What is a Boilerplate clause?
“Boilerplate” is a term used to describe clauses that are usually found at the beginning and end of most corporate legal agreements or contracts which deal with the mechanics of legal points that are relevant to the transaction. Boilerplate clauses are predominantly standard and often viewed as miscellaneous provisions in an agreement. These clauses are generally found in most agreements to provide instructions or clarifications on how to act in a variety of situations and to govern the relationship between the parties. Boilerplate clauses provide certainty in the event any terms of the agreement are disputed.
Examples of Boilerplate clauses
Common boilerplate clauses found in standard english contracts or agreements are as set out below. Please note that this list is not exhaustive and does not provide a comprehensive list of all boilerplate clauses.
- Parties clause – identifies the parties and entities to the agreement
- Background clause – commonly also known as Recitals and found at the beginning of an agreement which sets out the background, intention and purpose of the agreement.
- Definitions and Interpretations – allows parties to define terms used throughout the agreement and specifies the general interpretation principles that will apply.
- Costs and expenses clause – sets out how costs and expenses incurred in relation to preparing, entering or performing the agreement are to be borne by the parties.
- Dispute resolution clause – allows the parties to decide on either a tiered or fixed dispute resolution procedure in the event a dispute arises out of the agreement. This mechanism provides parties with an agreed method of resolving a dispute.
- Force Majeure clause – permits a party (or both parties) to be excused from certain performance and/or obligations specified under the agreement if an unspecified event occurs beyond the parties’ control.
- Governing law & Jurisdiction clause – sets out which law shall be applicable, which allows the parties to decide on their choice of law that will apply to the interpretation of the agreement in the event of a dispute. Most agreements in Malaysia also include jurisdiction under governing law to specify which courts will have the jurisdiction to settle disputes arising out of or in connection with the agreement.
- Entire Agreement clause – allows parties to provide certainty on the entirety of the agreement in writing to ensure that no other pre-contractual documents form part of the agreement.
- Variation clause – ensures that any addition, modification and/or variation to the agreement must be agreed to between the parties jointly, and typically, in writing.
- Severance clause – ensures that in the event any part or provision of the agreement is found to be illegal, unenforceable or invalid, the rest of the agreement will still remain valid.
- Prevalence clause/conflict with other agreements – sets out which agreement will prevail in the event of any conflict or inconsistency between two or more agreements and/or documents in place. Alternatively, this clause may also set out which document will prevail in the event of any conflict or inconsistency within provisions of an agreement and its appendices or schedules.
- Notice clause – provides clarity on the method or form of notice to be given to or received by parties under the agreement.
Why are Boilerplate clauses important?
Boilerplate clauses are often viewed as miscellaneous provisions in an agreement or contract. Very often these miscellaneous provisions, as they are commonly viewed, are either left out, overlooked as not important or dispensable or deemed secondary to the main body of the agreement. However, viewing these clauses as unimportant is a dangerous misconception as boilerplate clauses are necessary and pertinent in agreements. Boilerplate clauses act as an operative aspect of an agreement. In the event of a legal dispute, it is these clauses that are looked at to decipher the interpretation. Without these clauses to decipher the interpretation of the terms and conditions of the agreement, interpretation is left open ended. Treating boilerplate clauses as an important part of the agreement will avoid unnecessary litigation.
Boilerplate clauses are particularly important in complex agreements or construction agreements where the possibility of a dispute is high or the cost of a possible dispute is high. In this regard, boilerplate clauses assist unwanted interpretation disputes and help parties avoid future defaults under the terms of the agreement.
- Where there are several documents which make up an agreement, the prevalence clause becomes necessary.
- Where parties are from different countries or enter into a cross-border agreement to perform contractual obligations, the governing law and jurisdiction clause is pertinent.
- Where contractual obligations or performance under an agreement is deemed confidential, parties may prefer arbitration as a dispute resolution method and in this case, a well-drafted dispute resolution boilerplate clause must be present in the agreement.
There are several circumstances that vary between different contracting parties and the nature of each agreement. It is for this purpose that boilerplate clauses must be included to ensure clarity and mutually agreed terms between parties.
Below are examples of some specific boilerplate clauses and why we need them. Please note this list is not exhaustive and serves only as a few examples in some circumstances.
Definitions and Interpretations Clauses
An example of a common interpretation conflict is between the terms “days” and “business days” when there is a dispute. Where Party A contracts to deliver goods to Party B within ten (10) days from the date of payment, the agreement should set out clearly and unambiguously whether the word days refers to calendar days or business days. This interpretation is normally found at the beginning of the agreement to avoid any misinterpretation.
Force Majeure Clauses
An example of a force majeure event is the COVID-19 pandemic and the restricted movement order under which parties have been unable to perform their contractual obligations due to circumstances beyond their control. For an example, Party A was to deliver goods to Party B on or before 15 April 2020 under a contract for supply of goods. Unfortunately, Party A could not deliver the goods to Party B from 18 March 2020 onwards given that a restricted movement order was in place in Malaysia. In the event the contract for the supply of goods stipulated a well-drafted force majeure clause setting out that “no party shall be liable or responsible for any delay in performance under the agreement in the event such failure or delay is caused by a force majeure event beyond the party’s control”, Party A may be able to invoke such clause by notifying Party B that delivery of the goods could not be completed due to the restricted movement order. In these circumstances, it is important to decipher the definition of force majeure under the agreement to ascertain whether or not such a pandemic is covered.
Entire Agreement Clauses
The entire agreement clause provides certainty that the contract in question constitutes the entire agreement between parties. By having this clause, the parties agree that the agreement in question supersedes any previous understandings, documents or other contractual arrangements between the parties. This avoids the risk of misunderstandings and other oral or written agreements made prior to the execution of the agreement in question. An example of this is prevalent in construction contracts or contracts for the sale or supply of goods wherein previous purchase orders or oral agreements are made between Party A and Party B before any definitive agreement is executed. With an entire agreement clause included, once a definitive agreement is executed between Party A and Party B, the definitive agreement will supersede all other agreements or documents (whether written or oral) between the parties.
Notice clauses are important in any agreement to stipulate the method(s) and form(s) of notice to be provided by one party to another. For example, in the event Party A needs to provide Party B with a notice for renewal of a tenancy agreement on or before thirty (30) days prior to the expiry of the term and the last day to provide this notice falls on 31 December, Party A provides notice by way of fax on 31 December at 5pm but the fax never went through, Party B may allege that the notice was never received and therefore the tenancy agreement will expire at the end of the term without renewal. A notice clause sets out instances and instructions as to when a fax, email or post is deemed received by the other party and this notice clause needs to be followed to ensure service and/or acceptance of notices in certain circumstances. It is pertinent that parties include effective communication methods they desire under the agreement to reflect the best and common means of communication between parties. The common form of notice today is by way of digital communication such as email, and it is redundant to set out fax under a notice clause if parties do not have access to a fax machine.
There are a variety of boilerplate clauses to be included in agreements depending on their suitability and context. Certain agreements may require different boilerplate clauses to be included and such clauses must be drafted to suit the needs of the parties and nature of the agreement. In some circumstances, these clauses are comprehensive and, in others, are simple and standard depending on the complexity of the agreement in relation to the transaction.
It is important that these boilerplate clauses are reviewed and drafted with precision and clarity as such clarity, interpretation and instructions could impact either or both parties. Each boilerplate clause has a purpose and can be intended to achieve different desired outcomes depending on how it is drafted. Overlooking boilerplate clauses may cause detrimental and unwanted disputes. It is therefore advisable for such clauses to be drafted or reviewed by legal professionals to suit the operative terms of the agreement and to better reflect the terms and conditions of the agreement between the contracting parties.
Note: This article does not constitute legal advice to any specific case. The facts and circumstances of each and every case will differ and therefore will require specific legal advice. Feel free to contact us for complimentary legal consultation.