United States: Thoughts On Ken Adams’s Irreparable Harm Provision

It's been quite a while since my last post. Things have been busy. But Ken Adams's (now not-so) recent post, Redraft This Sentence, MSCD Style: My Version of an "Irreparable Harm" Provision, on his contract-drafting blog gave me great pause. In the post, Ken puts forth a draft an irreparable harm provision and asks readers for their comments. There are several interesting comments, and I highly recommend reading not only the blog post, but also the comments.

After reading the post and the comments, I wanted to respond, and, given the length of this response, figured that the best way to offer my thoughts is through a blog post of my own.

Ken Adams's Irreparable Harm Provision

Here's Ken's draft of the provision:

My Suggested Changes to Ken's Draft

So I've come up with a list of suggestions specific to the irreparable harm provision at issue and, in doing so, also delve into the more philosophical question of the extent to which you can tell a court what it must do.

1) The Sellers acknowledge that breach by the Sellers

In contracts that I draft I prefer, when possible, to use apostrophes to convey possession, rather than the passive voice. Thus, I would ordinarily write: The Sellers acknowledge that the Sellers' breach...

However, this is not a hard-and-fast rule for me. I will accept the passive voice if it helps relieve an ambiguity. In this case, I want to be clear that a breach by any of the Sellers (i.e., one or more of the Sellers) will trigger the provision at issue. Using the Sellers' breach refers only to a collective breach by the Sellers. And using any Seller's breach arguably extends the reference to one and only one of the Sellers. I'd therefore go with: The Sellers acknowledge that breach by any of the Sellers...

2) of one or more of their obligations under section X

Whenever dealing with a plural subject (in this case, the Sellers), I try to be on the look-out for ambiguity as to whether the object of the sentence is meant to point to a "respective" object or a "collective" object. For example, in a contract, there could be a distinction between the Sellers collectively providing notice to a party and each Seller separately providing notice to a party. In this part of the draft provision, there's arguably ambiguity as to whether the reference is to obligations that the Sellers are required to discharge through collective action or whether the reference is to separate obligations of each Seller (or to both). (If section X contains only individual obligations or only collective obligations, then I suppose the clarification is unnecessary.) Also, I think that one or more could be shortened to any. Finally, as I discuss below, I try to avoid pronouns; I would remove the their.

Thus, I would rephrase as follows: of any of the collective or respective obligations of any of the Sellers under section X...

(The truly picky among us could also argue whether that or in the sentence is meant to be an exclusive or or an inclusive or, and whether the distinction in this case is meaningful. Let's save that analysis for another day.)

For my thoughts on limiting the reference to section X rather than extending it to all provisions of the contract, read on...

3) could cause the Purchaser to suffer irreparable harm

Although could probably better characterizes whether the Purchaser will or will not suffer irreparable harm, do we gain anything by using could? In other words, do we need the Sellers to acknowledge something that is a possibility? Perhaps. After all, at least some courts seem to give some weight to acknowledgments of irreparable harm. But can't we go further and have the parties deem it to be the case that the Purchaser would suffer irreparable harm? Although it's true that the Purchaser might not actually suffer irreparable harm, the whole point of the concept of deemed is to potentially create a legal fiction. So why not say: the Purchaser will be deemed to have suffered irreparable harm? And doesn't the argument that the court need not respect that particular legal fiction in fact apply to all uses of deem, not just in this instance? Why not just deem away—swing for the fences, don't bunt—and let the chips fall where they may?

This led me to more fundamental questions:

• Under what circumstances will a court not respect what the parties to a contract deem to be the case? And, if such circumstances exist, can contract language have an impact in improving or hurting the chances that a court will respect a legal fiction in any given instance?

This is probably the subject of a separate blog post, but I will address it briefly here since it is central to my thoughts on the irreparable harm provision (and to boilerplate provisions generally).

The concept of deemed applies when the parties to a contract wish to create or potentially create a legal fiction. For example, suppose that a basket contains green peppers and red peppers and that Peter Piper is obligated under a contract to blindly pick a pepper from that basket. Suppose, further, that the parties provide in the contract: Each pepper that Peter Piper picks from the basket will be deemed to be green. As a factual matter, Peter Piper can pick a green pepper or a red pepper. But in the magical world of contracts, regardless of whether Peter Piper picks a green pepper or a red pepper, he will be deemed to have picked a green pepper. Ah, the beauties of legal fiction.

But how far can this whole deemed concept be taken? In the case of Peter Piper, the parties can use contract language to deem an object to have a quality that it clearly does not have. (Red is not green.) What about in the case of a quality that is less clear-cut, like whether a party has suffered irreparable harm? It should be even easier to apply a deemed concept because there's at least theoretically a greater chance that reasonable minds can differ about what constitutes irreparable harm (whereas it's much tougher to argue that red is green). But, somewhat paradoxically, this does not turn out to always be the case.

For example, in a liquidated damages provision, the parties are agreeing in a contract, in advance, to the amount of damages that a party will be deemed to have suffered if the other party breaches that contract. Courts will generally uphold a liquidated damages provision, but not a "penalty." So when will a court hold that a stipulated amount (i.e., a deemed amount) of damages constitutes liquidated damages and not a penalty? Generally, it will do so where the damages resulting from the breach are difficult to ascertain and where the deemed amount is a reasonable forecast of the compensatory damages incurred by the non-breaching party as a result of the breach. So even if the parties want to create or potentially create a legal fiction as to the damages resulting from a breach, it is to their benefit if that legal fiction closely approximates (with a reasonably likelihood) the court's best guess of the actual damages (or if the actual damages are very difficult to approximate).

Forum selection clauses in a contract present a similar situation. A court will generally treat a forum selection clause agreed to ahead of time between the parties (akin to deeming that a given forum is appropriate for resolving a dispute) as prima facie enforceable, unless a party can demonstrate that the forum is unreasonable under the circumstances. This is similar to constructing a potential legal fiction that is respected, but only under certain circumstances. It pays, to some degree, for the parties to agree to a forum that is likely to be reasonable under the circumstances of anticipated disputes.

Back to the irreparable harm provision...

Let's assume that irreparable harm is a prerequisite for finding that a party is entitled to an equitable remedy and that there is some benefit to openly acknowledging that irreparable harm in a contract, rather than leaving it up to a presentation of facts after the breach has occurred. (This assumption is perhaps the subject of further blogging...) Given what we know about deeming, should we go so far as to have the parties acknowledge that they will be deemed to have suffered irreparable harm? Contrary to my initial inclination, I think that my answer is "no." The power of deemed is not unlimited. In fact, deemed might be detrimental given that there is some authority that narrowly tailoring your acknowledgment to be within the realm of reasonableness—and to perhaps state in a contract why it is within the realm of reasonableness (addressing the "why" in a contract is yet another source of frustration for me...)—might be the best way to go.

So, in the end (and for now...), I think that I agree with Ken's could cause irreparable harm approach, rather than a will be deemed to have caused irreparable harm approach. I would also consider will likely cause irreparable harm.

And it also behooves the parties to try to "get it right" and identify those specific provisions of a contract that could in fact result in irreparable harm should there be a breach, rather than state that all breaches will result in irreparable harm and give rise to an equitable remedy.

I should also note that I take this approach somewhat begrudgingly. It feels like the parties will fare better if they placate a court and do a tap dance, notions that fly in the face of my feelings on freedom of contract. But, alas, the realties are what they are.

4) The Sellers further acknowledge

As Ken routinely and correctly notes, contract drafting is akin to computer code. The drafter focuses on functionality not rhetoric. We can do away with the further.

5) such a breach

I'm generally ok with such, although I admit it sounds a little lofty. And while it's true that MSCD says that such, when used as a pointing word, can be replaced with something like the, this, that, these, and those, MSCD also says that such is acceptable when used to mean "of this kind." Therefore, in this case, I'm ok keeping in the such.

6) that the Purchaser demonstrate that it would suffer

As a general rule, I don't use pronouns when drafting contracts. It's sometimes unclear as to what the pronoun relates. I would therefore change it to the Purchaser. In this case, there's no ambiguity, so the change doesn't really make a difference. But I try to be consistent in the application of my general rules, whether or not it makes a difference in any given instance.

7) could cause delay

In line with my point #3 above, I reluctantly acquiesce to a could cause or will likely cause construct. Grrr....

8) That being the case

Is this language necessary, or is it rhetoric? It answers the question "why?" But I'm not sure that addressing the reason for including language in a contract is, at least between sophisticated parties, something that should be addressed in computer code or contract drafting. I suppose that if we are subscribing to the idea that this provision needs to convince a court of something (rather than just deem it so), then addressing the "why" makes sense.

If we are going to include these words, I would note that the that, which is a "pointing word," can in some instances be ambiguous as to what it is "pointing" to. The immediately prior sentence? All of the prior sentences in the section in which the that is included? Here, our brains can easily deduce that what is being pointed to are all of the preceding sentences in the section.

Finally, if we are ok with addressing the "why" of a provision, and we are comfortable that what is being pointed to as a basis for "why" is clear, then perhaps just go with Therefore in the interest of being concise.

9) the parties intend that

I'm not completely sold yet on language of intention. But I must admit that I have not yet read the third edition of MSCD. Until then, I am deleting this language and letting the sentence speak for itself, with the parties' intention in this instance to be derived no differently than with respect to any other provision in a contract.

10) if the Sellers breach one or more of their obligations under section X, for purposes of

Consistent with my prior remarks, I would go with if any of the Sellers breach any of the respective or collective obligations of any of the Sellers under section X. I might even consider using a defined term for any of the respective or collective obligations of any of the Sellers under section X. For now, I will forgo using a defined term, but it might make more sense if more than one section is referenced.

Additionally, for conditional sentences, I am a big fan of using an if...then construct to clearly distinguish between a conditional clause and a consequent. As a general rule, doing this eliminates potential ambiguity as to the boundaries of the conditional clause and the consequent within a sentence. And I use this as a general rule even if, in the given clause, you could get by without the then.

Given all of this, I would rephrase this part of the provision to read: if any of the Sellers breach any of the respective or collective obligations of any of the Sellers under section X, then, for purposes of...

11) granting an equitable remedy

I think that what we're trying to get at here is the purpose of determining whether a court should grant an equitable remedy in respect of that breach.

12) any court will assume

This strikes me as too bold given the tap dance around deemed that we did above. Let's go with any court should assume. Perhaps the parties intend that...any court will assume leaves you in more or less a similar place.

The End Result

So I would redraft Ken's provision as follows:

A Final Note

I struggled with this analysis. I struggle with boilerplate provisions in particular because many purport to tell a court how to do its job, as if the court were bound by the contract in which the boilerplate is included. So I suspect that my opinions on irreparable harm provisions and other contract boilerplate will continually evolve. That's ok. That's beneficial. It's the constant questioning that helps strengthen contract drafting, interpretation, and analysis as a whole. Stay tuned for more.

I would like to thank my colleague, Steven Peretz, for his help in researching and discussing the case law and doctrine relating to the concept of "deemed" and for his review of this blog post.

This article is presented for informational purposes only and is not intended to constitute legal advice.