Laster and Adams on Contractual Preemption of Judicial Discretion

In Judicature, the journal of the Duke Law Center for Judicial Studies,[1] Vice Chancellor J. Travis Laster of the Delaware Court of Chancery and Kenneth A. Adams, president of Adams Contracts Consulting LLC, consider contractual provisions which attempt to curtail a court’s authority to interpret the terms of the agreement.  Generally, the authors find that commonly-used interpretive clauses which modify or eliminate standard rules of contract construction, are acceptable.  These include stating that ambiguities are not to be construed against the drafter.  They find other provisions, such as provisions (i) stating that the doctrine of ejusdem generis (limiting general terms following an enumeration of two or more items to things of the same general kind or class) should be disregarded, or (ii) stating that examples introduced by “including” don’t limit the general class, as practically problematic or redundant. 

The authors then turn to provisions that seek to impose legal standards on courts:

Upon encountering this sort of provision, a judge is likely to think, “Says who!” Contract parties have no basis for telling a court how to act, and a court might well ignore or explicitly reject anything that suggests as much. A 2016 case before the Delaware Court of Chancery provides an example of a court doing just that. A party to a contract sought a preliminary injunction, basing its claim in part on the following provision: “The parties hereto agree that any party by whom this Agreement is enforceable shall be entitled to specific performance in addition to any other appropriate relief or remedy. Such party may . . . apply to a court of competent jurisdiction for . . . injunctive or such other relief as such court may deem just and proper in order to enforce this Agreement or prevent any violation hereof and, to the extent permitted by applicable law, each party waives any objection to the imposition of such relief.” This in effect requires that a court grant specific performance. The Delaware Court of Chancery denied the motion for summary judgment, offering the following explanation: “Parties, however, cannot in advance agree to assure themselves (and thereby impair the Court’s exercise of its well-established discretionary role in the context of assessing the reasonableness of interim injunctive relief) the benefit of expedited judicial review through the use of a simple contractual stipulation that a breach of that contract would constitute irreparable harm.”

Drafters can aim for the same result without appearing to boss the court around. For example, instead of saying in a severability provision that a court must interpret the contract in a certain way if it holds that part of the contract is unenforceable, you could introduce the severability provision as follows: “The parties acknowledge that in a dispute between the parties arising out of this agreement or the subject matter of this agreement, they would want the court to interpret this agreement as follows: This approach has the benefit of putting the focus on the parties, not on the court.”[2]

Finally, the authors examine provisions that purport to apply a specific legal standard to a contractual relationship, for example, a provision identifying a worker as an independent contractor:

Consulting agreements typically state that the consultant is an independent contractor. But saying that doesn’t make it so. If a consultant’s status as an independent contractor were challenged by, for example, a government agency that thinks it’s owed payroll taxes, a court might well ignore what the contract says and determine whether the consultant was an independent contractor based on the nature of the relationship after the contract was signed. A contract would reflect more accurately the relationship between a company and a consultant if it were to say that the parties intend that the consultant will be an independent contractor. And such a statement would serve a purpose — in a close case, a court might find relevant what the parties had intended at the outset of the relationship, particularly in a dispute between the sophisticated parties. One could argue that if a company isn’t penalized for inaccurately characterizing in a contract its relationship with a contractor, then the company might as well retain the inaccurate statement, particularly if it leaves the consultant thinking that the consultant is unquestionably an independent contractor. But as a general matter, it’s best for contracts to reflect reality, so the parties understand what they’re getting into. In particular, companies so routinely mischaracterize employees that there’s a benefit to using contract language to signal to all concerned that simply declaring that a consultant is an independent contractor doesn’t make it so.[3]

The authors conclude that (1) a court may be disinclined to accept a provision stating that a judicial rule of interpretation doesn’t apply if such a curtailed interpretation interferes with a natural reading of a contract, (2) arbitrary internal rules of interpretation may be ignored if the context suggests a meaning different from one arrived at by applying the divergent rule, (3) parties should acknowledge that a particular outcome is appropriate or that the wish for the court to interpret the contract in a specified way, rather than instruct the court how to act, and (4) if a contractual provision states that a given legal standard applies, and that provision seems at odds with the facts, a court may find the provision unenforceable.[4]

The entire article, which can be found at the Judicature website is well worth reading for some insight into judicial interpretation of contract terms: “When Contracts Seek to Preempt Judicial Discretion.”


[1] J. Travis Laster and Kenneth A. Adams, “When Contracts Seek to Preempt Judicial Discretion,” Judicature 101:3 (2017), 33-39.
[2] Id. at 37 (citations omitted).
[3] Id. at 37-38.
[4] Id. at 39