Fundamental Principles. Drafting Documents

Transcription

1 Fundamental Principles for Drafting Documents Christopher Enright

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3 Fundamental Principles for Drafting Documents Christopher Enright! Sinch Business Name Firm Name Seminars Products Books Sinch for smarter lawyers Sinch Sinch Software Pty Ltd First Edition 2012 Second Edition 2015 Copyright Christopher Enright 2015 Citation Enright, Christopher (2015) Fundamental Principles for Drafting Documents 2nd edition, Sinch Author Christopher Enright is a barrister, solicitor and chartered accountant. He is a writer and the proprietor of Maitland Press. Chris has a Master of Commerce (Management) degree from the University of New England. In an earlier life he lectured in law and management at various universities.

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5 Contents Title Page... Contents... Labels... i iii v Section 1. Introduction... 1 Section 2. Planning the Document... 1 Key Characteristics... 1 Persons... 3 Effect... 4 Constraints... 5 Legal Requirements... 6 Change of Circumstances... 8 Default Revenue Structure Section 3. Writing the Document Introduction Structure Basic Rule Precedents Section 4. Formatting the Document Introduction Contents Abbreviations Parties Order Parts Headings Tables Appendix Sample Will iii

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7 Labels Introduction Describing Items Listing Items Diagrams Probability Introduction Discussion in this publication refers to items such as a statute or a meaning of an ambiguous provision. Often these are part of a collection, list, range or set of items. Frequently the text puts them in a diagram where they represent a model or a step on the way to explaining a model. The purpose here is to explain the labelling system used to refer to these items. Describing Items Labelling Items There are several aspects to labelling the items in a set, range, list or collection. These are name, number, letter and designating a set of items. Name The name of an item commences with a capital letter. Some examples are Element, Statute and Meaning. Number Items in a set, range, list or collection are generally numbered. For example, the elements of a legal rule are labelled Element 1, Element 2, Element 3 and so on. These numbers are ways of identifying elements and distinguishing one from another. They are generally not intended to create any list according to preferences or values. Letter Items in a set, range, list or collection can be lettered. For example a list of statutes can be Statute A, Statute B and so on. Designating a Set of Items It is useful to designate a set of items with a single and simple tag. Here is an outline. The basic proposition is that a simple and obvious tag has two aspects: 1. Description. Use a written label on the items as a tag or description. Put it in plural form. Thus a tag for a set of statutes would be Elements. v

8 vi Labels 2. Numbers. After the tag add a space then a compound numerical tag consisting of three items: 2.1 The number of the first item in the set. 2.2 A hyphen. 2.3 The number of the last item in the set. Here are two illustrations: 1. A set of six elements would be Elements A set of elements where the number can vary from situation to situation is written as Elements 1-n. 1. Naming the Items The item has a name, which is usually obvious. For example each statute in a set of statutes would bear the name Statute, and each elements in a set of elements would be Element. 2. Numbering the Items There are two possibilities for the numbering of a set, list or range of items: 1. There can be a fixed number in the set. 2. There can be a variable number in the set. 2.1 Fixed Number in the Set In a particular instance there may be a specific number of items in a set. For example a particular legal rule might be composed of five elements. In this case the first and last numbers designate the number of items in the set or range. In this example of a set of five elements, one would designate the set as Elements Variable Number in the Set Sometimes the text refers to a set or a list in general terms in cases where the number of items in the set can vary from situation to situation. In this event, the way to go is to number the last item with the symbol n. To refresh readers, n stands for however many there are on a particular occasion. An example would be a general discussion about elements of a legal rule. In this case the possibilities vary from legal rule to legal rule. Thus the designation of this set of items is Elements 1-n. Null Option There is a special case with options where one of the options is to do nothing and leave things as they are. This occurs, for example, with the proposed making of a statute where one option is just not to enact a statute. In a case such as this the option is labelled with the symbol for nought, namely 0. Thus the option not to enact a statute is designated as Statute 0. Statute 0 represents the null option it is the option for a legislature not to enact a statute on a topic

9 Labels vii whereas Statutes 1, 2 3 and so on are options for different versions of a statute on a topic (on the basis that there is no form of a statute that can better present conditions). Given this the full set or range of possible statutes for a legislature to enact consists of Statutes 0-n. Corresponding Items Sometimes there are sets with corresponding items. This can occur for a number of reasons. Here are two examples: 1. For making and interpreting law, items correspond because of causation. Each version of a statute on a subject and each meaning of an ambiguous provision will cause an effect if a legislature enacts the statute or if a court declares the meaning to be legally correct. 2. In the model for litigation, elements and facts correspond because each element delineates a category of facts so that in a particular case the element is satisfied by a fact that falls within that category. Similarly, facts and evidence correspond because each fact is proved or potentially provable by some evidence. Single Relationships Corresponding items are labelled with the same number or letter. Here are some illustrations: 1. Statutes, Meanings and their Predicted Effects. Statute 0 is predicted to cause Effect 0, Statute 1 is predicted to cause Effect 1, Statute 2 is predicted to cause Effect 2 and so on. Meaning 1 is predicted to causes Effect 1, Meaning 2 is predicted to cause Effect 2 and so on. Similarly, Statute X (or Meaning X) is predicted to cause Effect X while Statute Y (or Meaning Y) is predicted to cause Effect Y. 2. Facts Satisfying Elements. Fact 1 is the label given to a fact that fits within or satisfies Element 1, Fact 2 is the label given to a fact that fits within or satisfies Element 2 and so on. 3. Evidence Proving Facts. Evidence 1 is the label given to evidence that might prove or has proved Fact 1, Evidence 2 is the label given to evidence that might prove or has proved Fact 2, and so on. Collective Relationships It is possible to use labels of correspondence to make collective statements. Here are some examples: Statutes 0-n are predicted to cause Effects 0-n, while Evidence 1-n is capable of proving Facts 1-n. To construe these collective statements properly it is necessary to apply the maxim reddendo singula singulis. Literally this says that each is rendered on their own. In plainer language, the items are to be taken singularly so the each item in the first list is paired with the corresponding item in the second list. The adverb respectively captures this notion.

10 viii Labels Two or More Version of an Item There may be two or more versions of an item. Additional letters or numbers can distinguish the different versions. For example: 1. If Element 2 is ambiguous because it has two meanings, the versions of Element 2 can be designated Element 2A and Element 2B. 2. There can be two versions of a fact. There are two major possibilities: 2.1 In a case there may be two versions of Fact 2 because the plaintiff propounds one and the defendant propounds the other. These can be designated P and D to signify the plaintiff and defendant s version. Thus the two versions are Fact 2P and Fact 2D. 2.2 After investigating the facts of a case the defendant may find that there is evidence to support two versions of one of the facts in their case. These are facts that the defendant could use to rebut the plaintiff s satisfying Element 3. The defendant or the court could designate these as Fact 3D.1 and Fact 3D.2. Subdivisions of Items It is possible to designate subdivisions of an item with a numbering system that invokes the form but not the meaning of decimal points. Thus if Element 2 has three sub-elements, one can designate them as Element 2.1, Element 2.2, and Element 2.3. If Element 2.2 has three sub-elements we can designate these as Element 2.2.1, Element and Element Obviously this form of numbering adapts to any number of levels of subdivision. Possibilities: X, Y, Etc Sometimes the text needs to refer to any option, that is, to an option in general terms. Conveniently this is labelled with a capital letter. Commonly, this is the letter X, so that a general option for a legislature wishing to pass a statute is Statute X. Naturally, if there is a need to refer to more than one option additional letters may be used. For example, there could be reference to Statute X and Statute Y; in this case Statute X is one possible statute and Statute Y is another possible statute. Signifying Relationships Sometimes it is necessary to signify a relationship between two items. This can be done using standard symbols. This table sets out the major possibilities: Symbol Relationship Illustration < Less than X<Y. X is less than Y. > Greater than X>Y. X is greater than Y. = Equals X=Y. X equals Y, Not Equals X Y. X does not equal Y.

11 Labels ix Approximately Equals X Y. X is approximately equal to Y. Congruence Relationship X Y. X is congruent with Y. Isomorphic X Y. X is structurally identical to Y Labels Diagram 1. Symbols for Relationships Listing Items Where there is a list, for example a list of the meanings of an ambiguous provision, we can set these out in the text as a series Meaning 1, Meaning 2... Meaning n. In the text, as we have noted, the range can be efficiently represented as Meanings 1-n. In a table they are set out as a list in the following way: Meanings Meaning 1 Meaning 2 Meaning n Labels Diagram 2. List of Meanings In this presentation it is not strictly necessary to include Meaning 2. Indeed, it is actually redundant, when n=2. However, it usefully emphasises the sense of a list that sets out the range of options or possibilities. Diagrams Lists in a table can be connected to become a diagram or figure. This can involve corresponding items. A useful illustration consists of a diagram that has two major columns that match corresponding items. One column sets out the meanings of an ambiguous provision in a statute in Statute X and the other sets out the effect for the whole statute that each meaning is predicted to cause. Here is the illustration: Meanings Effects 1 Meaning 1 Effect 1 2 Meaning 2 Effect 2 3 Meaning n Effect n 4 Labels Diagram 3. Meanings and Effects This diagram functions in the following way: * Column 1 shows the meanings of the ambiguous provision, being Meanings 1- n.

12 x Labels * Column 3 shows the effect of the statue that each meaning is predicted to cause if a court chooses them as the legally correct meaning of the ambiguous provision. Let us flesh this out. Every statute that is enacted causes a number of outcomes. The author refers to the full collection of outcomes that a statute is predicted to cause as an effect. When a court interprets a statute it is faced with the basic options in terms of the range of meanings of the ambiguous provision that gives rise to the need to interpret the statute. The diagram labels these meanings as Meanings 1-n. If a court decides that Meaning 1 is the legally correct meaning of the ambiguous provision that decision is likely to have an impact on the effect that the whole statute will cause. Column 3, as stated, sets out this effect, the effect of the whole statute, for Meaning 1. In a similar way it sets out the effect for each other meaning of the ambiguous provision. This method of identifying the effects of each meaning caters for the constitutional rule in each Australian jurisdiction that requires a court to interpret a statute in the way that will best achieve the purpose and object for which the legislature enacted the statute. Now the purpose or object of a statute is to cause some effect or outcome. Hence the term Effect aligns directly with purpose and object (which of course is why the table includes it). * Column 2 contains an arrow pointing from the Column 1 to Column 3, thereby indicating that each meaning in Column 1 is predicted to cause the statute to have the corresponding effect in Column 3. * Columns 1-3 indicate meanings and their predicted effects. Assume for the purposes of the explanation that a court is interpreting an ambiguous provision in Statute X that has Meanings 1-3: 1. If a court chooses Meaning 1 as the legally correct meaning the prediction is that Statute X will cause Effect If a court chooses Meaning 2 as the legally correct meaning the prediction is that Statute X will cause Effect If a court chooses Meaning 3 as the legally correct meaning the prediction is that Statute X will cause Effect 3. Probability A number of symbols are used for probability. This diagram shows the common symbols and their meanings: Symbol Meaning P(A) probability that event A occurs P(B) probability that event B occurs P(A B) probability that event A or event B occurs (A union B) P(A B) probability that event A and event B both occur (A intersection B) P(A ) probability that event A does not occur P(A B) probability that event A occurs given that event B has occurred already (conditional probability) P(B A) probability that event B occurs given that event A has occurred

13 Labels xi already (conditional probability) P(B A ) probability that event B occurs given that event A has not occurred already (conditional probability) φ the empty set = an impossible event S the sample space = an event that is certain to occur Labels Diagram 4. Symbols Used for Probability

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15 Section 1. Introduction Frequently lawyers have to draft legal documents for a matter that they are handling for a client. This matter may be litigious. In this case the document may be, for example, a pleading, an affidavit or terms of settlement. These documents tell it as it is. The matter may also be non litigious (that is, a transaction), and involve drafting a document such as a transfer, a contract, a will, a waiver and or an authority. These documents create rights and liabilities and are often the means of effecting the transaction. This article uses transactions to illustrate how to draft a document because documents tend to be at the core of transactions. This happens, for example, with contracts, transfers, wills and permissions because, as indicated above, the relevant document expresses the parties intentions to effect the transaction and commonly also gives those intentions legal effect. There are two aspects to drafting skills. Drafting skills are in part general since they apply to all documents. Drafting skills are in part specific since they apply to particular types of documents this second aspect of drafting skills tends to merge into knowing and working with the area of law that regulates the document that is being drafted. This article focuses largely on the general skill of drafting. The discussion makes some general comments about drafting which indicate the nature of the task. To do this it divides drafting into three phases: 1. Planning the document. 2. Writing the document. 3. Formatting the document. Section 2. Planning the Document Key Characteristics The key to drafting is planning and the key to this is to be familiar with several possible important characteristics of the document that is to be drafted. These characteristics are set out in a list below. Note, however, that some of these characteristics are more relevant to some types of documents, especially documents in transactions, than others. This list represents something like a natural order for dealing with the stated items but is subject to two qualifications. First, these characteristics interact with one another. This means that sometimes as you deal with one characteristic you are inevitably compelled to deal with another characteristic. Second, as you draft the document ideas may unfold that affect a number of these parts and possibly all of them in this case 1

16 2 Fundamental Principles for Drafting Documents you will end up shuttling between the parts to gather in all of the pieces and file them in their proper place. Major Characteristics To start it is necessary to identify the major characteristics or pieces of a document and the tasks that they entail: 1. Persons. Identify the persons involved. These will include the parties to the document. 2. Effect. Identify the basic effect of the document. 3. Constraints. Identify any constraints on the document. 4. Legal Requirements. Know the requirements necessary to make the document legally effective and operative. 5. Change of Circumstances. Consider whether the document may operate in changed circumstances. If there are changed circumstances then make plans for the change. 6. Default. Consider the need to deal with default by a party. (An obvious example is a party who is in breach of contract.) Make what plans you can to respond default. 7. Revenue. Consider the need to deal with any taxes that might or will apply to the document or to the transaction that it effects. 8. Structure. Work out the structure of the document by putting all the pieces together in some coherent structure. Framework Essentially, to draft a document it is necessary to consider each of these characteristics, work out what the client or the parties want in relation to each, then put it in words. A way to do this is to construct a framework by doing the following: 1. Go through each of these characteristics in turn and work out whether, how and the extent to which they apply to the document you are drafting. 2. Sketch the core provisions, which are the ones that create the desired legal effects. 3. Then identify how each of the other characteristics connects to these core provisions. 4. Make notes as you go. Constructing a diagram showing the core provisions and the relationships that they have to the other characteristics of the document can be a good way of representing the whole picture.

17 Fundamental Principles for Drafting Documents 3 Persons Getting the Particulars Identify all of the parties or persons involved. As a general rule obtain their full particulars. Or at least obtain those that you are likely to need. These include general particulars such as name, date of birth, address, telephone, mobile, address, occupation and marital status. These also include particulars that are relevant to the specific document or type of document that you are drafting. In doing this, be mindful of the economics of time management. There may be special times or places for gathering this type of information such that if you do not take the initiative at the right time or place you may have some time and trouble in obtaining the information later. Creating a Table As you gather information about people and parties it is helpful to put this information in the form of a table. In the first instance you put the table in your file. Later when actually drafting the document it makes good sense to insert a table of parties in the document itself for reference purposes for readers. To do this, copy the table from the file into the document. Then edit out from the table in the document any information that is not relevant to the document even though you need that information to be in the file (for example telephone numbers). Location of the Table You are well advised to put the table in the document in some conspicuous place. Here are some suggestions: 1. Put the table at the front of the document. 2. Put the table in an appendix. In this case insert a clause near the front of the document that indicates the location of the table. For example, you could put a heading near the front Parties and Persons and underneath this heading say: A table in the appendix to this document sets out the parties to this document and other persons mentioned in this document as well as the relevant particulars of these parties. Functions of the Table A table of persons can performs several functions: 1. Identifying Persons. It sets out the names and details of all relevant persons. 2. Identifying and Defining Relationships and Functions. Relationships and functions are treated together because there is often a substantial overlap. This happens because frequently the function of a party can also be expressed in whole or in part in terms of their relationship to one or more other parties or persons. Where the function cannot be so expressed it is obviously necessary to

18 4 Fundamental Principles for Drafting Documents describe them. To illustrate this here are the common occurrences relating to relationships and functions in a will: 2.1 Functions. The obvious functions of parties will typically be for the most part beneficiaries, executors, trustees and guardians. 2.2 Relationships. These functions just described determine the formal legal relationships by reference to the operation of the will. In addition there is a strong likelihood that many of the people and parties are related by ties based on some obvious types of connection such as blood, marriage, adoption, life partnership, friendship or employment. 3. Decluttering. By putting the particulars of parties in the table the drafter declutters the text of the document because it is then not necessary to put these particulars in the text of the document. Usefulness of the Table There is an obvious rule about the usefulness of this table. The longer and more complicated the document is, the more necessary or more useful is the table of persons. Illustration of a Table There is an illustration of a table of persons, parties and their particulars in the sample will that is in the Appendix to this article. Effect It is important to identify clearly the effect of the document. Focus on the basic effect and then on secondary or ancillary effects. Basic Effect Commonly the purpose of a document is to move a client from their present legal position to another legal position. In many transactions this change to the client s present legal position will entail a complementary change to the legal position of another party (or two or more other parties). For example if the client s legal position changes by acquiring ownership of some land, another party s legal position changes by alienating ownership of that land and obtaining the right to receive something in return, which is typically, but not necessarily, money. To start then, identify the present legal position of each party at two points in time, before the document takes effect and after the document takes effect. To do this ask and answer the following questions: 1. Before. What rights or obligations does each party now have or not have that they wish to change

19 Fundamental Principles for Drafting Documents 5 2. After. What changes do they wish to make? In a contract, for example, determine what each party is prepared to give or forego, and what each party wants to receive from the transaction. Answering these questions identifies the position that the client wants to be in after the document takes effect and the changes that must be made to each party s position to accomplish this. By doing this you identify the nature of the core provisions of the document. Here are some major examples: 1. Contract. Typically the core of a contract is that one party pays money and the other party provides services or transfers goods in return. 2. Will. The testator makes gifts that operate on their death. 3. Property. A transfer of property is really a special form of contract or a way of performing a contract for the transfer. The major action is that one party transfers an interest in property to the other party who gives something in return, which is commonly money. Ancillary Effects In addition to the core effects there may need for some ancillary provisions. For example in a contract there may be the following ancillary provisions: 1. Provisions determining how, when and where each party has to perform their part of the bargain. 2. Provisions determining any preconditions for performance. 3. Provisions determining any conditions which commence the agreement (a condition precedent) or bring the agreement to an end (a condition subsequent). Constraints There are legal rules that impose constraints on the drafting of a document. These constraints restrict what can go in the document and thus restrict the scope of the document. An example is the rule against perpetuities that operates on a transfer of property if a document purports to make a transfer of property that breaches this rule the transfer, is at least to the extent of the breach, inoperative. This means that when drafting a document it is necessary to be familiar with these constraints. Here are two further examples of constraints. First, a person cannot by agreement or otherwise change the operation of legal provisions that do not provide parties with a choice as to their application. To use the law of contract as an example, parties cannot generally agree that the rules which make some contracts void and some contracts illegal do not apply to

20 6 Fundamental Principles for Drafting Documents their contract. Similarly, parties cannot agree that a statute does not apply to their transaction unless the statute explicitly or implicitly allows them to do so. 1 Second, there is a common law rule of contract law that forbids one party to impose a penalty on another party for breach of contract. The starting point to explain this is that where one party breaches contract by failing to perform is or by not performing it properly, the wronged party can sue for damages. There are two means for assessing damages: 1. Assessment by Court. The court will take appropriate evidence about the loss that the party has suffered and estimate the amount of damages that the defaulting party must pay. 2. Agreement by Parties. Parties can insert a clause in which they agree on a defined amount of money as damages for breach. A court will accept this assessment of damages provided it is a reasonable attempt to assess damages and not an excessive figure that effectively represents a penalty imposed on the defaulting party. Legal Requirements Having identified the basic effect of the document, it is necessary to identify the legal requirements to bring about this effect. For example, there are several requirements for a valid will. These are (in basic form, because the details vary from jurisdiction to jurisdiction) as follows: 1. Testamentary Capacity. The testator has capacity to make the will (for example they are not a minor). 2. Disposal of Assets. The testator makes an unconditional disposal of assets operative on their death. 3. Writing. The will is in writing. 4. Signature. The testator signs the will. 5. Witnesses. The will is witnessed. The law in Australia requires two witnesses for a will. Need to Satisfy Requirements These requirements, of course, are the elements of the law. Obviously to perform a transaction it is necessary to satisfy the legal requirements for a transaction. These fall into three classes requirements satisfied by drafting, requirements satisfied by circumstances and requirements satisfied by action. An obvious way 1. However, while parties cannot exclude the operation of legal rules by agreements or other instruments, they can generally agree to adjust their position in the event that a legal rule applies. For example an agreement might say that if one party to a contract is affected by the PYX Act, the other party will indemnify them against any loss.

21 Fundamental Principles for Drafting Documents 7 to handle the legal requirements for each transaction is to have a checklist of the relevant requirements and to use the checklist when conducting the transaction. Requirements Satisfied by Drafting There are requirements that can be met by the way that the document is drafted. For example, for a document that makes an unconditional disposal of assets operative on their death by doing this ipso facto becomes a will. Requirements Satisfied by Circumstances There are requirements that can be satisfied only by the circumstances. These are constraints on the document because they are out of your control. For example a minor generally has insufficient legal capacity to make a will. It is not possible, therefore, to get around this limitation by inserting a clause in a will that the minor is deemed to have capacity. Requirements Satisfied by Action It is possible to satisfy some requirements by people taking appropriate action. Some examples of thus type of action that is needed to effect a transaction are the following: 1. Signing of a document 2. Witnessing of a document, which may or may not require witnessing by an official such as a Justice of the Peace. 3. Giving notice of the transaction to other persons or a government agency. 4. Registration of the transaction or the document effecting the transaction with a government agency. There are four tasks that registration may accomplish if the law so provides: 4.1 Registration gives others (being the whole world) notice that the transaction has occurred. 4.2 Registration provides proof that the transaction has taken place. 4.3 Registration determines priorities as between competing transactions. This relates to the situation where a holder of property makes two sales of the property. The general rule determining priority is encapsulated in the Latin maxim qui prior est tempore potior est in jure. In other words, the transaction that occurred at the earlier time takes precedence over the later transaction. In its original form the rule applies according to the date of the transaction itself. When governments set up a mechanism for registering a transaction they commonly alter the general rule determining priority. In its altered form the rule does not give priority according to the date of the transaction but according to the date of registration of the transaction. This is how registration determines priorities as between competing transactions.

22 8 Fundamental Principles for Drafting Documents 4.4 Registration is necessary to give effect to a transaction. A good example is land that is held under Torrens title. The Torrens system of land title is based on a government register of land titles. The basis is that each piece of land has its own printed or electronic page in the register. This page performs two functions. It describes the land in a manner that identifies its location. It identifies all the current legal interests in the land and the holder of those interests. The major types of interests are ownership, mortgages, leases and easements. Obviously there is a mechanism in place to register changes of interest. Thus if Mary Jones owns the land and sells it to Betty Blockbuster there is a procedure for changing the information on the title page to record that Betty Blockbuster is now the owner of the land. In its purest form Torrens title depends on registration in a government land titles office. In other words there are several major steps in the transfer of title or some other interest: A. In the example Mary Jones prepares a document in the proper form that transfers the land to Betty Blockbuster. B. Mary Jones signs the document. C. Mary Jones hands over the signed transfer form to Betty Blockbuster. D. Betty Blockbuster registers the transfer in the government land titles office. Under the common legislative provisions that establish the register of land titles it is only when Betty Blockbuster registers the transfer that the transfer becomes effective. As the commonly used phrase put it, Torrens title is not a system of registration of title but title by registration. The motto for practitioners in this area should be register or else. Change of Circumstances Identifying Possible Changes Some documents take effect immediately while some documents operate at a later time or over a period of time. With documents that operate later or over time it is always possible that things happen which can affect the transaction that the document is making happen. Generally the more time that passes between preparation or execution of the document and its operation, the greater the chance that something relevant will have happened. With a will, for example, people named as beneficiaries may die before the testator. With a contract, things may happen which make performance of the contract more difficult or less profitable than it was anticipated to be for example material that is needed to make a product which is sold under the contract becomes more expensive or even unavailable. This means that when drafting a document you should identify the likely context in which the document will operate. You need to consider any possible events or changes in circumstances that may occur before each part of the document

23 Fundamental Principles for Drafting Documents 9 operates. As stated, these changes become more likely when a document relates to events that will or can occur at some substantial time after the document commences its operation. So, look for major areas of risk to your client s position due to changes. To identify these ask the client and ask people who work in the field in which the contract operates. Note all of these contingencies. Then make proper provision for them when drafting the document. Illustrations of Possible Changes Some examples of changes that can happen and for which a document may or should make provision are death of a party or relevant person, a change in prices or a change in the value of money. Death A party to a document may die during or before the operation of the document. For example, a beneficiary named in a will can die before the testator dies. A lawyer can allow for this by having the testator nominate an alternative beneficiary who becomes entitled in this circumstance. There is an example of death as a contingency in the will in the Appendix. In this will, the disposition of the residue of the estate involves two gifts. The will states that it sets out these gifts in preferential order. It reinforces this by labelling them Preference 1 and Preference 2. There is one contingency for all cases any receiver had to survive the testator by 30 days. The will states this prior to setting forth the preferences. The point is that this organisation provides a simple and succinct structure for communicating the testator s intention. Here is the relevant part of the will: I make the gifts of the residue of my property that are set out below. In each case I make the gift on the basis that any receiver survives me by 30 days. I set out these gifts in preferential order: Preference 1: I give the entire residue of my property to my wife Rhondda Roche. Preference 2: I give the entire residue of my property to the children of my marriage to Rhondda Roche. The children take in equal shares. Change in Prices and the Value of Money Over time prices change, and also the value of money changes (usually downwards). There are at least three possible devices that can be inserted in the contract to make the adjustment: 1. Consumer Price Index (CPI). The Consumer Price Index measures the price level each quarter of the year. In Australia it does so for the major cities and for the nation as a whole.

24 10 Fundamental Principles for Drafting Documents 2. Rise and Fall Clause. Instead of relying on a general measure of price changes it may be possible to rely on specific changes to prices. Parties can do this by putting in a rise and fall clause. This adjusts payments under the contract by reference to changes in market prices of the relevant item. Obviously this mechanism is of most relevance when there is a large amount of an input or there are huge movements in the price of an input. 3. Reserve Bank of Australia (RBA) Interest Rate. The Reserve Bank of Australia sets the target cash rate, which is the market interest rate on overnight funds. Other lenders can and do use this rate as a benchmark to set interest rates. Obviously parties to a contract can also use the cash rate as a benchmark to make interest rate adjustments for the contract. Default If a transaction, agreement or arrangement which a document implements is working to the satisfaction of the parties there is no problem. But when it does not work satisfactorily there are likely to be legal consequences. There are two sources of consequences. First, the consequence may arise from the operation of a relevant legal rule. For example if a party breaches a contract they can be sued for breach of contract. Second, in some cases the document can in whole or in part determine the consequences of default. In these cases the document can probably lessen some of the effect of default for a party. Some examples are: 1. Provided that the relevant rules of court allow it, parties may agree on a means of service of process. This can be relevant for parties who are itinerant or who are not in the jurisdiction. 2. If there are likely to be long delays in having a hearing the parties may agree that the dispute first be dealt with privately by an arbitrator. 3. If some aspects of a party s case may be hard or expensive to prove, the parties may agree in advance on a simpler method of establishing them. For example, they agree to admit that certain facts as true. 4. In a breach of contract parties may wish to ensure that they receive proper damages. There are two relevant matters to be considered: 4.1 Rule in Hadley v Baxendale. One of the most pertinent rules is the rule in Hadley v Baxendale. 2 This specifies two types of damage for which a party can be compensated: (a) Damage that will naturally flow from the breach in the usual course of things 2. Hadley v Baxendale (1854) 9 Exch 341, 347

25 Fundamental Principles for Drafting Documents 11 (b) Damage that the parties specifically contemplated, at the time they made the contract, as the probable result of breach. Since this second category of damage depends on the contemplation of the parties one can avoid specific proof of this by having parties admit in the contract damages of this kind that they agree would flow from a breach. 4.2 Quantification of Damages. A party may wish to go further and quantify damages to shorten the hearing and make their situation more certain. In this case parties can make an estimate of their damages and agree on this. Courts will enforce this agreement if it is a genuine attempt to estimate damages and is not a penalty imposed by a more powerful party on a less powerful party. Revenue Revenue laws frequently impose an obligation on parties to legal transactions to pay revenue based on their agreeing to the transaction, documenting it or carrying it out. Hence it is necessary to be aware of the relevant revenue laws so that the parties are aware of their obligations before entering the transaction. In some cases, too, it may be possible to structure the transaction in such a way as to reduce or avoid payment of revenue. All of this means that it is necessary to be familiar with the relevant revenue law when drafting documents. Essentially one needs to marshal the provisions of the revenue law in the form of a checklist of elements. The checklist tells you what has to be satisfied if a party is to be liable to pay tax. Run through the checklist to see two things, whether the revenue law applies, and then if there is anything that the party can legitimately do to take the transaction outside the ambit of the revenue law, or at least to lessen the amount of revenue that the party must pay. Structure Before writing the document it is a good idea to structure it. A good general guide consists of the list of characteristics above. Use this list, with appropriate modifications for the particular circumstances, as a guide. The idea is to map out in the structure what the document will do. At this point there is no need to draft the relevant clauses. Simply stating what they do is sufficient. That said, if any drafting ideas come up then record them in this outline of the document. At the very least they are a start and your subconscious mind is now programmed to dwell on the drafting task in front of you. Effect and Parties Commence with the effect that the transaction or document has on the legal position of the parties (being the major persons involved) and the effect of the document. It may be for example, as you record it: Alice agrees with Bruce to

26 12 Fundamental Principles for Drafting Documents sell him her hotel. In using this example I am not setting out to give a comprehensive account of the sale of a business but merely to use some major tasks in the sale to illustrate drafting. These are set out in the table below: Sale of Terminus Hotel by Alice to Bruce Transfer of Hotel Sale of freehold along with agreed fixtures and other hotel property Sale of stock on hand (inventory) Sale of intellectual property logo and business name Sale of website Transfer of licences by the seller or application by the purchaser for fresh licences Transfer of goodwill; prohibitions on conduct by the seller that interferes with good will Constraints One possible constraint may come from licences. Assume for example that as is commonly the case a person needs a licence to sell liquor. It is possible that the person can obtain the licence just by paying the fee. It is also possible that to receive a licence an applicant must prove that they are a person of good character. This means that the sale can go ahead only if the purchase is able to obtain the liquor licence. Consequently it is necessary to draft an appropriate clause that will enable the purchaser to avoid the contract if they fail to obtain a licence. Legal Requirements If the land is held under Torrens title there are formalities for the transfer. Lawyers, however, usually take care of these as part of conveyancing practice. By contrast with land, with personal property it possible to transfer title by simple agreement followed by delivery and acceptance. Change in Circumstances While the sale of a business involves some detail it is fundamentally simple in principle. It also usually occurs in a shorter rather than a longer time frame. Nevertheless there may be a hold up or there may be some change of circumstance that occurs soon after the parties sign the agreement. Default In a sale of a business default by a vendor is unlikely but still possible. If it happens the purchase has a remedy for breach of contract. A purchaser may default if they find that they do not have the resources or they just change their mind. The standard way to protect a vendor against default by a

27 Fundamental Principles for Drafting Documents 13 purchase is to require a deposit by the purchaser that can be held and used to pay damages in the event of a default. Revenue There are revenue considerations in the sale and purchase of a business that involves goods and services tax, stamp duty, capital gains tax and income tax. Obviously it is necessary to obtain proper advice on this so that the party is aware of their liability and to avoid structuring an agreement in a way that involves paying more revenue than needs be. Section 3. Writing the Document Introduction So far we have planned the document. To do this we assembled the relevant information and principles for the particular document. Fixing these items determines what you will include in the document either as a matter of necessity or prudence. The next step, discussed here, is to draw on the information and principles to write the document. You actually put into words the ideas you have for the document. Structure Make a plan of the document that indicates its structure. This plan should flow logically from your efforts in planning the document. The obvious way to form your structure is first to divide the document into major divisions. Then, subdivide each division into as many levels of subdivision as far as it makes sense to do. Give each division and subdivision a thoughtfully chosen heading. There is an illustration of structure in the arrangement or order of a document in the will that is in the Appendix. As the table of contents shows Section 4 deals with appointment of executors and trustees and Section 5 deals with powers of executors and trustees. So, the provisions about executors and trustees are grouped. The will does a similar thing by grouping provisions about gifts. Section 7 provides for specific gifts and Section 8 provides for residual gifts. Basic Rule To write there is one basic rule. Think what you want to say and say it in the most clear, direct and simple way that you can. This is made easier by the fact that in planning the document you have virtually done a draft of it anyway by identifying and writing down what you want the document to do.

28 14 Fundamental Principles for Drafting Documents Precedents In many cases there will be standard precedents that set out various forms of clauses for documents that perform standard tasks. A lawyer can use these forms as a precedent, either exactly or with adaptation, to draft a document. Precedents are often useful and even invaluable, because they represent the distilled wisdom of lawyers, sometimes going back for generations. There is, however, a basic rule about precedents. As is the proverbial case with fire, a precedent must be your servant not your master. Write your own version first and then look at the precedent to see if there are things that you have omitted from the document or ways in which you can improve the expression. In reality many lawyers do not do this, usually because the document is standard, they are pushed for time or they are not confident about their own drafting skills. While it may be a counsel of perfection not to look at a precedent until you have written your own version there is a modified form of this rule. At the very least do not look at a precedent until you have identified the legal effect that you want a document to have. Then compare your version to the precedent to make sure that you are using the correct precedent and to see if you can improve it or need to adapt it for your specific circumstances. Section 4. Formatting the Document Introduction You can make a document more readable by sensible formatting. Some suggestions now follow. Contents Have a table of contents at the front of the document. This serves at least two functions: 1. Location of Items. A table of contents performs the obvious function of indicating where items are located by reference to where the relevant section of the document commences. The larger the document the more valuable is this function. 2. Overview. A table of contents is something of an overview of the document that can assist a reader in understanding the document. This is of most benefit when the document is long or complex. For example, the table of contents enables a reader to see the overall structure of the document, the various parts of the document and perhaps to gain a basic understanding of the document. Abbreviations Have a table of abbreviations indicating the meaning of all abbreviations used in the document.

29 Fundamental Principles for Drafting Documents 15 Parties This is a suggestion made above, but it is worth repeating in this context because it makes a document so much easier to follow. Under a separate heading near the front of the document state the names and descriptions of all of the parties to the document and the parties mentioned in it. One way to do this is to use a table. There is an example of a table of parties in the sample will that is set out in the Appendix. Order Present the provisions in a logical way. Tell the story in its natural order. Parts If the document is long try to divide it into parts and sub-parts to make it more intelligible. Headings Use a heading for each paragraph, perhaps even for subparagraphs. Headings perform several functions: 1. Table of Contents. They enable the drafter to inset a table of contents. 2. Assistance to Readers. They assist readers to find their way around the document. 3. Summary. Headings provide a summary that is a concise statement of the function of the provision that is underneath the heading. Try to design the headings so that they tell the story. Tables Keep in mind that some information will present far better as a table than as prose. So, heed the obvious advice and use a table where it will do a better job than prose. There is an illustration in the form of a table of parties in the sample will that is set out in the Appendix.

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31 Appendix: Sample Will Will of Jacob Francis Penny Table of Contents Section Page 1. My Will Table of Persons Revocation of Earlier Wills and Codicils Appointment of Executors and Trustees Powers of Executors and Trustees Appointment of Guardians Specific Gifts Residual Gifts Signature of Testator and Witnesses 13 Author s Comment I suggest that readers treat this will as illustrating basic techniques. For this reason I have made it shorter rather than longer so it is not a full blown example of what this last will and testament would look like in the real world. In practice a will of this nature would have more detail to cover contingencies. For example there would be a provision in clause 8 Residual Gifts to cover the possibility that one or more of the children of the marriage die before their mother and their mother dies before the testator. 1. My Will This is the last will of Jacob Francis Penny, sales manager, of 27 Oxley St, Hill End Table of Persons This will refers to several persons. Their names, occupations, relationships to the testator and addresses are set out in the following table: Name Occupation Relationship to Testator Address Testator s Current Wife Rhondda Jane Roche Accountant Wife of testator 27 Oxley St, Date of Signature of Testator 6 June 1944 Signature of Testator Jacob F Penny Signature of Witness 1 Bill Sykes Signature of Witness 2 Mary Sykes 17