Friday, August 23, 2019

Corporate finance expert Jeff Dodd discusses how contract-drafting principles endure amid rapid change

By Diana von Glahn

A well-drafted contract accurately translates and achieves the client’s objectives, holds up over time, and is understandable to audiences that are far removed from the transaction. So advises Jeff Dodd, co-author of Drafting Effective Contracts: A Practitioner's Guide. A partner at Hunton Andrews Kurth LLP, Dodd has extensive corporate, securities, and corporate finance experience, including public and private securities offerings, M&A transactions, joint ventures, private debt and equity financing transactions, and regulatory, governance, and compliance matters.

Dodd spoke with Wolters Kluwer about trends and challenges in negotiating and drafting commercial agreements.

You are currently working on a new edition of Drafting Effective Contracts, due out in December. How has drafting contracts changed over the course of your career? How will this edition address new problems emerging in the world of contracts?

These are great questions. When I first started practicing 40 years ago we did not need to wrestle with the issues posed by electronic contracting and the explosion of information tools. (This sounds very grandfatherly, I know.) Interestingly, however, core contract principles and doctrines remain vital and certainly the task of the good commercial lawyer, exercising prudent practical judgment, remains the same—even as the tools change and techniques are adapted.

The new edition will address electronic contracting and negotiating by electronic distance, as well as information and e-commerce contracts, in greater depth, especially as I roll out new chapters over time. However, much of the foundational, exceptional work that Bob Feldman and Ray Nimmer did will remain, as well it should, even as it gets a face lift here and there.

Can you give an example in your experience where a well-drafted contract avoided a serious problem and, conversely, where a flawed contract created a problem?

Wow! So many examples come to mind. Let me distill one instance of each.

As to the problematic contractual provision, I remember how a provision relating to adjustments to purchase price in an acquisition contract left out some key provisions concerning the accounting for accounts receivable. The amount in controversy was quite substantial. This example reminds us that we, as lawyers, cannot know everything, but we must push our clients, their accounting advisers, and others on their team to make sure the "mundane" mechanics work and that they (and we) work through concrete examples and unmercifully test language against application.

I remember a highly complex license agreement that, at first, appeared to require a difficult and commercially peculiar result, especially from our client’s point of view, of course. However, a more exacting reading and tying together the provisions made it abundantly clear that, in fact, the contract quite properly and carefully led to precisely the right and commercially harmonious result. The drafting was not faulty at all. However, this example reminds all of us that we need to be aware that, especially with complex contracts, third parties at far remove from the drafters may be reading and applying the contract in the future and could use guideposts sometimes. For an example of a bad interpretation of a complex contract that might have come out the right way with a little help of signals in the contract, take a look at Astex Therapeutics Limited and AstraZeneca AB, [2018] EWCA Civ. 2444, Case No. A3 2017 2134 (Court of Appeal).

What do you enjoy most about your work?

Wow again! How much space do I have?

Let me focus on one thing: I really enjoy working with and learning from clients as I negotiate and draft their contracts. The challenge and responsibility of translating important client objectives into a contract that fits within the tight confines of all the legal and commercial demands that may apply and is durable enough to work over time and in front of various audiences—under time pressure and certainly monetary constraints—really focuses the mind. There has not been one day of my practice that I can think of where I have not learned something. I get to learn something every day. What a great job!

What do you find most frustrating or tedious?

One word: billing.

What is the best advice you can give a new attorney given the task of drafting a contract?

Spend the time to understand—even on your "own" time (if it exits)—(a) what your client does and what really is important for it to accomplish with the contract, and (b) what those provisions from the precedents or forms you are pointed to really mean and do. Learn and be curious.

What mistakes do you see often repeated in drafting contracts?

Blindly taking a provision from one precedent or form and inserting it into the next deal. There is no Platonic Ideal Form Contract.

What would you do if you weren’t practicing law?

I have quite a few interests, but I think that I would spend more time working with, learning from, and counseling young entrepreneurs. I am an angel investor (very small), a co-founder of an angel group and participant in judging business plan competitions. I also have worked for quite some time on venture capital transactions and with emerging companies. The energy, enthusiasm, openness, and focus of young entrepreneurs is infectious and refreshing—and often humbling. If you ever worry about the future of the species, spend some time with them.