies-millions. (accessed on 17 October 2023).

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