The Simplified blog

According to the Financial Times (‘Lambasting lawyers’, The Lex Column, 26 March 2008), poor drafting is at least partly to blame for JPMorgan’s hassles in its Bear Stearns offer where it had to raise its bid fivefold, ‘citing supposedly lax wording in the merger agreement’ as the reason.

The FT points out ‘this is not the only mooted deal of recent vintage where quarrels have arisen over the wording of contracts..’. It remembers Cerberus Capital Management who was able to get out of a deal for over $6bn for a buyout of United Rentals - allegedly because of ‘the interpretation of two provisions’ in the agreement.

According to the FT, ‘it is too simplistic to blame sloppy drafting for disputes. Still there may be room for improvement in terms of updating the often-archaic language used in merger agreements, as firms such as Jones Day and contract specialist Kenneth Adams have called for. This would help in ensuring deal contracts make clearer the position of each party to a deal.'

So why aren’t all contracts in plain English if the risks of ambiguity are so great? It’s because no-one really believes that the contract will be tested: ‘Why kick up a fuss over some ambiguous wording when the deal seems certain to happen anyway?’ The point is that deal (and other) contracts need to protect against the unexpected – else, what’s the point of them at all?

There are also other reasons that the contracts are not made clear of course – an over-reliance on precedent being one.