Let’s continue our look at Boilerplate Clauses in contracts. Boilerplate Clauses are typically perceived to be of little commercial significance and are often overlooked when compared to the operative terms of the contract. Each and every Boilerplate Clause has an important function in regulating the bigger picture that the contract operates in.
The Notice Clause provides instructions for how “notice”, in relation to the contract, is to be given. For example, terminating the contract or exercising an option under the contract. Not only does the Notice Clause serve to provide a clear and mutually agreed on procedure for giving notice, but it sets a standard to determine whether a party has given effective and timely notice.
A Notice Clause should designate the following:
- the mode of delivery of communications (e.g. hand delivery, courier, registered post),
- address details,
- when the notice is deemed to be received by a particular mode of delivery (e.g. if posted by registered post, the next business day), and
- the contact person to whom the notice must be addressed.
A contract may contain a generic Notice Clause or a specific Notice Clause. The generic Clause will usually be found at the end of the contract and provides a procedure for communications of any and all aspects of the contract. Specific Notice clauses are, as the name suggests, for specific matters in the contract. These are normally matters that have significant implications for the contract and the rights of the parties, such as to notify of a termination of a contract or an event of default or extend the term of the contract.
If a party gave notice to affect one of these rights, and it was not in accordance with the Notice clause, this can have a detrimental and uncertain outcome. It is important that both parties consider how to determine the Notice’s effectiveness for each method of delivery and reflect that in the drafting of the Notice Clause.
Also, when is notice deemed effective? Is it upon sending or upon receipt of a predefined number of days after sending (e.g., two business days after sending)?
A Counterpart Clause allows the parties to the contract to sign separate physical copies of the document. This is an essential provision in agreements where the parties are in different regions and in agreements where there are multiple parties that may not all be present at the time of execution. When the parties execute separate copies, each copy is recognised as an original and the parties will just need to exchange copies of the signing page of each party rather than the entire contract. Furthermore, a Counterpart Clause prevents a party from claiming that an agreement is not valid because there is not one single copy of it which has the signatures of all the parties.
Sometimes you can have a situation where all parties will be present at the signing of the contract and will execute the required number of original copies. Or where all original copies are sent to all the parties to sign, and the agreement will take place on the date the last party executes the document. In these circumstances, a Counterpart Clause may not be necessary for the contract. However, it should be included to cover off for the possibility of execution in counterparts.
Waiver or Variations of Rights
A Waiver Clause (also known as a “No Waiver Clause”) provides that a failure or a delay by a party in exercising a right will not constitute a waiver of that right. The usefulness of a Waiver Clause is apparent in circumstances where a party might be in breach of a contractual term and accordingly gives notice to the other party. The other party may need some time to consider the implications of the breach and weigh up the costs and benefits of terminating the agreement.
A Waiver Clause provides that the non-defaulting party’s delay while they take the time to consider their options will not be seen as a waiver of their right to terminate the contract or enforce other rights in due course. For example, say if under a supply contract, payment needs to be made within seven days of receiving an invoice and the customer makes a late payment on the first invoice. The supplier may choose not to (or simply forget to) issue a late notice and may not charge interest. The Waiver Clause means that the supplier, in not enforcing their rights on the first invoice, does not waive those rights in future circumstances where the customer makes a late payment.
An Indemnity Clause is a contractual commitment by one party to compensate the other party for specified potential losses under a contract. Returning to our supply agreement example, a supplier provides a product to a customer who then on-sells the product to a third party. The customer might have agreed to an Indemnity Clause in the supply agreement stating that it will indemnify the Supplier against any claims brought against the Supplier by third parties for any harm or loss caused by the goods that are caused by the customer’s negligence or misrepresentation rather than the supplier’s. In the absence of an Indemnity Clause, legislation and case law prevail and the supplier will, at first instance, be liable to the third party.
It is important to consider carefully the circumstances and draft an Indemnity Clause accordingly. The amount of risk to be indemnified against needs to be balanced with the value of the transaction and the business relationship generally. Often the party in the stronger bargaining position will try to draft the Indemnity Clause in the broadest possible terms, for example indemnifying for losses that are “indirect” or “inconsequential”.
An indemnity will only be as valuable as the other party can afford to fulfil it. If a party agrees to indemnify for a loss but has no assets to meet this obligation, then the Indemnity Clause will not serve its purpose. Further, if an Indemnity Clause is drafted too ambiguously, it can be interpreted so as not to cover the losses a party expects it to cover. It can conversely be held to cover for losses that a party was not intending to cover.
There are many points to negotiate in any agreement and spending time in discussions about boilerplate clauses can seem a waste when they are chiefly concerned with the legalities of the contract rather than the details of the transaction.
Although Boilerplate Clauses are numerous and varied in their subject matter, the underlying principle throughout all of them is to provide as much certainty as possible by covering for as many outcomes as possible – which is exactly what the parties to a contract are aiming to achieve!
If you have any questions about Boilerplate Clauses or need any assistance drafting your contract, please get in touch! Our experienced contract lawyers would be delighted to talk to you!