Contractual Howlers: A Russian Bond Case Study-Reference-Cited by-同舟云学术

Contractual Howlers: A Russian Bond Case Study

Published:2023-08-01 Issue:Supplement 1 Volume:73 Page:124-136
ISSN:0042-0220
Container-title:University of Toronto Law Journal
language:en
Short-container-title:University of Toronto Law Journal

Author:

Scott Robert E¹,Choi Stephen J²,Gulati Mitu³

Affiliation:

1. Alfred McCormack Professor Emeritus of Law, Faculty of Law, Columbia University, New York, United States

2. Bernard Petrie Professor of Law and Business, Faculty of Law, New York University, United States

3. Perre Bowen Professor of Law and John V. Ray Research Professor of Law, Faculty of Law, University of Virginia, Charlottesville, United States

Abstract

Both theorists and courts commonly assume that high-dollar financial contracts between sophisticated parties are free of linguistic errors: sophisticated parties, the thinking goes, will carefully express their shared intentions and eliminate any troublesome gaps and glitches. Consistent with this assumption, most courts interpret the language of commercial contracts literally according to the plain or ordinary meaning of the words in the agreement. An examination of contracts governing Russian bonds outstanding in 2022, however, reveals a large number of potentially troublesome contractual gaps and glitches. We refer to these linguistic irregularities as ‘howlers’ in order to highlight the significant litigation risks they create. In this article, we use interviews with market participants to assess the causes of the contractual howlers we observe in the Russian bonds. The presence of howlers undermines the core assumption that justifies the literal interpretive approach used by courts for contracts between sophisticated parties.

Publisher

University of Toronto Press Inc. (UTPress)

Subject

Law,Sociology and Political Science

Link

https://utpjournals.press/doi/pdf/10.3138/utlj-2023-0004

Reference39 articles.

1. See Elisabeth de Fontenay, ‘Complete Contracts in Finance’ [2020] Wis L Rev 533 (‘[j]udges tend to believe that sophisticated parties should write lengthy agreements that explicitly provide for the parties’ conduct under every contingency, because, in their view, such “complete” contracts come closer to expressing the parties’ entire bargain’ at 535). An implication of this assumption is for courts to take a strict textualist approach to contract interpretation – that is, to assume that the literal text is what the parties wanted and to not look deeper into context for possible nuance. See also Uri Benoliel, ‘The Interpretation of Commercial Contracts’ (2017) 69:2 Ala L Rev 469 at 472–80 (noting the lack of empirical evidence on what commercial parties actually prefer and providing some examples).

2. See Theodore Eisenberg & Geoffrey Miller, ‘The Flight to New York: An Empirical Study of Choice of Law and Choice of Forum Clauses in Publicly-Held Companies’ Contracts’ (2009) 30:4 Cardozo L Rev 1475 (suggesting that parties prefer a more textualist approach).

3. This is the ‘hypothetical bargain’ approach to gap filling and implicates doctrines such as impossibility, impracticability, frustration, good faith, and fiduciary duties. See David Charny, ‘Hypothetical Bargains: The Normative Structure of Contract Interpretation’ (1991) 89:7 Mich L Rev 1815; Mariana Pargendler, ‘Modes of Gap Filling: Good Faith and Fiduciary Duties Reconsidered’ (2008) 82 Tul L Rev 1315 at 1316, 1318; Melvin A Eisenberg, ‘Impossibility, Impracticability and Frustration’ (2009) 1:1 Journal of Legal Analysis 207.

4. See Royce de R Barondes, ‘Vestigial Literalism in the Interpretation of Corporate Financing Instruments’ (2014) 15 Transactions: Tennessee Journal of Business Law 239 (‘a number of factors … result in courts relying to a lesser extent on the evident purposes of contractual provisions in interpreting corporate financing instruments … one consequence is tedious literalism – hyperliteralism – may reign in interpreting corporate financing instruments’ at 288).

5. Stephen J Lubben, ‘Protecting Ma and Pa: Bond Workouts and the Trust Indenture Act in the 21st Century’ (2022) 44:1 Cardozo L Rev 82 (‘[c]ourts have been extremely reluctant to do anything other than a highly formalistic ‘plain meaning’ analysis in corporate finance cases’ at 136); Diane Lourdes Dick, ‘Confronting the Certainty Imperative in Corporate Finance Jurisprudence’ (2011) Utah L Rev 1461 (‘the prevailing judicial decision-making approach in corporate finance finds its roots in what this Article calls the “Certainty Imperative,” … which, in the realm of finance and lending, is best preserved when courts exercise considerable restraint, narrowly tailoring opinions to strict construction and passive enforcement of contracts’ at 1466).