Chapter 9

Drafting Legal Documents

9.0. INTRODUCTION

Drafting a legal document is a skill of encapsulating rights, obligations, and liabilities of parties pertaining to a transaction. The drafting is a common word used by legal professionals such as lawyers. The legal draft presented is very precise wording that describes what the contracting parties want, their needs, desired, and objectives. Consent is expressed in legal terms to be made as reference in case of dispute.

9.1. STRUCTURE OF THE LEGAL AGREEMENT/CONTRACT

The following aspects are the most important terms found in the legal documents. Some of them might not be necessarily found in every legal document, such as the preamble:

• Title
• Date
• Preamble
• Recitals
• Parties
• Definition
• Interpretation
• Body of the agreement/contract
• Boilerplate clauses
• Miscellaneous
• Signature
• Schedule

These terms are explained briefly in the following sections.

9.1.1. Title

The legal document has a title that describes the scope and the area of the agreement such as interbank wakalah placement agreement, corporate wakalah placement agreement, or master agency agreement, and so forth. The title is mentioned on the first page.

9.1.2. Date

The date of the agreement. The date is mentioned on the first page.

9.1.3. Preamble

The preamble is an introduction to a book or a written document; an introduction to something you say. Normally the preamble is found at the beginning of the agreement. The preamble is an introduction to the legal agreement contents and its background. A preamble is an opening statement, introductory statement, preface, part of the statute related to legal documents that explain the purpose of the agreement and its underlying philosophy and history.

Here is a sample of preamble in the interbank murabahah master agreement of AIBIM.

THIS AGREEMENT is made

BETWEEN

[Insert Name of Deposit Placing Entity] (Company No. •), a company incorporated in Malaysia under the Companies Act, 1965 and having its registered office at [Insert Registered Office of Deposit Placing Entity] and business address at [Insert Business Address of Deposit Placing Entity] and includes its successors in title and permitted assigns (“the Principal”) of the one part;

AND

[Insert Name of Deposit Taking Entity] (Company No. •), a company incorporated in Malaysia under the Companies Act, 1965 and having its registered office at [Insert Registered Office of Deposit Taking Entity] and business address at [Insert Business Address of Deposit Taking Entity] and includes its successors in title and permitted assigns (the “Bank”) of the other part.

9.1.4. Recitals

The recital comes after the preamble and before the definition and interpretation. Sometimes it is mention as recital; sometimes it is expressed in different words such as “background,” “introduction,” or “whereas.” Here is a sample of a recital in the inter-bank murabahah master agreement of AIBIM.

WHEREAS:

A. The Bank is carrying on the business of Murabahah activities as part of its investment activities/Islamic banking business,1 which includes buying and selling of the Merchandise (as herein defined) by way of Murabahah.

B. By an agreement dated [Insert date of Master Agency Agreement](“Master Agency Agreement”) made between the Principal and the Bank, the Principal has agreed to appoint the Bank as its agent to do all acts as the Principal could do itself with respect to the purchase of the Merchandise on a cash basis (“Purchase Transactions”) and the Bank has agreed to accept such appointment on the terms and conditions set out therein.

C. The Bank will from time to time enter into arrangement with the Principal whereby, the Bank, upon the completion of each of the Purchase Transactions, may/will2 purchase from the Principal the Merchandise at an agreed sale price for a spot delivery date and a deferred cash consideration on terms and conditions set out in this Agreement (“Sale Transactions”). The Principal as the seller shall always ensure all elements of Murabahah are preserved where the Principal must disclose its profit and cost of the Merchandise to the Bank as the buyer upon the Parties’ (as herein defined) agreement to enter into this transaction.

In some legal documents, such as the asset sale agreement, the recital is spelled out in article 1, which contains a few sections: section 1 project, section 2 application for financing facility, section 3 purpose of the facility, section 4 existing of the indebtedness.

The recital is further introduction to the legal agreement and the nature of the relationship between the contracting parties. Its provides information about the purpose of the agreement, and the parties who are involve in the agreement. There is no right or obligations in the recital but, rather, the features related to the contract.

9.1.5. Parties

The parties involved in the contract must be clearly identified and mentioned in the legal agreement. Normally the contracting parties will be mentioned on the front page and the preamble. The details of each contracting parties must be included such as name, company number, if the company is incorporated in Malaysia under the Companies Act, 1965, registered office, and business address.

9.1.6. Definition

Definition and interpretation are combined in one section but presented into two subsections. The definition subsection defines specific terms used in the legal agreement. It provides meaning and concept of the key words and terms of the contract. The definition always starts with the word means and the term is always capitalized such as “Business Day,” “Insolvency Proceeding,” and so on.

Example of the definition in the interbank murabahah master agreement of AIBIM is as follows:

Incorporated Definitions

In this Agreement the following expression shall, unless the context otherwise requires, have the following meanings:

Bank	Means [Insert Name of Deposit Taking Entity] (Company No. •), a company incorporated in Malaysia under the Companies Act, 1965 and having its registered office at [Insert Registered Office of Deposit Taking Entity] and business address at [Insert Business Address of Deposit Taking Entity] and includes its successors in title and permitted assigns;
Bank’s Confirmation	Means the confirmation issued by the Bank to the Principal upon the completion of the Purchase Transaction in the form set out in Appendix 4 herein or in such other form mutually agreed;
Bank’s Offer	Means the offer to purchase the Merchandise issued by the Bank to the Principal in the form set out in Appendix 5 herein or in such other form mutually agreed;
Business Day	Means a day (excluding Saturday and Sunday) on which commercial banks are open for business in Kuala Lumpur save that to the extent it refers to any payment, in which event the expression “Business Day” shall mean a day (excluding Saturday and Sunday) on which commercial banks are open for business in Kuala Lumpur and London, and, in relation to payments in (i) Dollars, New York; and (ii) any other currency, in the principal financial centre for foreign exchange dealings in such currency;
Insolvency Proceeding	Means a case or proceeding or petition or resolution or any other steps be taken to seek a judgment of or arrangement for insolvency, bankruptcy, composition, rehabilitation, reorganisation, administration, winding-up, liquidation or other similar relief with respect to a party or its debts or assets or seek the appointment of a trustee, receiver, liquidator, conservator, custodian or other similar official of a party or any substantial part of its assets, under any bankruptcy, insolvency or other similar law or any banking, insurance, or similar law governing the operation of a party and any analogous proceeding in any jurisdiction to which a party is subject to;
Master Agency Agreement	Means the Master Agency Agreement dated [Insert date of Master Agency Agreement] made between the Principal and the Bank upon the terms and conditions therein contained and includes any variation, modification and supplement thereof;
Merchandise	Means goods and commodities that are acceptable to the Principal and the Bank and valued according to Sharī`ah as set out in Appendix 1 hereto. The “Merchandise” shall be goods and commodities other than gold, silver or currency(s) and it also excludes pork, alcoholic drinks, tobacco, narcotics, or any other items which are not acceptable to Sharī`ah, the Principal and the Bank;
Parties or Party	Means the parties or party to this Agreement;
Principal	Means [Insert Name of Deposit Placing Entity] (Company No. •), a company incorporated in Malaysia under the Companies Act, 1965 and having its registered office at [Insert Registered Office of Deposit Placing Entity] and business address at [Insert Business Address of Deposit Placing Entity] and includes its successors in title and permitted assigns;
Principal’s Acceptance	Means the Principal’s acceptance of the Bank’s Offer to purchase the Merchandise from the Principal in the form set out in Appendix 6 herein or in such other form mutually agreed;
Purchase Order	Means the notice to be issued by the Principal to the Bank as its agent in the form set out in Appendix 3 herein or in such other form mutually agreed indicating the Principal’s wish to purchase the Merchandise under the Purchase Transaction;
Purchase Transactions	Means the purchases of the Merchandise by the Principal on a cash basis on terms and conditions set out in this Agreement, and “Purchase Transaction” shall refer to any one of them;
Sale Transactions	Means the purchases of the Merchandise from the Principal for a spot delivery date and a deferred cash consideration on terms and conditions set out in this Agreement, and “Sale Transaction” shall refer to any one of them;
Supplier	Means the third party, including but not limited to commodity trading houses, commodity brokers, industrial firms and/or their suppliers, from whom the Merchandise are purchased/to be purchased under the Purchase Transactions; and
Trade Transactions	Means collectively the Purchase Transactions and the Sale Transactions.

9.1.7. Interpretation

The interpretation is an important section in the agreement. It provides clear meaning and rules pertaining to some major aspects in the legal agreement. The interpretation removes any room for ambiguity and uncertainty throughout the legal document.

Example of the interpretation in the interbank murabahah master agreement of AIBIM is as follows:

Interpretation

The headings in this Agreement are inserted for convenience only and shall not be taken, read, and construed as essential parts of this Agreement.

i. References to clauses or schedules are to be construed as references to the clauses or schedules of this Agreement.

ii. All references to provisions of any legislation or statute include references to any amendments, any statutory modification and re-enactment thereof or regulations proclamations, by-laws, published rulings, statements of policy or guidelines issued under or in relation to that statute.

iii. References to this Agreement shall include all amendments and modifications to this Agreement as shall from time to time be in force.

iv. Words importing the singular number shall include the plural number and vice versa.

v. Where two or more persons or parties are included or comprised in any expression, agreements, covenants, terms, stipulations and undertakings expressed to be made by or on the part of such persons or parties shall be deemed to be made by and be binding upon such persons or parties jointly and severally.

vi. Words importing the masculine gender shall include the feminine and neuter gender and vice versa.

vii. A reference to a document includes any amendment or supplement to, or replacement or novation of that document.

viii. A reference to ‘date’ or ‘time’ is a reference to that date or time in Malaysia.

ix. Any reference to ‘law of Malaysia’ shall be construed so as to include, without limitation, any act, ordinance, statutory or municipal, rule, regulation, ruling, decree, or order enacted, issued or decreed by the Parliament of Malaysia or any bureau, minister, instrument, agency, court, regulatory body, authority, legislative body or department thereof (including, without limitation, Bank Negara Malaysia or any taxing, fiscal or other monetary authority thereof) and Islamic law as administered by the courts of Malaysia.

x. Other parts of speech and grammatical forms of a word or phrase defined in this Agreement shall have a corresponding meaning.

In some other agreement such “cash line facility agreement” the interpretation includes statement as follows:

a. Words denoting the singular includes the plural number and vice versa.

b. Words importing the masculine gender include the feminine and neuter genders and vice versa.

c. The headings and sub-headings to articles and Sections in this Agreement are inserted for convenience only and shall be ignored in constructing the provisions of this Agreement.

d. References to Articles and Sections are to be construed as references to articles and sections of this Agreement, unless stated otherwise.

e. References to the provisions of any legislation include a reference to any statutory modification or re-enactment thereof.

f. Words applicable to nature persons include any body, person, company, corporation, firm or partnership, corporate or otherwise and vice versa.

g. The word “herein,” “hereinafter,” “hereof,” “hereunder,” and other words of similar important shall refer to this Agreement as a whole and not to any particular provision.

h. The words “monies,” “Ringgit Malaysia” and the symbol “RM” shall be construed as Malaysian currency.

i. The schedules and annexure herein shall form an integral part of this Agreement and shall be taken, read and construed as an essential part hereof.

9.1.8. Body of the Agreement/Contract

The body of the agreement is the core of the contract, it contains most of important clauses that determine the right and obligation of the contracting parties. In some financing facilities such as the Murabahah Tawarruq Facility Agreement it is labeled “Facility,” which contains a few sections. There are key terms covered in the body of the agreement such as consideration, rights, duties, responsibilities, and so forth.

The following sections are Purchase Transactions, Tax, Sale Transactions, Representations and Warranties, Termination and Notices, and represent the body of the agreement in the interbank murabahah master agreement of AIBIM. Details of these sections are as follows:

9.1.9. Boilerplate Clauses

Boilerplate clauses are standard clauses that appear in most of the legal documents as provision at the end of the agreement. Boilerplate clauses clarify the nature of the relationship between the contracting parties. Its purpose is to provide how the agreement is to operate such as clauses dealing with applicable law, and jurisdiction clauses. Sometimes they are referred to as “Miscellaneous” provisions in the agreement.

The purpose of boilerplate provisions is to save the parties and drafters of contracts time with commonly used language. Boilerplate language is used to save time, but it is nevertheless important to understand the meaning and effect of these provisions in order to choose which ones are important for your particular contract. Although boilerplate provisions may seem “standard,” they can still be tailored to meet your specific contracting requirements.3

According to Andrew Whan, Tatsunhiko Kamiyama, and Natsuko Sugihara, boilerplate clauses are not only a common feature of many English law contracts but have also been adopted in many other jurisdictions’ contracts, including Japan. Such term refers to the relatively standardised clauses in contracts, which are often agreed on with little or no negotiation and found toward the end of an agreement.4 Boilerplate removes ambiguity and gharar from the agreement. By including boilerplate clauses, the parties to a contract can better define the relationship between themselves, which provides certainty if terms in the contract are ever disputed. Omitting such boilerplate clauses may create uncertainty and expose certain elements of the relationship or agreement between the parties open to interpretation in a court of law, which is often an expensive and unpredictable exercise.5

The most commonly used boilerplate clauses are discussed next, along with an explanation of their purpose.

• Amendment: An amendment clause provides the means by which the parties are entitled to make changes to the contract.
• Assignment: This is a term used to refer to the rights and obligations of a party to a contract and the ability or not of that party to pass on those rights and obligations to a third party. Often contracts have a “no-assignment” clause, which prevents either party from subcontracting their duties under the contract.
• Arbitration: The purpose of arbitration is to provide an alternative to litigation. It is generally quicker, cheaper and is less formal than going to court. Arbitration can be particularly useful in resolving disputes that are of a highly sensitive or confidential nature. Often a contract will have an arbitration clause so that a dispute will be resolved by an impartial tribunal without either party having to resort to costly and lengthy litigation.
• Entire Agreement: This is a very useful clause that has the effect of limiting all the parties’ rights and obligations to only the provisions contained within the contract and any attached schedules. This means that neither party can claim to have acted based on any statement, discussion or document not expressly contained within the contract.
• Force Majeure: Force Majeure is a clause that prevents the parties to a contract from being liable in the event that circumstances outside their control stop them from being able to undertake their obligations under the contract. The theory behind this lies in the legal doctrine of “frustration”—that parties should not be penalised for the actions or fault of another that they could not reasonably have foreseen.
• Law and Jurisdiction: This determines the law of the country (or state) that governs the contract. In the event of litigation the jurisdiction is the country that will hear any legal dispute.
• Notices: This provides the parties to a contract with an agreed method of communication upon the occurrence of specific events. It is a very important provision as it sets out the way in which parties should communicate, and the timescales, thereby avoiding dispute later on. If parties are in different countries, this is likely to be by electronic means.
• Termination: This sets out the ways in which the contractual relationship can come to an end. This may be at the end of a fixed term, if the contract is breached by either party, by granting the other party notice of termination (e.g., 30 days’ notice and in writing) if one party becomes insolvent, bankrupt, or is liquidated, or a dispute arises between them that stops them from being able to continue with the contract. There will often be a further section in this clause that explains what happens when the contract is terminated.6
• Sometimes the force majeure and law and jurisdiction are not clauses in the boilerplate but incorporated in the Miscellaneous. This depends on each contract and the nature of the facility subject to the agreement. Example of the boilerplate in the interbank murabahah master agreement of AIBIM is as follows:

9.1.10. Miscellaneous

Miscellaneous is a clause in the legal agreement consisting of numbers or elements of different aspects and kind that have mixed characters. Example of the Miscellaneous in the interbank murabahah master agreement of AIBIM is as follows:

9.1.11. Signature

Signature is a legal endorsement of the agreement executed by the contracting parties. The signature represents the stage of the execution of the offer and acceptance. It is an expression of the consent and declaration of the agreement on the contents of the legal documents that are in the contract. Example of the signature in the interbank murabahah master agreement of AIBIM is as follows:

AS WITNESS the hands of the duly authorised representatives of the parties hereto the day and year first before written.

9.1.12. Schedule/Appendix (if applicable)

The schedule is an attachment to the legal agreement, it is not included in the main part of the contract but it is attached to it and executed after the main part of the contract. The schedule contains additional information and items that are considered part and parcel of the legal agreement. Usually the schedule or any other annexure will be captured in the interpretation section that normally reads as follows: “The schedules and annexure herein shall form an integral part of this Agreement and shall be taken, read, and construed as an essential part hereof.” This clause makes the schedule to be part of the legal agreement and cannot be ignored.

Example of the appendix in the interbank murabahah master agreement of AIBIM is as follows (there are seven appendixes; we include just two here for illustration purposes).

No Purchase Transaction may be entered into by the Bank or its agents, on behalf of the Principal without the Principal’s express confirmation in accordance with Paragraph 3 of Appendix 2 herein. The Purchase Transaction shall adhere to the following guidelines:

Eligible Instruments

Maturity

Merchandise may be sold to the Bank as purchaser on deferred payment for such period as mutually agreed by the Principal and the Bank.

Currency

The proceeds from any Trade Transaction will be in Ringgit Malaysia or such other currencies as the Parties hereto may agree from time to time.

9.2. TIPS FOR DRAFTING TEXT AND ADDITIONAL CLAUSES

There are some tips in drafting the legal documentation and their clauses to be considered to ensure a proper presentation of the form and substance of the contract presented in the legal documents.9

• Order the additional clauses in a logical sequence. Generally, it is a good idea to keep sentences short but not cryptic. The intent of the text must be clear. If the clause is long, consider dividing the clause into sections.
• Review the text. Make sure your meaning is clear by having someone else review what you wrote to ensure the meaning is apparent. It is not unusual to rewrite a sentence or clause several times to ensure that it is simple and clear. The last thing you want is for a judge or arbitrator to discard an important clause because the meaning is unclear or ambiguous.
• Omit needless words. Do not use jargon/legalese such as hereto and the said item.
• Avoid making redundant clauses and ensure clauses do not contradict.
• Read the document carefully to ensure that the additional clause is not repeating or contradicting what has already been stated in the document.
• Use numerals, not words, to denote amounts.
• Refer to people and companies by name. If names have been defined by a shorthand identifier within the document, then use that name instead. This is especially true of the parties to the agreement. These are usually identified at the beginning of the contract. You should use these predefined terms throughout the rest of the document. Example: the Landlord, the Tenant, the Customer, the Service Provider, and so forth.
• Do not use multiple names or identifiers to refer to the same person or thing. It will appear to the reader that you are introducing new or different objects.
• Do not use terms such as: they, us, we, our, you, me, and so forth. These terms are ambiguous and confusing.
• Do not abbreviate words.
• Emphasize the positive and avoid using multiple negatives in sentences (for example, change “Notice will not be effective unless it is delivered in person.” to “Notice will only be effective if it is delivered in person.”
• Do not use all capitals.
• Spell-check your clause.

9.3. LEGALISTIC STYLE

Draft the clause in plain English. Plain English means language that is simple and conveys ideas with the greatest possible clarity. The difference is illustrated in the list that follows:

Legal Language	Plain English
at the present time	now
due to the fact that	because; since
during such time as	while
for the duration of	during
inasmuch as	because; since
in the event that	if
notwithstanding the fact that	although; even if
prior to	before
pursuant to	under; in accordance with
subsequent to	after
that certain	a
with reference to	about

NOTES

1. To delete where appropriate subject to the requirements of the Bank.

2. Subject to the requirement of the Bank.

3. Boilerplate provision, Chartered Institute of Purchasing & Supply, www.cips.org, retrieved July 27, 2013.

4. A. Whan, T. Kamiyama, and N. Sugihara, “Boilerplate Clauses in English Law Contracts,” Tokyo: Clifford Chance (September 2012), 1, www.cliffordchance.com/publicationviews/publications/2012/09/boilerplate_clausesinenglishlawcontracts.html.

5. Ibid.

6. Lorna Elliott, “What Are Boilerplate Clauses?” Contracts & Agreements, www.contractsandagreements.co.uk/what-are-boilerplate-clauses.html, retrieved July 27, 2013.

7. Subject to the requirement of the Bank.

8. Ibid.

9. “Tips for Drafting Text and Additional Clauses,” Law Depot.com, www.lawdepot.com/help/draftingtips, retrieved February 27, 2013.