Precedents are great.

Lawyers don’t have to reinvent the wheel each time we draft legal documents when we have precedents.

However, it doesn’t mean that we can just change the parties’ names and the signing pages for agreements when we use precedents.

It doesn’t mean merely cutting and pasting clauses into documents.

Using precedents correctly and intelligently is a skill.

Consider these when using precedents:

1. Understand the specific purpose of the document you are drafting

You want to draft a share sale and purchase agreement (SPA).

That’s not specific enough.

You want to draft a SPA for a 𝘤𝘰𝘳𝘱𝘰𝘳𝘢𝘵𝘦 𝘣𝘶𝘺𝘦𝘳 who is acquiring a 𝘮𝘢𝘫𝘰𝘳𝘪𝘵𝘺 stake in a 𝘭𝘰𝘨𝘪𝘴𝘵𝘪𝘤𝘴 company, which leads us to the next point.

2. Understand the nuances and choose the right precedent

For example, when drafting SPA for M&A transactions, there are different issues to consider for the following:
• whether the parties are corporations or individuals
• single seller versus multiple sellers
• whether the sellers are related to each other
• whether the sale and purchase is for all or part of the issued share capital of the company
• whether the buyer is acquiring a majority or minority stake

The seller’s representations and warranties in relation to the operation of business of a logistics company would be different from that of an e-commerce company.

3. Look out for inconsistencies when referring to various precedents

Don’t exclude liabilities for indirect, consequential and economic loss in Clause 11 only to reinclude those losses in Clause 12 by providing that the aggregate liability of the parties (including all indirect, consequential and economic loss) is limited to $XXX.

Don’t define liens, mortgages, pledges, etc. as “Encumbrances” in the definition clause and then refer to them as “Security Interest” throughout the agreement.

4. Avoid duplications when referring to various precedents.

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This post was first posted on Linkedin on 25 March 2022.