Allan McRae, Lowndes partner, will be speaking at the NZ Lawyer Contract Law Masterclass. He discusses what he loves about contract law.
First, it is the nuts and bolts of business transactions. Secondly, it lies at the heart of the modern economy; while the origins of modern contract law have been much debated, for me modern contract law represents an application by the Courts in the 19th century of the principles of freedom of contract derived from the free market principles spelt out by Adam Smith and other pioneer free market theorists. Thirdly, from a commercial lawyer’s perspective, contract law provides the tools to create something, so in that sense it is positive. Fourthly, contract law is, for the most part, directed at certainty, and that appeals to me.
Why is knowledge of “The overlay of statutory obligations on contractual rights and obligations & significant developments in the operations of contract of the last 12 months” so important for lawyers at the moment?
I think the importance of some of the latest legislation is that it goes to the heart of how we draft contracts. While there has always been legislation that impacts on the drafting of contracts, this has never been more so than today. In the early days we had statutes such as the Sale of Goods Act, the Companies Act, the Securities Act, the Contractual Remedies Act and other statutes that, broadly speaking, achieved two outcomes. First, they codified, supported and enhanced basic contractual principles. Secondly, they superimposed additional categories of breach and remedies. But some of the more recent statutory changes, such as the new provisions of the Fair Trading Act relating to unfair contract terms impact directly on how contracts are to be crafted. If you go back to the beginning of modern economic theory, on which I would say contract law is based, then the main problems with it identified by Adam Smith were the workings of the agency principle in the context of joint stock companies and monopolies. Those issues led to common law and statutory intervention. But, as time has progressed we have seen more and more consumer based legislation, and more recently consumer based legislation that requires more and more attention by those drafting commercial contracts.
In your experience, what is the biggest mistake that lawyers make when drafting contracts.
I think the biggest mistake that inexperienced practitioners make is to rush out the first draft without taking enough time to think through the basics of the deal. Rushing things tends to result in drafts that fail to spell out the essence of the deal in a logical, clear and concise way. Failure on that score usually means negotiations take longer than they need to. A bit of extra time spent at the front end definitely saves time at the back end.
What’s the best advice you’ve ever been given (work or personal)?
My mother’s advice to be honest to myself. That may sound like a truism or vacuous, but it is not. Each of us is unique. That uniqueness influences how we approach things. If we try and approach things in a way that is not consistent with our personality, then we struggle. That said, I think we also need to understand how our environment impacts on our attitudes. In this regard, I think there is more than a grain of truth in George Soros’ Theory of Reflexivity.
What do you think is the most significant area of development in terms of contract law at the moment?
I think it is still the principles of contract interpretation. I believe the Courts are still reflecting on the approach taken in the Vector Gas/BOPE case. Did that case open the gates too widely in favour of extrinsic evidence? If not, what refinements are needed? Does extrinsic evidence help in clarifying objective intention or does it just provide an opportunity for further discovery, argument, cost and delay to no good end? In the modern age, where deliberations tend to be lengthy, but documentation time gets truncated, a “modern” “contextual” “purposive” approach to contractual interpretation is arguably an improvement over the old black letter law approach. The difficulty, however, is to settle on the boundaries, and not allow the new tools to be abused at the expense of legal efficiency.
What do you love about your job?
Seeing things move from a few ideas to deals that are ready to be done. Often the parties to a negotiation have decided they can do business together, but are still nowhere close to doing a deal. The task of the commercial lawyer is to crystallize thinking in a constructive way; moving structural concepts and issues out of the “agree to agree” category into the “agreed” category, and then crafting or negotiating a contract that is going to be acceptable to both parties.
What’s the strangest case you’ve ever worked on/been involved with?
A joint venture between two parties that were on amicable terms. However, the middle management negotiating the deal on behalf of one of the parties appeared incapable of making any major decisions. We had a list of about 10 points that were discussed over the course of a day in Auckland. None were resolved, and so the indecisive party came up with the bright idea of flying everyone to Singapore, first class, to further negotiate those points. We all flew to Singapore, spent another day negotiating the points, got nowhere on any of them, and then returned to Auckland. A few days later, in Auckland, the parties sorted out all the remaining points over the course of a few hours.