A new approach to contracts based on legally binding principles of conduct and comprehensive model terms has been put forward by a leading figure in the lawtech community.
Jenifer Swallow, the director of Lawtech UK, said businesses were not well served by a contracting model growing in volume and complexity that seeks to cover “all eventualities of mistrust”.
With the number of companies across the world in the hundreds of millions, the number of contracts is undoubtedly in the billions, the drafting of which cost many more billions of pounds.
The focus and liability under the current model was “on one party’s interests and not those of a shared purpose”, Ms Swallow argued. “But is it the approach that best serves as a foundation for relationships in business from here on?”
Writing in a personal capacity on her blog, the solicitor and former general counsel of money transfer business TransferWise said there was a model “that would put the relationship first, maintain the practicality and strip out much of the pain”.
Noting there is already a range of model contracts in different sectors, she said this approach could be scaled to form the basis of “a new paradigm with contracts”, comprised of two elements:
- Principles of conduct or values that underpin all business relationships and are legally binding, such as those embodied in the UK Corporate Governance Code. These include principles of transparency, ethics and responsibility, along with foundational processes for remuneration, risk management, delivery and reporting; and
- Model terms – an authoritative default set of structures and texts for the various business scenarios that are seen again and again, built with and backed by relevant public and industry bodies, businesses and the legal and contracts community.
Ms Swallow said: “This way there is an agreed basis for contracts that holds weight – weight with those the contract serves, weight with those who serve them and weight with adjudicators, should it come to that. Principles can apply also to derogations, to give them the best chance of being fairly handled.
“Swathes of unnecessary or fake bespoke work can be stripped out of the system, along with cost, delay and uncertainty, supporting businesses, and thereby economies, on a universal scale with efficiency and growth, freeing up the focus for the really intricate and priority matters.”
Model terms would strip out the ‘your paper versus my paper’ dynamic, she predicted, “providing a neutral, fair position for all parties, which could be informed and kept up-to-date through data analytics on risk and market practice”.
Ms Swallow suggested this approach could also apply to consumer-facing contracts, replacing the standard terms “that matter but no one ever reads” with a set of “fair, consumer-body-approved model clauses to which everyone can refer for common ground rights and responsibilities”.
She anticipated resistance from organisations with deep pockets that enjoyed “the advantage of unlimited resource, great lawyers and market dominance over others”, while the legal and contracts industry would be loath to let go of the financial benefits of the current labour-intensive approach.
But she reckoned lawyers need not worry about reduction in demand: “A new paradigm in contracts, once realised, will bring a shift in and sharpening of focus, yes, but it will also bring new opportunities, new disciplines and further evolution to be embraced.”
Standardisation would also support the move towards ‘smart’ contracts that were machine readable and could produce and interact with data.
“Designing our documents to be smart enables a range of useful automation and analysis: payment calculations, reporting, compliance analysis, drawing in market or policy information from external sources, filing with authorities etc.”