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(Michael) Boilerplate appears in most contracts, but is often ignored.
I’ll be asking David Lowe why we shouldn’t ignore it.
David, what is boilerplate and what is it for?
(David) Boilerplate are the standard contractual terms that you often find in many contracts.
They’re not operational, they’re not about what the goods or the services are that you’re providing,
they just fill in the gaps between the operational clauses to make the contract more robust and more effective.
(Michael) So, if boilerplate is rarely read and rarely amended, why bother with it?
(David) That’s a good question Michael.
One tends to think just cross it out, nobody talks about it, nobody reads it and nobody negotiates it. It doesn’t matter.
But it isn’t mandatory, you don’t have to have boilerplate and a good contract draftsman should have a good understanding of what the boilerplate is,
what issue it deals with and whether it’s right for their contract.
(Michael) So what is the position if you do not have an assignment clause?
(David) If your contract is silent on assignment, then the position at common law is that the contract is freely assignable by the parties unless it is personal in nature.
A personal contract is like a valet, or a butler contract, it doesn’t really come up in commercial contracts.
So if it’s freely assignable, what’s the problem with that?
Well, it means that the other part of the contract could transfer the benefit of it to somebody else.
Now that may be fine, you may be pretty relaxed about that, you may not care who has the benefit of the contract.
While other people who are in other contracts, you may be very concerned, you want to control who you’re in contract with,
who your relationship’s with, so with some contracts it can be very important.
(Michael) Can organisations that are not contracting parties, directly enforce rights under that contract?
(David) Historically the basic rule is no.
The contract is between just the contracting parties, but in 1999 the Contracts Rights of Third Parties Act was introduced,
which allowed people to give to third parties the benefit of the contract.
(Michael) How can third party rights be managed?
(David) We need to think about it.
The case law is uncertain, some of the cases are saying, unless you are express and very clear, third parties do not have any rights at all.
However, there is case law where there was a third party but no express clause,
giving benefit on them, where that third party did get a right, to the surprise of the other contracting parties.
So be very clear whether the third party has a right or doesn’t have a right.
Don’t leave it silent. Because then you have uncertainty.
(Michael) Why are entire agreement clauses so long?
(David) They are probably one of the longest boilerplate clauses - they could be 3 or 4 sub clauses long.
Well, 15 years ago, they could be relatively short, people traditionally said,
this is the entire agreement and no other documents will apply, and people felt they’d dealt with the issue.
And then there was a case in 1996, the Witter case, which reminded us all that the effect of that was not to exclude misrepresentations.
So that meant that a supplier could find himself liable for all of the representations they made as the tender process:
I promise you these will be the best services, or the best goods ever.
All of that suddenly became part of the contract unless you had excluded it.
It also said if you attempt to exclude fraudulent misreps or
at least don’t make it clear that you aren’t seeking to exclude fraudulent misrepresentations then the whole clause becomes unenforceable,
and therefore you need to tag on another line to deal with that issue.
And so the clause gets longer and longer.
(Michael) Are no waiver clauses effective?
(David) They’re very useful and certainly a litigator would tell you that they’re very useful in dealing with the mess that usually arises where there’s a breach of contract.
Typically what happens, there is a minor breach, where the other party may not notice, or may not take any action,
and then there may be several more breaches and several discussions about what all of those mean,
and eventually the party who’s the innocent party might then seek some legal advice.
The no waiver clause may well help ensure that you haven’t compromised your rights in the meantime before you got legal advice.
But they’re not absolutely solid. There’s been a recent case Tele2 and the Post Office, where there was a no waiver clause.
The Post Office waited 11 months to enforce its rights, and the court said, even though there is a no waiver clause, this is just far too long, it’s not effective,
and therefore you the Post Office have still waived your rights despite the fact there was a no waiver clause.
(Michael) I’ve heard there’s been a recent case on severance. Is that right?
(David) There was just at the end of March, there was a recent case on severance, which reminds us all of the importance of thinking about this clause.
The severance clause basically acknowledges that the court is allowed to use its discretion to sever, to remove a clause from the contract if it’s illegal or unenforceable.
But people must think carefully about what happens next.
What happens if the exclusive commitment is taken out of the clause, out of the contract?
Will they still want that contract? Maybe they want some other result?
(Michael) So David, in your opinion, what is the most important boilerplate clause?
(David) Well, there’s the million dollar question.
You don’t need to have any boilerplate clause after all, they’re not mandatory, so you could say that none of them are important.
They just have important consequences. But I think, depending on your situation, certain types of boilerplate can be very important in dealing with a dispute.
A good example is the governing law clause.
If there is any element of international content to the contract, perhaps one of the parties’ assets are mainly in another country,
then having a governing law clause will save you a huge amount of time and expense.
Because otherwise you end up having an argument, a dispute about which law applies to the contract before you can even get on to resolving the dispute.
And so you need to consider for your contract the various boilerplates to work out what is the most important for your contract.