Before one gets to start drafting an
agreement, the parties to a contemplated transaction must decide as to who will
draft the agreement. Usually, parties are hesitant to discuss this. It is
somehow assumed that the bigger party (older and more established) will issue
the first draft and the other(s) will provide their inputs or suggestions, if
any.

If your client has an upper hand and
negotiation leverage, invariably you will be asked to draft. Customs and
practice also have their hand in such matters. Mostly, the party which has the
financial muscle power or whose money, property, technology, etc. are at stake
would like to keep the drafting keys for itself and let the other party only
make comments on the draft.

For example, you may have noticed
that:

(i)        the
employer always issues the employment letter / agreement;

(ii)       the
bankers always provide a draft of the loan agreement;

(iii)     in a
technology license agreement, the licensor will provide the draft;

(iv)      all
the software licence agreements are drafted by the service providers.

The above are only a few examples.

If however, there is an option for
your client to take responsibility for drafting an agreement, you should advise
your client to go ahead. If drafted and negotiated properly, your client is
likely to get the first mover advantage.

This way, your client not only gets a
clean slate or a big canvas to incorporate the provisions which have already
been discussed and agreed, but also incorporate issues that are most relevant
to it but may not have been discussed so far. You could keep your clients’
concerns and interest in mind and draft the terms in a way that brings
advantages to your client without changing the basic terms of the ‘handshake’
deal. As said earlier, you have a clean slate so you can write as much relevant
stuff as you want to.

If you have drafted comprehensively
incorporating all the concerns and benefits of your client, the other party or
their lawyer may or may not be questioning all of them. For the ones where
questions are raised, the other party has to justify its objections and
negotiate deletion or dilution thereof. Even if negotiation results in some
deletions or dilutions, your client would be in a good position.

Compare this with the opposite scenario.
If the other party sends you a draft, you have to discuss it with you client,
find gaps and negotiate addition of your client’s (missing) issues in the
draft.

Out of the two, which situation is
better?

A great cricket legend once said,”If
you not know how the pitch will behave and you win the toss, always opt for
bating.” It is the same with drafting. Given an option, you should draft,
rather than vet the other party’s draft.

You must make a laundry list of the
information that is absolutely necessary for you to know to draft an agreement.
This should, inter alia, include:

(i) Particulars of parties;

(ii) Description of the transaction;

(iii) Reason why the parties are
entering the transaction;

(iii) Consideration – Money and
Services involved;

(iv) Duration of the Agreement,
Renewal or Extension;

(v) Termination situations;

(vi) Time Lines; and

(vii) Dispute Resolution

You should ask your client to provide
you basic information regarding the above as soon as you are approached to
draft a particular agreement.

Before processing the information, you
should understand the fact that your first and foremost focal point has to be
your client. An agreement is never created in a vacuum – it has to be
formulated around the client, his requirements and expectations. You should
first make the client comfortable enough to share all that is necessary for you
to know and his own insights and expectations – else you will bake something on
half-truths or incomplete information. You must assess as to what are the client’s
goals and standards of expectation from the transaction, how critical is it for
the client – whether it is a one off, one of several projects the client is
undertaking or is it the most ambitious project the client has envisaged so
far. Identify the deal breakers – check as to what tolerance limits your client
is fine with.

Additionally, an agreement does not
affect only your client, but the other party as well as third party
beneficiaries (sometimes even general public as consumer of certain products /
services) in certain cases. You must, therefore, be cognizant of their concerns
as well. It is good trying to put yourself in the other concerned parties’
shoes sometimes. You will draft much better that way.  

If the parties have executed any
document whatsoever earlier, be it Heads of Agreement, Memorandum of
Understanding (“MOU”), Letter of Intent (“LOI”), Non-Disclosure Agreement
(“NDA”), etc. (let us say a preliminary document for ease of reference here),
ask for a copy thereof.

Your draft definitive agreement must
incorporate all substantial and relevant provisions of any preliminary
document. The preliminary documents are generally non-binding till execution of
a definitive agreement, barring exclusivity, confidentiality, governing law, etc.
and there is always scope for negotiation and discussion.

If the parties are to deviate from any
understanding in the preliminary document, it is their call and they have to
inform you regarding change in their understanding on any aspect. You should not
assume or incorporate any changes in their initial understanding on your own.
However, you can suggest some changes if something incorporated in the
preliminary document is not legal, feasible or practical.

Sometimes, the legal or business
position undergoes a change between execution of a preliminary document and the
definitive agreement – a legislation could get repealed, repealed or amended or
a party’s business is restructured into different entities. You should weigh
the resultant implications, apprise the clients of such changes, and suggest
suitable alteration in the agreed position of the parties on the subject
matter.

When you start incorporating this
information in the draft, many questions would arise in your mind about the
parties’ expectations and viewpoint on other items. Enlist them and seek
clarity / information / confirmation from your client. 

Ideally, you should try not to bother
your client for supplementary information more than twice or thrice before
sending him a first draft. Else, the client will feel irritated about your
piecemeal approach and frequent messages in this regard.

Draft a first cut (whether afresh or
using a precedent) on the basis of preliminary information provided by the
client. In case any information is not provided by the client in the first
instance or which comes later to your mind while drafting the agreement, draft
suitable clauses and leave blanks indicating the relevant parties to fill in.

The first cut should be drafted with
an outlook that this agreement should be an efficient mechanism to work
properly during its term and dynamic enough to be fairly amended or terminated,
if need be as and when required to take care of the changed facts and
circumstances without causing any allegations of foul play.

You may also fill in any missing
information on the basis of legal requirements, market practice or your
experience on similar agreements by way of suggestion, specifically highlight
such suggestions and ask the client to confirm in this regard. The final call in
this regard should lie with the client, unless it is illegal or impractical!

*********************************************

This is a sample chapter from my next
book.

About the author :

Bhumesh Verma is a lawyer with over 2 decades of experience in advising domestic and international clients on corporate transactions (M&A, Venture Capital, Private Equity, Startups, corporate advisory, etc.) and features in “The A-List – India’s Top 100 Lawyers” by India Business Law Journal. He keeps writing frequently on FDI, M&A and other corporate matters and is a guest faculty as well. He can be reached at [email protected].