Boilerplate clauses are repeated in all kinds of contracts. They are not the commercial terms that vary from one transaction to another. They regulate the operation of the contract: its duration, interpretation, transferability and enforceability.

What are boilerplate clauses?

Boilerplate clauses are often standard, and most are not typically negotiated. But they are important. Many contract disputes depend on the drafting of boilerplate clauses such as termination, force majeure, and entire agreement.

Some heavily negotiated commercial terms routinely appear in so many contracts that they may also be classed with boilerplate. Examples are indemnities and limit of liability clauses.

Example: how boilerplate clauses may affect a dispute

Here’s an example from the case FoodCo UK LLP v Henry Boot Developments Ltd [2010] EWHC 358 (Ch). An entire agreement clause saved a developer from a series of claims for misrepresentation, brought by businesses that had leased units in the development. The clause agreed that no lessee had relied on any representation beyond those recorded in the contract. The effect was that one businessman, when confronted with the clause in the contract he had signed, admitted that he had not in fact relied on the alleged misrepresentations. That defeated his claim. The clause successfully excluded claims for innocent and negligent misrepresentation. That reduced the other five claimants to asserting fraud, which they failed to prove.

Some common boilerplate clauses:

  • Counterparts – Confirms the validity of counterparts or duplicates of the contract (and may delay contract formation).
  • Entire Agreement – identifies the express contract terms. Often contains terms limiting liability for misrepresentation.
  • Limiting liability for misrepresentation – Reduces the risk of liability for misrepresentation.
  • Severance – Agrees the contract will survive deletion of an unenforceable provision. May impose a duty to renegotiate.
  • Third party rights – Can limit non-parties’ rights to enforce contract terms and to veto variation and rescission.
  • Waiver – May help to prevent accidental loss of rights but cannot ensure their survival.

Counterparts

Parties to a contract may each execute a separate copy of the contract, each of which they will consider an original. A counterparts clause states this expressly. Even without a counterparts clause, a contract is valid if made in this way, under the common law. Land transactions are commonly executed in this way without a counterparts clause.

A counterparts clause may also be used where the parties execute multiple original contracts (duplicates), to confirm that each has the status of an original. Duplicates may be required for tax, regulatory, company administration or other reasons. In these cases, a counterparts clause may help stop a party (or an outside authority) objecting that a counterpart or duplicate contract is not binding or valid.

Entire agreement

The entire agreement affects statements made in negotiations but not repeated in the contract. In the absence of an entire agreement statement, these could create a collateral warranty or side agreement, under the common law. For example, if a sales representative offers extra benefits as an inducement to sign a contract, the supplier could be contractually bound to provide those benefits, even if they were not written into the contract. An entire agreement statement prevents this by identifying the express contract terms, limiting them to the terms identified in the clause.

Limiting liability for misrepresentation

This part of the clause addresses the risk of claims if one party (usually the supplier, rarely the customer) induced another to enter the contract by a false statement. If that happens, even unintentionally, the other may claim damages for the loss caused by entering the contract, or occasionally undo (rescind) the contract. Depending on the facts, the claims arising may include misrepresentation, negligence, fraud and (if the false statement was also captured as a warranty) breach of contract.

To reduce this risk, an entire agreement clause may include a non-reliance statement and express limits on liability and remedies for misrepresentation. This kind of wording has defeated large claims for misrepresentation, as in the example described above. This limitation often appears in the entire agreement clause for historical reasons, but it could equally well go in the limitation clause, a remedies clause or a clause on representations.

Severance

This clause takes effect if a contract term is illegal or invalid. Examples of illegal or invalid term are:

  • Unfair exclusions of liability contrary to the Unfair Contract Terms Act 1977.
  • Non-compete and non-solicitation clauses that go beyond what is reasonable to protect a party’s legitimate interests.
  • A duty to pay a banned person or organisation, contrary to anti-terrorism legislation.

Some severance clauses add nothing to what English law already provides. Under the common law doctrine of severance, the invalid provision is deleted and the rest of the contract survives if all these conditions are met:

  • Public policy allows it.
  • Nothing is added or rewritten. So, if an excessive restraint on competition or limit on liability is deleted, a reasonable and valid provision is not substituted.
  • The basic nature of the contract is unchanged. (But contracts routinely survive the deletion of an unfair limit on liability.)

Third party rights

The Contracts (Rights of Third Parties) Act 1999 introduced a new pitfall in contract drafting: the risk of accidentally giving a non-party (i.e. third party) the right to:

  • Enforce a contract term. Any express or implied benefit to a non-party may be directly enforceable by that non-party against the parties.
  • Prevent variation and rescission. Once a contract creates a directly enforceable third party right, the parties may need the non-party’s consent before they can change that right by agreeing to vary or rescind the contract.

A clause dealing with third party rights can prevent direct enforcement by a non-party or restrict it to third party rights created expressly or remove the need for a non-party’s consent to variation or rescission. Some clauses on third party rights go further, excluding non-party rights arising in other ways and preserving other rights of the parties. The need for these provisions and their effect on the contract are often unclear.

Waiver

A party can lose a right by waiting too long to exercise it or by taking action inconsistent with the right, under the common law of waiver. Expressly reserving the right during the delay or while taking the inconsistent action can prevent waiver, at least for a while.

A “no waiver” clause tries to preserve all rights from being waived, especially by delay. However, the clause may not prevail over the later words and actions of the party seeking to rely on it.

Worth checking

Boilerplate clauses can have sweeping effects in the event of a breakdown of contractual relations. Making sure the correct ones are included is therefore essential. But the idea that they can be applied equally in every contract is false. Making your lawyer away of the idiosyncrasies of your contractual dealings when considering boilerplate clauses is therefore advisable.

If you have any questions about boilerplate clauses or about contract law more generally please contact Neil Williamson.