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Drafting fail: Which tasks must be completed — all of them, or any one?

A British court provides a nice training exercise for contract-drafting students. I’ve modified the facts somewhat.

  • Investor and Developer enter into a contract:  De­vel­op­er is to acquire property and then build and operate a shop­ping center; Investor is to put up the necessary funding.
  • The contract is somewhat tentative, because Developer must first complete a variety of prerequisite tasks such as acquiring the land; sec­ur­ing gov­ern­ment permits; etc. It’s not clear whether all of these tasks are feasible.
  • For four of these tasks, the contract obligates De­vel­oper to make reasonable efforts to complete the tasks. The contract also says, though, that “if all these tasks are not com­ple­ted by March 31, then either party may cancel this Agree­ment by giving writ­ten notice to the other party.”
  • On April 1, three of the four tasks have been completed. That morning, Investor sends to Developer, by courier, a written can­cel­lation notice; the notice is delivered to De­vel­oper early that afternoon.
  • But Developer doesn’t want to abandon the project.  After dis­cus­sions reach an impasse, Developer sues Investor, seeking a de­clar­­atory judgment that the contract is still in effect.
  • Developer’s reasoning is this:
    • The right to cancel the contract doesn’t arise, says Developer, unless all of the tasks are not completed.
    • Here, says Developer, only one of the tasks is still incomplete, and so Investor did not have the right to cancel the contract.
  • Investor responds that the clear in­tent was that either party could cancel if any of the four tasks was not completed.

QUESTION 1: What result did the UK court reach?

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A UK court held that similar contract language was ambiguous, and consequently that summary judgment in favor of the investor was improper. See Dooba Developments Ltd. v. McLagan Investments Ltd., [2016] EWHC 2944 (Ch) (allowing developer’s appeal).

(Hat tip: Ken Adams.)

This is potentially a significant pain in the [neck] for the parties: Unless they can settle the case, they’ll have to go back to the lower court and incur the expense and inconvenience of getting ready for trial.

QUESTION 2: How could this cancellation right have been drafted more clearly, so as to avoid the need for a trial?

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The cancellation right could have been worded, for example: “if any of these tasks has not been met by March 31, then either party may cancel this Agreement by giving written notice to the other party.”

VARIATION:

Suppose that:

  • Investor did not give notice of cancellation until five years had passed, with no action by either party to move forward with the development project.
  • Developer makes the same objection to cancellation.
  • Investor responds that this is ridiculous in view of the circumstances.

QUESTION 3: How could the drafters have tried to avoid this difficulty?

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  • The drafters could have stated a deadline or sunset for exercise of the cancellation right — this is an example of the principle that drafters should always think about how particular rights or ob­lig­a­tions will come to an end.
  • The drafters could have built in further cancellation rights that would arise if additional stated milestones were not met.

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