Boring Boilerplates!

Some contracts are well written and others not so much. The one thing that is common in well written contracts are thought-out boilerplate clauses. These are the clauses in the beginning and towards the end of the contract that most non-lawyers tend to ignore. Should we be ignoring them?

Boilerpate clauses seem standard and benign (and boring) but can have devastating effects on your business if not properly drafted and understood. Such clauses can have a significant impact on other important clauses and the interpretation of the contract itself, so it is imperative to read them thoroughly.

Here are the main boilerplate clauses (there are others depending on the type of contract) you should be reviewing, negotiating, and adding to your contracts.

1. Parties – It is surprising how many agreements contain names of parties who are not properly identified. Mistakes as to identity or a party’s attributes can prevent a contract forming and cause difficulties in enforcing it. To avoid issues you must ensure that each party’s full formal name is included along with other identifiers. For example, if a company is entering into a contract, you would look to include the full name, e.g., XYZ Limited, where the company is incorporated, the company registration number and the registered office address. It is usually worth your while to get a copy of the incorporation certificate to validate these details. As for individuals, their full name, along with details of their ID document and current address should suffice. You can also ask for the ID document (usually a passport or a driving license) and proof of current address.

2. Definitions and Interpretation – These clauses are the backbone of a contract. Definitions will usually contain meanings of words or phrases that are repeated in the document. Interpretation, on the other hand will explain how the document is to be read. You should carefully check each definition to ensure that it complies with your understanding. Not doing this can significantly alter your obligations and liability. For example, if a definition of ‘standard of care’ is included in the contract, you should make sure that it is defined aptly to suit your requirements. Having poorly defined words and lose interpretation clauses can create unwanted complications and may land you with far more obligations and liability than you signed up for.

3. Term & Termination – It is not easy to discuss termination when the relationship has only just begun, and perhaps because of this fact, the termination clause is one of the most ignored clauses in the contract. Having said that, it is also one of the most important clauses in a contract. When looking at a termination clause, make sure to understand when and how the contract can be terminated, whether there is a no-fault termination clause, and what the obligations of the parties are in case of a termination due to default. Some agreements contain provisions what will survive termination. Make sure you identify and understand your obligations even after the termination of the contract. Try not to enter into a perpetual contract i.e. make sure that the term of the contract is agreed. Most commercial relationships have a purpose and the contracts regulating the relationships must terminate when the purpose is fulfilled. Not having this built in the contract may expose you to liabilities on an ongoing basis, that you may not be aware of.

4. Confidentiality – Depending on the type of contract and the relationship being entered into, it may be important to agree on confidentiality obligations. Some obligations of confidentiality may arise automatically, at common law or by statute, but it is a good idea to include express obligations and remedies for breach. It also gives the parties the opportunity to define and agree the type of information that needs to be protected and provides more certainty. Well-formed confidentiality clauses are crucial to protect your business and customers. In some cases, you may be under an obligation of confidentiality as well in relation to the information you may be sharing. In such a scenario, it is a good idea to ensure that the confidentiality obligations in the contract are at least as stringent as your existing obligations.

5. Entire Agreement – Before you sign a contract, you may have several communications with the other party, both oral and written. These communications may contain statements or purported facts and even references to what you might agree to include in an agreement. All these communications should have been reviewed and their contents included in the final execution version of the contract. The entire agreement clause ensures that all these communications are specifically excluded from the contract. If the entire agreement clause is not added with clarity, a situation may arise that you may inadvertently agree to an obligation, that you did not intend to agree in the final contract. You should ensure that non-reliance and exclusion of liability for misrepresentation is expressly agreed.

6. Force Majeure – No one wants to continue to be obliged to the other party if they do not have control over circumstances which hinder their performance. To avoid potential liability for breach of contract, it is highly advisable to include a force majeure clause, which will explain the consequences of such circumstances on the parties’ obligations. Contrary to popular belief, force majeure is not a defined term or a doctrine in English law. Therefore, you must make sure that the term is well defined in your contract and covers all situations in which you would like to suspend performance or excuse the obligations during the duration of the event. You should also make sure to cover off situations where there is an extended force majeure – usually termination.

7. No Waivers and variations – Sometimes, actions of parties can alter an agreement. To avoid this from happening, be sure to include non-waiver and written variation clauses to the contract. Ignoring such clauses may lead the court to construe that a certain conduct of a party amounted to waiver of their rights or a variation of the contract. It is recommended that parties agree that no-waivers or variations shall be agreed until they are in writing and executed by both parties. While such a clause will ensure that you do not inadvertently waive your rights, in the long term, you will still need to ensure that you protect your rights by initiating legal action if the other party is in breach of its obligations.

8. Counterparts – It is becoming increasingly common for parties to execute contracts remotely in counterparts. This happens when parties sign two separate copies of a document. While the counterpart clause is not absolutely required, it is very useful because it makes it clear that copies of the document were agreed to be executed separately by the parties. Such a clause also prevents any argument that the agreement is not binding because it has not been properly executed.

9. Rights of Third Parties – Generally, contracts are binding on the parties who execute them. However, under The Contracts (Rights of Third Parties) Act 1999, in England, some third parties may also be able to enforce the contract. Depending on your circumstances, you should make clear who will be able to enforce the contract and specifically exclude the rights of third parties to enforce, unless expressly agreed in the contract itself, in which case you must identify the third parties who will be able to enforce.

10. Survival – Some provisions of a contract survive its termination under common law; however, it is advisable to identify any provisions which the parties would want to enforce, even after the contract terminates. These could be provisions relating to confidentiality or any restrictive covenants.

11. Governing Law & Jurisdiction – If you are executing your contract with a party in a different country, make sure that you have agreed on the law that will govern the contract. Many international parties chose English law even if they are not present in England. As such, the parties are free to choose the law that will govern, and the forum that will have jurisdiction if a dispute arises. While there are international conventions on jurisdictions and their application may be automatic, parties to a contract should look to agree these terms to avoid substantial costs in determining the jurisdiction if a dispute arises. Agreeing governing law and jurisdiction in the contract also provides certainty to the parties and makes the litigation process efficient.

Executing a contract without or badly drafted boilerplate clauses can expose you to a number of unknowns and unwanted risks. It is advisable to include them, but even more important to understand them and to ensure that they apply to your circumstances and cover off all your requirements.