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The danger of ignoring boilerplate clauses in contracts
24 August 2014
 

We’ve all seen the standard clauses at the end of a sale or rental agreement, or included in the terms and conditions of your gym membership contract. Headings like ‘jurisdiction’, ‘entire agreement,’ ‘arbitration’, ‘applicable law’, ‘amendments’, ‘domicilium’, ‘notices’, ‘counterparts’ and more abound and seem to contain extensive legalese in what is often seen as an attempt to bulk up what should be a straightforward agreement. But how important are these boilerplate clauses, and can I really just view them as unnecessary contractual ‘bulk’?

To determine the importance of boilerplate clauses, one should firstly consider what exactly the term ‘boilerplate’ means. In general, the term ‘boilerplate’ refers to any text that can be reused in new contexts or applications without being greatly changed from the original. In a contractual context, a ‘boilerplate clause’ is accordingly a standard clause which has a standard meaning, has not been fashioned for the specific contract, is often agreed to with little or no negotiation, and is generally found towards the end of an agreement.

Accordingly, the public often perceive these clauses as mere legalese and not as important as the ‘real’ terms of the agreement. While these clauses may not always be as commercially sensitive as the other terms of an agreement, and are consequently often overlooked by the contracting parties, the reality is they perform a valuable and important purpose in a contract.

There are many different standard clauses that may be encountered in a contract. To show the importance of these clauses a few examples can be looked at:

Jurisdiction

This clause typically provides that the parties consent to the jurisdiction of a specific court in respect of a claim arising out of the contract. This can have repercussions in that a party for example wishing to enforce a claim for a minimal amount may find himself having to litigate in a High Court in a complete different geographical territory. This may hold both cost and efficiency implications, potentially dissuading a potential claimant from pursuing a claim.

Entire agreement

An ‘entire agreement’ clause generally provides that the written contract constitutes the entire agreement and understanding between the parties regarding the subject matter of the contract. Such a clause in effect supersedes any previous agreements and understandings, and ensures that there is no risk of a prior oral or written agreement being interpreted as part of the legal contract between the parties. The focus of the clause is on ensuring clarity on the exact terms agreed. However, it must be noted that such a clause effectively nullifies any previous understandings if such have not been incorporated into the agreement.

Arbitration/Dispute Resolution

A contract can provide for a mechanism to arbitrate a matter or address a disagreement arising under the contract through a prescribed dispute resolution procedure. Although this is often beneficial as it provides a clear mechanism for the parties to address their disputes, it is not without its associated perils. Such clauses often override the other contractual remedies of the parties and limit the involvement of courts. Additionally, various forms of arbitration agencies fulfilling an independent dispute resolution role may be involved, potentially at considerable cost and in a foreign or impartial jurisdiction. What seems a quicker solution, may in certain cases involve a costly and elaborate process, and care should be taken to beforehand consider the appropriateness of the proposed mechanism.

Amendments

An amendments clause in a contract typically determines how changes to the contract should be made. This usually contains a prescribed mechanism for the making of changes or amendments to the contract, and unless this process is followed, the amendments will not be valid. The intent is to provide legal certainty. A contracting party should however be careful to rely on proposed changes unless the prescribed process has been followed, as it may turn out that what was agreed orally or in writing, does not meet the requirements of the mechanism and therefore cannot be relied upon.

Notices

An often ignored standard clause is the ‘notice clause’ dealing with the manner in which parties are required to submit formal notices to each other. Often this clause provides for different requirements for different delivery of notices including by hand, fax, email and post. Usually, certain presumptions of delivery accompany these requirements. Care should thus be taken by contracting parties when wishing to provide a formal notice in terms of the contract. If the notice provisions of the contract are not complied with, the notice may not have been validly served. On the other hand if a presumption of service of a notice applies, a party may be presumed to have received a contractual notice, even though it might in reality not have been received at all.

What is clear from the above examples, is the intent of boilerplate clauses to provide certainty through standardised wording. Be careful not to be fooled by their standard appearance however, as these clauses regulate rights, and parties are well advised to also consider the meaning and implications of these clauses before signing any contract. Don’t equate boilerplate with not being important, and where necessary, obtain legal advice.