Commercial contracts almost always contain what is referred to as 'boilerplate clauses'. These are standardised clauses often located at the start or towards the end of the contract and because they do not contain commercial terms, are hardly ever negotiated (and, in some cases never even read!). Whilst often considered immaterial, they are important as many contract disputes or obligations depend upon their drafting.
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Why are boilerplate clauses necessary?
Boilerplate clauses deal with the interpretation, validity, and enforcement of an agreement. As such, they have a significant impact on the agreement and can find themselves as the cause of litigation. If a dispute arises, courts will use boilerplate clauses to interpret or enforce the contract. Most parties don’t sufficiently consider the impact of their boilerplate clauses or even the benefits that they may bring.
Which boilerplate clauses should I be concerned about?
There are many types of boilerplate clauses however we are going to focus on the more common ones used in commercial contracts, including force majeure, entire agreement, no waiver, confidentiality, notice, governing law, assignment and subcontracting, variation and third party rights.
Force majeure
A force majeure clause states that if an extreme, unforeseeable event occurs that prevents or delays a party from performing their contractual obligations, that party will not be in breach of contract because of the delay/non-performance. Typical examples of force majeure events include floods, earthquakes, epidemics etc.
If a party claims force majeure, the other party’s corresponding obligations under the contract will also be suspended. For instance, if you are the supplier and the customer has claimed force majeure, you would no longer have to supply. Often a force majeure clause also sets out a timeframe after which, if the force majeure event is continuing, either party is able to serve notice to terminate so that the parties can make alternative commercial arrangements.
Force majeure clauses cannot be implied into a contract. If you want to rely on a force majeure clause, you must check the contract to see if the clause exists. In the current economic climate, it is likely that we may also see an increase in parties seeking to rely on force majeure and therefore it is important that you ensure your contract includes the necessary wording. To learn more, try our article dedicated to explaining force majeure.
Entire Agreement
Entire agreement clauses are aimed at preventing parties to a contract from claiming that any earlier agreements or statements made during earlier discussions or negotiations form part of the final agreement. Their effect is to ensure that the only terms that apply between the parties are those that are set out in the contract itself. As a result, entire agreement clauses create certainty between the parties as to their contractual duties and obligations to each other. Without an entire agreement clause there could be a side agreement whereby the parties are bound to comply with, despite it not being written into the contract.
Entire agreement clauses are often the subject of disputes whereby the party seeking to rely on them claims that the other cannot rely on pre-contractual misrepresentations. This makes them crucial in protecting parties by limiting their obligations to the terms identified in the contract itself. For further reading, try our more detailed explanation of entire agreement clauses.
Waiver clause
A waiver clause means that if a party has not used its right to enforce the terms of the contract, either by failing to enforce an obligation or following a breach of contract by the other party, the innocent party does not lose its right to enforce the terms at a later date.
It is important to note, however, that waiver clauses do not prevent the application of waiver arguments by a defendant completely, but they do make it harder for that defendant to argue that a claimant has waived their rights. The later words and actions of the party seeking to rely on the waiver clause are extremely important in deciding whether the waiver clause applies and therefore it is always good to seek legal advice.
Confidentiality clause
A confidentiality clause is imperative if the transaction between the parties involves the exchange or disclosure of either party’s confidential information. Without this clause, only limited protection is given under English law and this may not be sufficient for the parties.
A confidentiality clause can set identify what exactly is classed as 'confidential information', for example trade secrets, financial information or customer or supplier details. It can also set out how it can be used, what specific action is required to protect it, and agreeing a process for its return, destruction, or unavoidable disclosures.
Governing law
The governing law of a contract clarifies which country’s law governs the contract and usually includes clarification in which jurisdiction potential actions may be brought. The most common law will be English law, with the courts of England having jurisdiction. However, if you have a party to a contract that is based overseas, they may insist on the governing law and jurisdiction to be where that party is based. If this is the case, you should take legal advice from a legal professional of the relevant country as to the interpretation of the contract and your ability to enforce its terms.
Variation clause
A variation clause sets out a procedure whereby the contract can be amended at a later date. The reason for their inclusion is to prevent informal or inadvertent changes to the contract and to help keep a track of changes, especially in long term contracts. Most long-term contracts may need variations as often circumstances of the parties or the terms may change throughout the term.
Variation clauses usually set out how the variation can be done. Usually, this will need to be in writing and signed by both parties. Without the inclusion of a variation clause, the contract could be amended informally through speech or conduct, without writing or signature, potentially resulting in uncertainty and disagreement between the parties.
Third party rights
The Contracts (Rights of Third Parties) Act 1999 enables a third party to potentially enforce a contract in its favour and therefore express terms to exclude the effects of this Act are essential. A typical third-party rights clause limits the ability of a non-party to enforce the contract terms or prevents the third-party from receiving any benefits under the contract. A third-party rights clause can also remove the need for a non-party’s agreement to a variation of the contract.
Summary
There are many other boilerplate clauses that can be included however not every contract needs every possible one. It is important when producing a contract to understand which are the most relevant and their purpose and effect. Whilst we have provided you with an explanation of some of the more commonplace boilerplate clauses used in commercial contracts, it’s always sensible to get sound advice from an experienced commercial solicitor to understand which are most relevant and important for your contract.
