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Boilerplate clauses in English law contracts are an important part of an agreement and can have profound financial and reputational consequences for the parties involved.
Despite this, the standardised nature of many such clauses – and the fact they are rarely negotiated as part of the deal – means that they are often overlooked when an agreement is signed.
This article will look at the nature of boilerplate clauses and why it is so important for individuals and businesses to be aware of their implications.
In view of the significant part that boilerplate clauses play in resolving any contractual disputes that subsequently arise, it is recommended that you obtain expert legal advice should you have any concerns.
What is a boilerplate clause in a contract?
Boilerplate clauses are an often underestimated but extremely important part of many business contracts.
Usually inserted towards the end of an agreement (and sometimes referred to as “the small print”) these are standard clauses that are unlikely to have been negotiated between the two parties and may have also escaped detailed scrutiny prior to the agreement being signed.
Such clauses are distinct from a contract’s commercial content which focuses on issues such as the nature and quantity of the goods being purchased; the price at which they are being bought; and arrangements over delivery and insurance.
While such issues are central to any business contract, boilerplate clauses are also a crucial part of the deal as they relate to the interpretation, validity and enforcement of the agreement and will play a central role should any subsequent disputes arise; a court is likely to attach great weight to boilerplate clauses in making a decision.
In terms of a court’s verdict, it is irrelevant what the parties intended a boilerplate clause to say. The crucial thing is the precise language used in the contract and how a reasonable reader would interpret it.
Under established legal principle, each boilerplate clause in a business contract has to be considered within the context of the whole agreement and the background leading to it.
Why is a boilerplate clause used by companies?
Boilerplate clauses are used by companies to protect their interests should a dispute arise over the way a commercial contract is interpreted and implemented. As will be seen later in this article boilerplate clauses cover a wide range of potential scenarios and, should a court be required to rule on the matter, will play a vital role in determining the outcome of the case.
A company inserting a boilerplate clause in a business contract can be viewed as seeking to tilt the agreement in their favour by strengthening their rights in a future dispute over those of the other party.
It is very important, therefore, that both sides scrutinise all boilerplate clauses before signing a contract – and take advice from a solicitor should they have any concerns.
What are examples of boilerplate clauses?
There are numerous types of boilerplate clauses and a legal professional will be able to provide advice on all of them. The most common types include:
This type of clause stipulates that should either party be prevented from fulfilling their obligations because of an extreme event (such as a hurricane, earthquake or flood) they will not be in breach of their contract.
Should one side claim force majeure, the other party will automatically be released from their obligations.
For example, should a food supplier be unable to provide the appropriate goods because severe weather conditions caused a crop failure, their customer (for example, a supermarket chain) will also be released from their requirement to provide payment.
In some cases, a force majeure clause contains a time limit, after which either party can serve notice to end the contractual agreement.
There are many occasions when one party in a contract may come into contact with information that the other side wishes to remain private.
This could include commercially sensitive information with the potential to affect a company’s share price or future dealings, or details of a forthcoming blockbuster film that a special effects provider learns through its work.
The law would provide only limited automatic protection and so a confidentiality clause is needed to specify precisely what information is to remain private – and enable the aggrieved party to claim compensation should the agreement be broken.
Should one party initially decline to take action against the other following an alleged breach of contract, it may be argued that they have waived their rights and cannot exercise them in the future.
A waiver boilerplate clause provides some protection to the aggrieved party in this instance although much will depend on the precise wording of the clause.
An entire agreement clause limits the obligations of both parties to what is specifically set out in the final contract, as opposed to anything that was mentioned during negotiations.
For example, such clauses could mean that promises made during a sales pitch by a double-glazing sales representative are not legally binding unless they are included in the contract.
This acts as a safeguard to prevent either party to an agreement seeking to make changes to the contract other than by a specific procedure to which both sides have agreed.
In times of volatility on the foreign exchange markets it may be particularly important for a contract to specify in what currency payments are to be made.
An indemnity clause can provide one party in the agreement with an added safeguard should the other side fail to fulfil its contractual obligations – for example, by failing to meet the terms of a warranty.
In the case of a contractual dispute, the location of any subsequent court hearing could have a significant bearing on the practicality of either side pursuing a claim and the result of any hearing.
The presence of a jurisdiction boilerplate cause can provide clarity over where any hearing will take place.
A customer may provide an order with a company (e.g. a building contractor) because it has confidence in them and assumes that they will be carrying out the project.
In such circumstances a subcontracting boilerplate clause may be advisable as this would prevent the supplier from sub-contracting the work to a third party.
Change of control clause
This clause would give one side the right to end the agreement should the other party undergo a change of ownership.
A number of aspects of a contract may relate to the concept of notice – for example, the payment of an invoice. A notices clause can avoid ambiguity by stipulating what notice period applies and what actually constitutes “giving notice”.
Why is it called a boilerplate clause?
The term “boilerplate” is believed to have originated in the nineteenth century when metal plates were used as templates for the production of identical steam boilers during the industrial revolution.
Newspaper editors are then thought to have begun using the expression in reference to what they believed was the often bland and unoriginal copy that writers submitted for potential publication.
The legal profession is believed to have adopted the term in the 1950s following publication of an article in The Bedford Gazette which criticised the use of such clauses as a way of reducing the transparency of contracts.
What are the advantages of boilerplate clauses?
There are a number of potential advantages to the inclusion of boilerplate clauses in business contracts:
As such text may not need to vary between contracts, the use of boilerplate clauses saves time and money in the drawing up of agreements.
This is particularly the case where the clauses are preapproved by the lawyers of both sides.
Clarity and reassurance
Rather than an individual or business assuming that a court would interpret a contract in the same way that they would, boilerplate clauses can remove any element of ambiguity from an agreement.
Both parties are aware of what their rights and obligations are under the deal and what the consequences will be if they break the terms of the agreement.
For example, boilerplate clauses can avoid a scenario where a supplier is faced with high legal and compensation costs due to a misunderstanding of how the contract would be interpreted in the case of a dispute.
As the same text is used in multiple contracts drawn up by a business, there is a consistent approach to the way its agreements are framed and interpreted. This in turn reduces the risk of errors when it comes to drawing up the contract.
What are the disadvantages of boilerplate clauses?
The disadvantages of using boilerplate clauses in business contracts include:
Lack of flexibility
Due to their standard nature, boilerplate clauses may not be appropriate for every agreement. Should both parties be in the habit of agreeing such clauses without proper scrutiny, this could cause complications in the case of a dispute.
Favouring only one side
Any party which inserts boilerplate clauses into a business contract is likely to be doing so in order to strengthen their position should a dispute arise in the future.
Should the other party not properly scrutinise such clauses, it could find itself, for example, facing unexpected demands for compensation.
How can these disadvantages be avoided?
We have seen above how problems with boilerplate clauses can arise if either side fails to show the necessary diligence when it comes to checking the small print before signing an agreement.
The most effective way to prevent this from happening is to obtain professional advice over the issue of boilerplate clauses and the implications they can have for your contract.
Are boilerplate clauses binding?
Should a legal dispute arise over a business contract, a court is likely to attach significant weight to a boilerplate clause that relates to the area of disagreement.
The precise wording of the boilerplate clause (and how that would be interpreted by a reasonable person) will be crucial while the court will also look at the text in relation to the rest of the contract and the background to the agreement.
As with anything that is stipulated in a contract, however, the provisions of a boilerplate clause must be considered to be reasonable.
For example, a clause that stated that a supplier had no duty to recompense a customer in the case of failing to supply the goods in question may be ruled to be unfair and so invalidate the contract.
Where can I find out more about boilerplate clauses?
We have seen how the inclusion of boilerplate clauses in a business contract can provide clarity and reassurance over the mechanics of how a business contract will operate, ensuring that both parties are fully aware of their rights and obligations and how any disputes will be resolved.
It is also the case, however, that great care must be taken over scrutinising the terms of any such clauses to check that they are legally robust and appropriate for the contract concerned.
Wilson Browne’s award-winning team of corporate and commercial solicitors have a wealth of experience in all issues relating to boilerplate clauses and other business contract advice.
We work at all times with the highest standards of confidentiality, professionalism and integrity. Our friendly service will provide you with the help you need and ensure that your business contracts are legally robust so that they are enforceable in the case of a dispute.
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