Make your contracts do the hard work for you

What are ‘boilerplate’ clauses?  If you see a lot of commercial contracts, you’ll know.

That’s it – they’re the ‘standard’ clauses at the beginning and end of every contract.  They’re identical every time.  Lawyers just stick them in to make the whole thing look more official.  Right?  Wrong!

It’s true that boilerplate clauses are often agreed with very little thought but this is a risky approach.  Indeed, the boilerplate clauses in your contracts can be a great place to levy commercial advantage.

The key to getting this right is knowing why boilerplate clauses exist and how they work.

In short, they govern the mechanics of how the contract works.  For example, they can cover how certain wording within the contract should be interpreted and what happens if a party doesn’t stick to its obligations.

However, behind any contract, there is a vast array of background law.  This might stem from statute or from case law.  If you leave a boilerplate clause out of your contract, this doesn’t mean that no rules apply to the contract in relation to that particular issue.  It simply means that the background law applies instead.  For example, if it’s the ‘governing law’ clause that’s missing, then (despite Brexit) it’s the none-too-straightforward ‘Rome I Regulation’ that will determine the governing law of your contract…

It is this interplay between the boilerplate clauses and the background law that the savvy operator can use to their advantage.

Take a contract between a service provider and commercial customer.  The service provider’s main obligation is… to provide services.  The customer’s main obligation is to pay for them.

For the service provider, there’s a lot that can go wrong – they might provide the services late or below the required standard, they might use a subcontractor who’s not up to scratch, they might provide an IT system that incorrectly accuses hundreds of people of crimes they didn’t commit…

For the customer, however, there’s really one main thing they get wrong – they fail to pay on time.

Let’s apply this relationship to a couple of ‘standard’ boilerplate clauses.

First, a ‘no waiver’ clause.  The background law here is that, if one party breaches the contract, but the other party delays in taking action about it, the ‘innocent’ party may be deemed to have lost (or ‘waived’) their right to take any action at all.  A ‘no waiver’ clause seeks to overcome this – it often says that you are only deemed to have waived your rights if you sign a written waiver.  Well, if you’re the service provider described above, you might do well to delete the ‘no waiver’ clause from your contracts.  Without the ‘no waiver’ clause, your customer might find it harder to make claims against you – and you’ve achieved that not by adding in a scary new clause but simply by removing a boring boilerplate clause!

The same logic might apply to a ‘force majeure’ clause.  This is a clause that exonerates a party from a breach of contract if the breach results from something beyond the party’s control (e.g. a flood, earthquake or other ‘Act of God’).  Well, it’s probably more likely that such an event would prevent the service provider from fulfilling their obligations – a flood might stop the service provider from delivering key components, whereas that same flood won’t stop the customer paying the service provider’s bills.  Therefore, the service provider may want the force majeure clause to be as broad as possible, covering any eventuality, whereas the customer wants it to be very narrowly drafted.

In both these cases, the wording on the page will appear to affect both parties equally.  However, when you look at reality of the commercial relationship, a clause that looks fair can have very different impacts on the parties – and make a massive difference to the bottom line.

To get the most out of your commercial contracts, speak to Tim Lucas in our Corporate & Commercial team.