When did you last time actually read the more standardized terms?
Standardized terms (and boilerplate clauses) may—in several aspects of corporate law—be reused without further reflection, being devoid of meaning and therefore becoming a contractual “black hole”—unintelligible to the parties and the courts.
The advantage of using standardized terms (which is often found in industry standards or general terms) and boilerplate clauses (the standardized terms often found towards the end of many legal documents with little or no negotiation) is in many instances justified by the increased efficiency and the reduced transaction cost of entering into an agreement.
However, repetitive use may create so-called rote usage (original shared meaning is lost) and encrustation (legal jargon that weakens the communicative properties)—or even be a result of grandstanding by the user. Or that earlier authors had a good reason for their choice. This may create a contractual black hole, i.e., not only unintelligible, but also costly and in some instances (at least for the buyer), maybe even shocking. Take this example:
In one recent court case (2017 Supreme Court, NY, Medicias, S.A. De C.V. v Abdala), the buyer claimed that the seller lied about and concealed violations of the law that kept the target from selling its products. However, the court ruled that an explicit non-reliance/no extra-contractual remedies clause (a clause saying that the buyer did not rely on what was not included in the contract) was held sufficient to preclude the buyer’s fraud claim.
We might say that this would not be the result in Norway. It is also an easy win for buyer’s counsel to negotiate in a “fraud carve-out” (exception). But what is fraud? Fraud is mentioned in paragraph 30 in the Norwegian law on conclusion of agreements, etc., but not defined therein. Another paragraph in the same law, paragraph 33, covers dishonesty (NO: “uredelighet”), but if you have negotiated an undefined fraud exception, does this cover dishonesty? Even if the claim is based on what the seller should have known about the circumstances supporting the buyer’s claim? Some legal jurisprudence supports that this is covered by paragraph 33.
I am tempted to argue as in another court decision regarding another black hole issue to be dealt with next time: The courts said that several articles had been written, encouraging practitioners to take the issue into account, and members of the judiciary had no authority to “invent” judicially-created exceptions. This is a strict interpretation, and Norwegian courts may solve the issue differently.
But now you have no excuse. You know about at least one potential black hole.
The next one might be more shocking.
If you can’t wait until next week, you may wish to read an article by Reid Feldman, “Black Holes and Boilerplate in M&A Practice” (2018), in Business Law International, Vol. 19, No. 2, which deals with the above issues and has additional references.
For questions about this article or related issues, please contact Partner Bjarte Bogstad.