Corporate & Securities Law

The Forthright Negotiator Principle and Creative Ambiguity

By Ken Adams

In this December 2007 post I wrote about the Delaware Chancery Court opinion in the litigation between United Rentals Inc. and two Cerberus Partners acquisition vehicles. But I wasn’t so much interested in the opinion as in what had caused the confusion and how it could have been avoided, so I didn’t even mention the principle that the court invoked, “the forthright negotiator principle.” Here’s how the court described it:

The forthright negotiator principle provides that, in cases where the extrinsic evidence does not lead to a single, commonly held understanding of a contract?s meaning, a court may consider the subjective understanding of one party that has been objectively manifested and is known or should be known by the other party.

(For more about the forthright negotiator principle, see this post on Private Equity Law Review and this post on Settle It Now.)

As I noted in a comment to the Settle It Now post, the court perhaps rather unhelpfully applied a little-used moniker to a straightforward notion. But I’m pleased that the court highlighted this notion, because it’s caused me to revisit the issue of “creative ambiguity.”

Creative ambiguity is the term I use to describe a drafter’s intentionally adding ambiguous language to a contract?the other side thinks a certain phrase means X, but you know that it means X or Y, and you want to be able argue, down the road, that it means Y if it’s to your advantage to do so.

I discussed creative ambiguity in this October 2007 post on gamesmanship in contract drafting. Here were my objections to gamesmanship:

My problem with gamesmanship is that it?s deceitful. If that doesn?t pose any ethical problem for you, consider the practical implications: If the other side catches you playing any of these games, it could sour your client?s relationship with the other side, resulting in your client missing out on future deals and your losing your client?s business. It could also inflict more general harm on your professional reputation. And playing games with ambiguity can result in your being hoisted by your own petard.

Considered more broadly, gamesmanship is indicative of a narrow adversarial view of negotiation. I prefer negotiation based on mutual problem-solving.

But at least as regards creative ambiguity, I omitted the most forceful argument: that if the other side thinks that a given provision means X, and you know that they think it means X, then a court could well invoke the forthright negotiator principle?whether or not they use that name?to hold that you’re estopped from arguing that the provision in fact means Y. This provides a more immediate, and less touchy-feely, argument against creative ambiguity.

By the way, language is ambiguous if it?s capable of conveying two or more inconsistent meanings. Courts and practitioners routinely, and unhelpfully, invoke ambiguity when referring to any of the various sources of uncertainty in a contract. That’s something I discuss in this March 2008 post and in chapter 6 of MSCD.

Full post as published by AdamsDrafting on January 13, 2009 (boomark / email).