Agile contracting: A slap on the wrist for lawyers

Genuine contractual disputes are always at least in some way about a gap in a contract. A dispute most often arises when parties have agreed to a meticulously drawn-up set of specific provisions and then in the course of performance a situation occurs which is not adequately addressed by those provisions. That is because the parties did not really have the situation in mind when drawing up the contract. As a result, the situation is either not addressed at all, or, more often, falls under provisions that were not really meant to deal with it.

One of the parties then becomes a hostage of the inadequate contract wording and has no other choice but to call upon a court or tribunal for help. It pleads with the court to look beyond the contract’s text, to its principles and economic sense. It requests the court to imply terms into a contract which would address the situation at hand adequately and modify the otherwise applicable inadequate provisions.

But most often such a party does so in vain. There is a culture of hiding behind literal words (be they contractual or statutory) in the legal world. And, paradoxically, it is particularly widespread in arbitration. It is often the preferred move for the arbitrator to “play it safe” and rely on the black-and-white letter instead of the real sense of the contract, which is elusive and requires difficult and careful work to capture. This approach is also common in overloaded courts. Relying on the literal meaning of a contractual or statutory provision is always a better and safer way to dispose of the case quickly and without much thought.

Legal certainty is always invoked in justification. It is a valid but often abused argument. The parties don’t really want to be certain about the wording of the provisions that will apply to their dealings. Rather they want to have certainty that their original bargain, the agreed division of risks and the contract’s economic sense, will at all times be duly taken into account and upheld. The wording of the contract is obviously important evidence of all that. But it is a fallible piece of evidence, and if it is approached religiously it can become a dangerous trap and a source of injustice and fortuity.

A system in which a technocratic mini-legal regime is drawn up for each project and then applied in lengthy, labour-intensive but more clerical than equitable proceedings in case of a dispute is certainly lucrative and convenient for lawyers. It does not have much to do with rendering justice, however, and fails its end users. Undoubtedly it is one of the reasons behind disillusion and populist attacks on the judiciary and, indeed, also on international arbitration.

This is not to say that agreements should not be elaborate and thorough and that lawyers should not care much about what they write in them because courts and tribunals should be free to disregard the contractual text and add to it easily anyway. However, judges and arbitrators should certainly not avoid going beyond contractual provisions just to save themselves work or to escape rendering bold decisions. They must be prepared to extend the contractual sense whenever contractual justice so requires. They have all the necessary tools at hand. They must just use them wisely.

That this is called for in the modern economy is evidenced by the rise of alliance and agile contracting.

Gaps occur in specific, rigid provisions which can therefore easily become inadequate. They are filled by reference to and implication from general but evergreen fundamental principles.

Relational contracting abandons prescriptive drafting and instead puts weight on establishing the goals and principles of cooperation correctly. The specific terms and conditions are meant to follow from those goals and principles, according to the circumstances.

This provides for flexibility and, maybe even more importantly, fosters better dispute prevention and management, because interest- rather than position-based negotiation is enhanced in these types of contracts. It also means, however, that in case of a dispute the entire decision-making process is essentially a gap-filling exercise (deriving specific rules to deal with the particular situation from general provisions guiding the parties’ cooperation).

This sort of flexible, principle-based approach is difficult and challenging. It requires not only knowledge and skill but also wisdom, experience and character. It is not by accident that in those jurisdictions where the system of justice actually works, appointment to judgeship crowns rather than boosts a legal career. But it is essential in modern economic relations, which are ever more often based on various forms of industrial cooperation rather than a simple exchange of goods. The need for the wise, agile approach becomes particularly visible in times of transition, as can be evidenced e.g. by Poland’s transition to market economy and the writings of some authors from the time on principles of interpretation of contracts governing industrial cooperation. It is even more necessary in today’s era of cooperative ecosystems, prosumers, non-equity modes of production, and coopetition. It is also the kind of approach which is probably least likely to be imitated by machines anytime soon.

Stanisław Drozd, , adwokat, Dispute Resolution & Arbitration practice, Wardyński & Partners