Clause Construction

Clause Construction

When drafting a clause which must incorporate a right or obligation, it is worth remembering the time-honoured principle of clause construction developed by George Coode.

Coode suggested a logical order for clause construction.

Drafter's Tip
Refer to any exceptions first: e.g.“Subject to…” Next, set out the circumstances or conditions upon which the legal right or obligation depends, using the present tense: e.g.“If A does… and B does …”

Third, set out the right or obligation using the active voice and avoiding the passive (opposite of active; in grammar, the form of verb used to indicate that the subject is the recipient of the action. Passive: "The law was passed." Active: "Parliament passed the law."): e.g.“A shall do 1,2,3, and 4.”

Finally, put the provision into paragraphs and give it a heading (a title for a page, chapter or, here, a clause in a contract).

For example, in the context of a loan document, a provision allowing a borrower to draw money if the conditions precedent (a condition which must be performed before the other party is obligated to perform) have been satisfied, that is, notice has been granted in the required form, and no event of default has occurred, might be drafted as:

Heading: 7. Availability of the loan

Subject to no event of default having occurred under clause 5, if:

(a) Borrower has satisfied all the conditions precedent listed in clause 4; and

(b) Borrower has delivered to the agent a notice of drawdown in accordance with clause 11;

Lender will make available to the Borrower a term loan facility up to a maximum amount of $10,000,000