How to Properly Draft a Contract in Singapore (DIY Guide)
To start off, be aware that attempting to draft a commercial contract yourself is usually a bad idea. A corporate lawyer should be engaged to draft any commercial contract your company needs. This is true for all but the most low-value contracts.
Trying to save money on legal fees by drafting a contract yourself is a false economy. This is because it may ultimately cost you significantly more if you get sued by your counterparty for something which could have been prevented by a standard contractual clause. This situation is commonly observed by litigation lawyers who end up being engaged at a much higher cost to deal with a legal turmoil caused by a contract drafted by a non-professional.
Having said all that, if you insist on drafting a low-value commercial contract yourself, here are a few points to bear in mind.
This article will explain:
Start From the Right Place
Don’t reinvent the wheel. It’s best to start with a template or a precedent contract that has been drafted by a lawyer. However, be aware that using random contracts you find online comes with risks.
For one, you don’t know who drafted them or whether they knew what they were doing. At a minimum, use a precedent that is at least for the same purpose you need and is from Singapore.
Then, identify any clauses or terminology that you don’t understand and delete them. Deleting clauses is certainly a risky move. But if you don’t understand them, you don’t know what they are for and how they might protect you. This is why you should have a lawyer draft your contract.
It is also far riskier to leave in a clause you don’t understand and hope that it helps you – when in fact it may be helping your counterparty instead and damaging your interests. You need to understand every word in your contract.
Know What You Want
You need to understand what interests you need to protect. This will guide your decision-making in terms of the kinds of clauses that need to be included in your contract.
For example, is confidentiality regarding your commercial activities important to your business? If so, you need a confidentiality clause.
Structuring Your Contract
The structure, and indeed the contents, of contracts varies dramatically from one kind of contract to another. However, in the most generic sense, every commercial contract should first set out the parties to the contract, their addresses and their place of incorporation.
The details of the parties should be followed by recitals (also known as a “preamble”), which describe the overarching purpose of the contract from each party’s perspective.
The recitals should then be followed by the terms and conditions that will govern the transaction. The first of these is usually a list of definitions of any shorthand terms that will be used in the contract. Then you usually follow these up with the operative terms of the contract, i.e. what each party will give or do.
Then, you have a collection of standard “boilerplate” clauses that appear in most contracts, but which need to be tailored to the specific needs of your transaction. Knowing which clauses to include and how to draft them is not straightforward, which is why such clauses are usually drafted by lawyers.
After this, you have the signature blocks for each party to sign the contract and include the date of signature.
Finally, you often have appendices, which can include any details specific to your transaction that are too detailed or complex to be included in the body of the contract. The operative clauses in the body of the contract would refer to the details in the appendices where relevant.
Some contracts are more complicated than this and have a more convoluted structure. Others are simpler. There is no standard format or length. It all depends on the needs of your transaction.
Negotiating the Draft Contract
Typically, it is advisable to send the draft contract to the counterparty in PDF format and simply ask them to sign unless they have any questions or objections. If they ask for it, you can send a Microsoft Word version of the draft contract if they do want to propose any amendments.
If the counterparty rejects any clauses or wants to significantly amend them, then you need to consider how this affects the interests you sought to advance with those clauses. You will also have to decide whether a compromise is possible without an unacceptable increase in your risk.
This is seldom a straightforward assessment and the reason why lawyers are most suited to draft contracts as compared to businesspeople.
By now, it should be obvious that drafting a contract yourself without any legal expertise is extremely difficult and risky. Proceed at your own risk, and only if you understand the magnitude of the financial risk to which you might be exposing your business, and have a reliable basis on which to conclude that the reward outweighs that risk.
Even in those circumstances, unless the value of the contract is extremely low, spending a small amount upfront to have a contract drafted by an experienced corporate lawyer is significantly more affordable than having to pay a litigation lawyer later – in the event that you need to conduct damage control in a business dispute that could have been avoided or mitigated by proper contractual drafting in the first place.
To find the right lawyer for your contract drafting needs, get in touch with our experienced corporate lawyers here.
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