MODULE 2BASIC

DRAFTINGHAKIMAH YAACOB

RESEARCHER

Talent Development Programme

What Is Drafting?

• Legal Drafting is an art of writing skills which is reduced into a writing of contract. It comprise of short and precise on the needs of both parties, yet it has to be in line with legal requirement. It is Must for the Drafter to know the intention of both parties. Drafting is not a “draft” but a common words used to represent contract preparation in Law.

i. Drafting the Public Legal Documentsii. Drafting Private Legal Documents

HOW TO START DRAFT THE CONTRACT?Common items and clauses in a contract

•Preamble •The full legal names of the parties•Recitals•Definitions•Deal terms•Boilerplate clauses•Miscellanous Provisions•Signature & Execution clause•Schedules / exhibit.

Statement of Agreement

Identifies the partiesWho are the parties and when does the agreement start?

Purchase, Licence Describes the bargain or exchangeWhat are parties buying or exchanging?

Consideration / mechanisme of exchange

Describes the consideration and how payment, exchange or service will be performedWhat is the economic value given and received?How will the parties exchange the value?

Representations and warranties

Statement of actions and facts regarding parties and bargainWhat statements, facts and actions are material to the bargain and induce the parties to enter into the agreement?

Conditions Statement of actions and facts required to execute the exchangeWhat actions, facts or circumstances must occur for the parties to close the transaction?

Covenants Describes the ongoing obligations of the partiesWhat actions or forbearances must each party continue to perform?

Terms and terminations

Defines the time period of the agreement and the conditions on which it may be endedWhat is the time period of the agreement? How can it be ended?

Remedies Defines the rights that a party can exercise in the event that another party fails to perform its obligationsWhat can the parties do in the event the other does not perform its obligations?

Indemnification Grants the right to recover for inaccurate representations or non-compliance with obligationsWhat damages or penalties should the parties pay in the event that they do not perform their obligations?

General Provisions Defines the “law” of the agreement including its scope, adjudication and interpretation

• Preamble• A preamble is found at the start of a

commercial agreement. There should be no legally binding terms in this part of the contract. It is simply used to provide an introduction by way of background to the agreement, or the nature of the parties to the contract (e.g. Toyota is a manufacturer of goods supplying to Hadzari & Co, a seller of goods.)

• Preamble• The sample contract’s Preamble • (i) identifies the agreement through a title, • (ii) identifies the parties to the agreement, and • (iii) identifies the date on which the agreement was

entered into.• THIS SALES AGREEMENT made and

entered into this [__] day of [month] [year] (the “Effective Date”), by and between, [First Party], a __________ corporation having its principal office located at...

• Recitals • Recitals are the statements that appear before the operative clauses of

a contract. Typically they are on the first page. Sometimes they go for many pages. Sometimes they appear under a heading "Recitals", other times "Background" or "Introduction". Decades ago lawyers often began a recital sentence with "Whereas”. It is the easiest way to record the parties intention which could become the valuable interpretations tools for a court in the event of dispute. Recitals are not an operative parts of the contract, but the court may consider them if relevant in deciding upon an interpretation of particular parts of disputes.

• The recitals are very similar to the preamble and are situated at the beginning of the contract. The recitals often start with the word ‘Whereas’ and are also known as the ‘whereas clauses.’ This part of the contract should not contain rights or obligations of the parties, but is merely there to explain or introduce the nature of or background to the contractual relationship.

• Recitals/Introduction• The sample contract then continues with

Recitals that • (i) provide an introduction to the agreement

and why it is being entered into, and • (ii) identify important terms and possibly third

parties. Instead of the traditional recitals, some contracts have an introduction that serves a similar purpose. The recitals/introduction are not considered to be part of the agreement and are therefore typically not enforceable.

• Parties• The contracting parties should be clearly

identified. Any generally accepted identifiers such as a company number or, in the case of a corporation, its state of incorporation, registered no should be included.

• Definitions• This section defines specific terms in the contract. It

should be in the operative parts of the agreement and not with the recitals. This is because the definition section define terms that actually form aprt of the agreement. Defined terms are usually inserted at the beginning or in a schedule at the end of an agreement. The first letter of each word is normally capitalised to signify that it has particular meaning. Many terms, such as intellectual property, have fairly standard definitions.

• Interpretation• The purpose of an interpretation clause is to provide clear rules of interpretation

which apply when interpreting the contract. These rules provide certainty and avoid the need for repetition throughout the contract.

• For example, the effect of paragraph (g) in the example clause is that the word "include" can be used without the need to state "include, but not limited to." The extent of the interpretation clause will depend on the specific circumstances of each project. There is typically a section on interpretation that sits just after the provisions relating to defined terms. The following statements are usually included:

• singular and plural, and the genders, are interchangeable• generic words are not narrowly construed by examples following them (which saves

the draftsman having to add wording such as 'but not limited to' after use of the word 'include')

• definitions from specified legislation (including new or re-enacted legislation covering the same subject matter) or other sources apply

• clause headings do not affect interpretation, and• specific periods (eg days) have particular meanings

• Interpretation• The singular includes the plural and vice versa• A reference to a person includes a reference to the person's executors,

administrators, successors, substitutes (including persons taking by novation) and assigns

• If a period of time is specified and dates from a given day or the day of an actual event, it is to be calculated exclusive of that day

• Where an expression is defined, another part of speech or grammatical form of that expression has a corresponding meaning

• Headings are for reference only and do not form part of this contract• The words "including" and "include" mean "including, but not limited to"• The purpose of an interpretation clause is to provide clear rules of interpretation

which apply when interpreting the contract. These rules provide certainty and avoid the need for repetition throughout the contract. For example, the effect of paragraph (g) in the example clause is that the word "include" can be used without the need to state "include, but not limited to." The extent of the interpretation clause will depend on the specific circumstances of each project.

• Deal Terms / Body• The body of the sample contract contains the heart of the agreement – the reason why the

contract • was entered into. Topics such as the key terms of the agreement, the type and amount of • “consideration” and the parties’ ongoing rights, duties and responsibilities are discussed in

the body of the contract.

• NOW THEREFORE in consideration of the mutual covenants herein contained, and other good and valuable consideration, the parties hereto mutually agree as follows:

• 1.1 First Party hereby appoints Second Party as First Party’s exclusive partner in the Territory, and grants Second Party the exclusive right to promote, market, sell and distribute the Products in the Territory under First Party's Brand name(s) and Trademark(s).

• 1.2 Second Party accepts such appointment and agrees to use its commercially reasonable efforts to promote, develop and increase sales of the Products within the Territory.

• 1.3 Second Party shall not actively sell the Products in territories that (i) First Party allocated exclusively to a third party or (ii) First Party reserves for itself or an affiliate.

• Consideration – in the context of contract law, the term “consideration” has a very specific meaning.

• “Consideration” is the value given in return for a promise. For “consideration” to exist, one party must give something of legal value to a second party in exchange for the second party’s promise, and there must be a bargained-for exchange. The “consideration” must also either be legally detrimental to the party that receives the promise, or legally beneficial to the party that makes the promise.

• The parties exchange bargained-for promises and agree to enter into a legally enforceable relationship. This should satisfy the requirement that there be “consideration.” In the sample contract, “consideration” is addressed in the body of the agreement.

• “NOW THEREFORE in consideration of the mutual covenants herein contained, and other good and valuable consideration, the parties hereto mutually agree as follows:

• 1.1 First Party hereby appoints Second Party as First Party’s exclusive partner in the Territory, and grants Second Party the exclusive right to promote, market, sell and distribute the Products in the Territory under First Party's Brand name(s) and Trademark(s).

• Boilerplate clauses• Means common terms/clauses (standard clauses) and

explains why these clauses should, as a matter of good practice, be included in all contracts. “Boilerplate” is ready-made, all-purpose language that is inserted in many kinds of contracts.

• Despite being commonplace, boilerplate terms play key administrative roles. If something goes wrong and the parties to a contract end up in arbitration or court, a boilerplate term may be at the center of the dispute. The sample contract includes two boilerplate terms, (i) force majeure, and (ii) governing law.

• force majeure• Neither party shall be liable in damages or have the right to terminate

this agreement for any delay or default in performing hereunder if such delay or default is caused by conditions beyond its control including but not limited to acts of God, government restrictions (including the denial or cancellation of any export of other necessary license), wars, insurrections and/or any other cause beyond the reasonable control of the party whose performance is affected (including mechanical, electronic, or communications failure).

• Force Majeure is a clause which prevents the parties to a contract from being liable in the event that circumstances outside their control stop them from being able to undertake their obligations under the contract. The theory behind this lies in the legal doctrine of ‘frustration’ – that parties should not be penalised for the actions or fault of another and which they could not reasonably have foreseen.

• Law And Jurisdiction• This determines the law of the country (or state) that governs the contract. In the

event of litigation the jurisdiction is the country that will hear any legal dispute.• An example standard clause for specifying the jurisdiction which the parties agree

disputes will be heard is:• "The parties submit to the [non-exclusive/exclusive jurisdiction] of the courts of [ ]

and any courts that may hear appeals from those courts in respect of any proceedings in connection with this contract."

• In most circumstances, the parties will agree to submit to the non-exclusive jurisdiction of a particular jurisdiction. This means that there is at least one jurisdiction where the parties have agreed that disputes can be heard. This provides certainty to the parties because unless the court itself decides that it has no jurisdiction to hear the dispute, the dispute can be heard in the jurisdiction chosen.

• Unless there are compelling reasons to submit to an exclusive jurisdiction, it is preferable to nominate a "nonexclusive" jurisdiction. The main reason for this position is that when a dispute arises, a party may decide that it would, in fact, be preferable to commence the action in a different jurisdiction to the jurisdiction agreed as the exclusive jurisdiction. However, depending on the governing law, a party may be bound by the "exclusive" jurisdiction clause and be prohibited from bringing the action in a different jurisdiction. It is also important to consider whether a submission to the exclusive jurisdiction clause is valid in the chosen jurisdiction

• Notices• This provides the parties to a contract with an

agreed method of communication upon the occurrence of specific events. It is a very important provision as it sets out the way in which parties should communicate, and the timescales, thereby avoiding dispute later on. If parties are in different countries, this is likely to be by electronic

• Termination• This sets out the ways in which the contractual

relationship can come to an end. This may be at the end of a fixed term, if the contract is breached by either party, by granting the other party notice of termination (e.g. 30 days notice and in writing) if one party becomes insolvent, bankrupt or is liquidated, or a dispute arises between them that stops them from being able to continue with the contract. There will often be a further section in this clause which explains what happens when the contract is terminated.

• Severance And Invalidity• If a clause to a contract is found to be invalid,

illegal or otherwise unenforceable, this clause allows the parties to remove the clause/words and continue performing under the contract. However there are limits–if removal of the illegal or invalid clause makes the contract unworkable, the contract will be void.a severence clause also known severability clause.

• Governing laws• This agreement shall be governed by and construed in accordance with the laws

of Malaysia.

• It is fundamental for the parties to agree on the governing law of a contract. This is because legal concepts and drafting will differ depending on the chosen governing law. For example, the treatment of liquidated damages and exclusion for consequential losses under English, New York, Hong Kong and Australian law is different to the treatment under the laws of the United Arab Emirates, India and many jurisdictions in Asia.

• In the absence of a governing law clause, the courts will apply the rules of private international law to determine the governing law of the contract. That result may be contrary to the intention of the parties.

• In general, courts will normally give effect to the agreed chosen law as the proper law unless the choice is not made in good faith or is made to avoid mandatory provisions of the law which would otherwise be the proper law of the contract. There is also a growing body of authority which suggests that the law chosen by the parties must have a substantial, though not necessarily predominant, connection with the contract

• Arbitration• Any unresolved dispute between the Sponsor and the Researcher

shall be referred to and finally resolved by arbitration in Malaysia by an arbitrator to be agreed upon between the Parties or failing agreement within fourteen (14) days after either Party has given to the other a written request to agree to the appointment of an arbitrator a person to be nominated by the Director of the Kuala Lumpur Regional Centre for Arbitration at the request of either Party The arbitration shall be in accordance with the Rules for Arbitration of the Kuala Lumpur Regional Centre for Arbitration for the time being in force which rules are deemed to be incorporated by reference into this clause.The arbitration award, which may include an award for specific performance, injunctive relief or other equitable relief shall be final and binding on the Parties and judgment upon the award entered in arbitration may be entered in any court of competent jurisdiction.

• Severability• An example severability clause is:• "If any provision of this contract is prohibited, invalid or

unenforceable in any jurisdiction, that provision will, as to that jurisdiction, be ineffective to the extent of the prohibition, invalidity or unenforceability without invalidating the remaining provisions of this agreement or affecting the validity or enforceability of that provision in any other jurisdiction, unless it materially alters the nature or material terms of this contract."

• This example clause reflects the common law position. It is included to try and ensure that an invalid clause does not render an entire contract invalid. However, if the severed clause is central to the commercial agreement between the parties severing may have unintended consequences. Therefore, this clause may not be appropriate for all contracts.

• It is a practice in legal world of today to insert severability clause in legal documents. It is also known as a "illegality clause" or a "savings clause". In Latin it is known as salvatorious clause. Even in Islamic financing documents such as Bai’ Bithamin Ajil Contact, Istisna’ and murabahah agreement, the clause survives. It is of course a common insertion in conventional financing.

• The effect of saving clause• The insertion of saving clause in a contract allows for the terms of the

contract to be independent from one another, so that if a term in the contract is deemed unenforceable by a court, the contract as a whole will not be deemed unenforceable. If there were no severability clause in a contract, a whole contract could be deemed unenforceable because of one unenforceable term. Most contracts include a savings clause, which is meant to ensure that the contract remains enforceable even if part of the contract is later held invalid. In the absence of a savings clause, it is possible that if a single clause is held invalid, the entire contract will also be rendered invalid.

• Counterparts• An example counterparts clause is:• "This contract may be signed in any number of counterparts which, when taken

together, will constitute one instrument."• The purpose of a counterparts clause is, as the clause suggests, to enable a

contract to be signed in two different places and at two different times. Therefore, unless there is going to be a signing ceremony and all the parties are present to sign the contract at the same time a counterparts clause must be used. Each party should sign at least as many copies of the contract as there are parties, retain one and distribute the other copies to each of the other parties. Given the time taken to distribute hard copies it is common for faxed copies of the execution clauses to be distributed immediately following execution. However, to minimise the potential for disputes over execution and enforceability, parties must ensure that they receive an actual copy of the entire contract. This is because it is the entire contract that is the counterpart, not merely the execution clauses. If this issue is of concern the parties may wish to make receipt of all the counterparts a condition precedent to commencement of the contract. However, this is not common practice

Notices• A typical notices clause is:• N.1 Method of Service• Unless otherwise stated in this contract, all notices to be given under this contract must be in

writing and sent by personal delivery, courier or facsimile to the address of the relevant party provided that:

• Any notice sent by personal delivery must be acknowledged as having being received by the receiving party by stamping a copy of that notice with an acknowledgement of receipt stamp which specifies the time and date of receipt.

• Any notice sent by courier will be deemed (in the absence of evidence of earlier receipt) to have been delivered three days after dispatch and in proving the fact of dispatch, it is sufficient to show that the envelope containing that notice was properly addressed and conveyed to the courier service for delivery by courier.

• Any notice sent by facsimile is deemed to have been delivered on the date of its transmission, if it is a business day, on receipt by the sender of a delivery confirmation report.

• Either party may by three days' notice to the other party change its delivery address, facsimile address or addressee for receipt of those notices.

• N.2 Next Business Day• If a notice delivered by hand or sent by facsimile is delivered or sent (as the case may be)

after 5:00pm on a day, the notice will be deemed to have been received on the next business day.

• N.3 Notices• In this contract, notices include any approvals, consents, instructions, orders,

directions, statements, requests and certificates or other communication to be given under this contract.

• There are two main rationales for including a notices clause. The first is to establish the valid means of giving notices and the second is to deem when those notices have been delivered. The second is particularly important given the deadlines that are often included in project documents for the giving of certain notices.

• You will note that the example clause does not include the giving of notices by email (see DLA Piper Paper for more information on this issue).

• In addition, for some types of agreements and in some jurisdictions, the notices clause may have to be modified to ensure the giving or receipt of a notice does not create a nexus for stamp duty purposes.

• Clause N.3 is not necessary for all agreements. It is most relevant to construction type agreements where there will be a plethora of communication.

• Ouster Clause • Any appeal as to clause 12.2

should be made in writing to the Panel Commissioner and the decision of IMS is binding and conclusive.

• Schedules and Exhibit• All exhibits and schedules annexed hereto are

expressly made a part of this agreement as though fully set forth herein.

• Any exhibit or schedule attached to a contract would necessarily be referred to in the body of the contract. That reference by itself is all that’s required to make the exhibit or schedule part of the agreement.

• Obviously, the scope or binding nature of such schedule depends on the way it is referred to in the obligatory language of the main agreement. Accordingly, merely attaching the general terms and conditions of sale without explaining to which part of the sale they apply or which provisions apply does not subject a sale pursuant to the body text of the agreement to those general terms and conditions.

• contract concludes with a statement of the parties’ intention to create a legally binding agreement and signature blocks for the parties to the agreement.

• Signature and execution clauses• • These are usually placed at the end of the agreement, normally after the schedules and

before any annexes. The parties will sign the agreement, either themselves or by an appointed representative.

• Agreements may be signed either under hand or as a deed. The testimonium appears before the signature blocks, and is evidence of due execution of the agreement. There are certain questions you should ask yourself when reading through a contract. Look through the rights and obligations of both parties. Is everything that you have agreed included, and is there anything that you didn’t agree to? Is the price, or other ‘consideration’ clearly spelt out?

• You must be able to establish the conditions for ending the contract too. Is there a notice period for terminating the contract? Does notice have to be given in writing? What happens if one party breaches the contract? Are there any clauses that look like a party is trying to avoid being liable for something? What are the procedures in case of a dispute? This can be important in relation to jurisdiction. If a dispute needs to be resolved in the courts, choose a country that you are familiar with.

• Make sure that you understand everything that is required of you before you sign. If you are in any doubt, seek legal advice.

• IN WITNESS WHEREOF, the parties have executed this agreement effective as of the date first written above and the parties acknowledge that they have read and understand this Agreement and voluntarily accept the duties and obligations set forth herein.

THANK YOU SO MUCH FOR YOUR ATTENTIVE PARTICIPATION !

Enquiries ?hakimah@isra.my

0166323089