THE TIMELINES THAT COULD HAVE PREVENTED A MULTIMILLION DOLLAR DISPUTE

At times, the interests of the parties to a contract negotiation are widely misaligned. one party wishes to have a long-term commitment, while the other wishes to be able to walk away from the deal on short notice. the parties' different expectations relating to the intended duration of their relationship can lead to a less than amicable end of the contract. Due to their different perceptions, the parties are likely to differ on the interpretation of contract terms, especially those that are poorly written.

In the following case study from Canada, a termination clause was interpreted differently by the two parties. Ideally the parties would have discovered their different views of the contract at the negotiation stage. But they did not. in this case, lack of clarity lead to an 18-month dispute over the meaning of a single comma in a clause. More than $2 million Canadian was at stake. In this case, a simple visualization could have helped to prevent a major legal battle.

in 2002, Rogers Cable Communications inc. (Rogers) entered into a Support Structure Agreement (SSA) with Aliant Telecom inc. (Aliant), in which Aliant gave rogers access to and use of certain telephone poles at a fixed rate. In order to raise its rates in 2005 from $9.60 per pole to $28.05 per pole (which would have increased rogers' costs by about $2.13 million Canadian),[1] Aliant gave rogers one year's notice to terminate the contract. rogers objected, stating that the contract had a minimum duration of five years. The misunderstanding revolved around a single clause in the SSA:

8.1 This agreement shall be effective from the date it is made and shall continue in force for a period of five (5) years from the date it is made, and thereafter for successive five (5) year terms, unless and until terminated by one year prior notice in writing by either party.

As regards the initial term of the agreement, rogers thought that it had a five-year deal. Aliant was of the view that even within this initial term, the SSA could be terminated at any time with one year's notice. The validity of the agreement and the money at stake all came down the meaning of the final comma. In 2006, the Canadian authority CRTC (Canadian Radio-Television and telecommunications Commission) sided with Aliant: "Based on the rules of punctuation,” it stated, "the plain and ordinary meaning of section 8.1 of the SSA allows for the termination of the SSA at any time, without cause, upon one year's written notice.”[2]

However, the dispute did not end there. The parties' agreement was based on a model SSA that had been issued by the CRTC in both English and French. There was a difference between the French and English language versions of section 8.1. In response to Rogers' appeal, the CRTC reviewed the French- language version of the model SSA and sided with Rogers, deciding that the contract ran for a five-year initial term and could not be terminated unilaterally before the expiration of the first term.[3]

One would think that the duration of a contract is of such great importance that the parties and their lawyers would make sure that the parties' intent is clearly stated in the contract. In this case, neither party had drafted the problematic clause; they had relied on a model SSA. In hindsight, it is easy to say that they should have closely examined the clause before setting the price and other terms and signing the agreement. Also, the drafters of the SSA model form should have used clearer language. Breaking the clause into two sentences would have been a way to avoid the ambiguity. Had the language been

3

clearer, the parties would probably have noticed upfront their differing understandings. Expectations are hard to manage or align if they are not visible.

Simple timelines, as in the chart in Figure 6.7, would have shown the parties their different understandings. This would have allowed them, during the negotiations, to come to a mutual understanding and remove the ambiguity. A simple chart could have prevented the dispute and saved the parties considerable time and legal fees in resolving the dispute. [4]

Two timelines that make different understandings visible

Figure 6.7 Two timelines that make different understandings visible44

Case law provides many similar examples illustrating that successful contracts cannot be based on one-sided assumptions, unexpressed expectations, or unclear goals. Many of these problems could have been prevented had the parties taken the time to review, align, and articulate their expectations. If their interests cannot be aligned, they should walk away and find another contract partner. In the words of Louis M. Brown, the Father of Preventive Law: "it usually costs less to avoid getting into trouble than to pay for getting out of trouble.”[5] [6]

As in all communication, clarity of thought is required first. To achieve desired results, the results should be clear. If they are not clear, how can they be shared, articulated in a contract, and achieved? Lack of clarity can be a major source of risk. The path to results begins from clarity of thought and expression and then, ideally, flows as follows:[7]

Research shows that visual elements can play an important role in enhancing clarity, supporting understanding, sharing knowledge, and retaining information. Visualizations have an impact on attitude and behaviour, and they can be used in business to leverage a party's emotional response and cognitive abilities to understand the content.[8]

One way to quickly understand a particular contract or contract clause is to use one of the tools available on the Internet, such as Wordle,[9] to create a "word cloud,” a visualization based on the frequency of words. Words that appear more frequently in the text are rendered in a larger font. In contracts, it is not the frequency of the words that matters, of course; it is what the terms actually say. Yet it is often informative to see the words that stand out—often words like damages, liquidated damages, compensation, notice, and so on.

  • [1] See robertson, G. (2006) Comma quirk irks rogers. The Globe and Mail, 6 August 2006, available at http://m.theglobeandmail.com/report-on-business/comma-quirk-irks-rogers/article1101686/?service=mobile and Austen, i. (2006) the comma that costs 1million dollars (Canadian). New York Times, 25 october, available at http://www.nytimes.com/2006/10/25/business/worldbusiness/25comma.html?_r=1.
  • [2] Telecom Decision CRTC 2006-45, Ottawa, 28 July 2006, Sections 27-30,available at http://www.crtc.gc.ca/eng/archive/2006/dt2006-45.htm.
  • [3] Telecom Decision CRTC 2007-75, Ottawa, 20 August 2007, available at http://www.crtc.gc.ca/eng/archive/2007/dt2007-75.htm.
  • [4] Haapio, H. (2011) Contract clarity through visualization—preliminaryobservations and experiments. In E. Banissi et al. (Eds.), Proceedings of the 15thInternational Conference on Information Visualisation, IV2011 (London 13-15 July 2011). LosAlamitos, CA: IEEE Computer Society, pp. 337-42, 339. See also Passera, S. and Haapio,H. (2011) Facilitating collaboration through contract visualization and modularization.In A. Dittmar and P. Forbrig (Eds.), Designing Collaborative Activities. ECCE 2011 EuropeanConference on Cognitive Ergonomics 2011—The 29th annual conference of the EuropeanAssociation on Cognitive Ergonomics, August 24-26, 2011, Rostock, Germany. Rostock:
  • [5] Universitat Rostock, pp. 57-60; and Austen 2006. Visualization reprinted with thepermission of Stefania Passera.
  • [6] Brown, L.M. (1950) Preventive Law. New York, NY: Prentice-Hall, Inc., p. 3.
  • [7] Eppler, M. (2011) Why care about clarity? Because it leads to results. PresentationHow to be CLEAR in Complex Corporate Communication at Aalto University BusinessSchool on 24 January 2011, citing Xplane, Inc.
  • [8] Eppler, M.J. and Bischof, N. (2011) From Complex to Clear. Managing Clarityin Corporate Communication. Institute for Media and Communication Management,
  • [9] Wordle is a free application for generating "word clouds” from text that youprovide, available at http://www.wordle.net.
 
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