BOILERPLATE CLAUSES AND THEIR RELEVANCE IN COMMERCIAL AGREEMENT

According to the Black’s law Dictionary, ‘Boilerplate’ is a language which is used commonly in documents having the same meaning; used to describe standard language in a legal document that is identical in instruments of like nature. In commercial agreements or contracts, these clauses find place usually at the end of the agreement, under the title of ‘Miscellaneous’, ‘General’ or ‘Standard’ for enforceability of agreement. Despite their standard and general character, boilerplate clauses should not be mistaken as unimportant as they clarify the relation between the parties by spelling out situations that otherwise wouldn’t be addressed in the operative section of the agreement. They are generally non-substantive provisions. More importantly, it expresses the intentions of the parties and helps in avoiding any ambiguity in the future. Some most commonly found boilerplate clauses are:

1. Assignment

In ‘assignment clauses’ there is express prohibition or permission of ‘assignment’ or transfer of rights or obligations under the contract to a third party. This clause finds validation in Section 37 of the Indian Contract Act, 1872 (“the Act”). According to this section, the parties to a contract must either perform, or offer to perform, their respective promises, unless such performance is dispensed with or excused under the provisions of the Act, or of any other law.

An interesting case on the matter is that of Hindustan Steel Works Construction Limited vs. Bharat Spun Pipe Company[1], the Calcutta High Court held that “the rights under a contract can be assigned, however, obligations under a contract cannot be assigned. Additionally, the intention of the parties with regard to assignment would depend upon the language used in the contract and the terms pursuant thereto.

2. Force Majeure

Until recently due to the outbreak of the global pandemic COVID-19 and the subsequent lockdown imposed, this clause remained overlooked by most of the parties. This clause allows parties to terminate the contract if its performance becomes impracticable, impossible or difficult owing to an event or circumstance beyond the performing parties’ reasonable control[2]. The force majeure events mainly include an act of war, invasion armed conflict, strikes or lockouts, flood, cyclone, lightning, earthquake, pandemic, act of God, etc. the exact scope, nature and application have to be specific and clear.

Force Majeure does not find a place in the Act. However, Section 56 deals with Doctrine of Frustration whereby an agreement to do an act which is impossible in nature is void. Hence, over the years, the Courts have included force majeure as part of this section.

The Supreme Court Satyabrata Ghose v. Mugneeram Bangur & Co.[3], held that if the contract in question has an express or implied ‘force majeure’ clause then it shall be assessed on the said clause and not on the basis of Section 56 of the Indian Contract Act.

3. Severability

This clause is inserted with the objective of keeping the validity and legality of the different provisions of the agreement less interdependent on each other. Thus, this implies that the provisions of the agreement shall remain intact or unaffected in the event any provision of the agreement becomes unenforceable or invalid or prohibited due to any changes brought in any applicable law by way of amendments or if the implications are determined otherwise by a judicial authority. This clause is important as in the absence of a Severability clause, it is likely that if a single provision of the agreement is held invalid, an issue may arise as to render the other provisions invalid as well, making the contract unenforceable.

This clause gained significance in the case of Shin Satellite Public v. Jain Studio[4] where the Supreme Court held that “if the contract is in several parts, some of which are legal and enforceable and some are unenforceable, lawful parts can be enforced provided they are severable”. Therefore, a severability clause needs to be explicit and it is essential that the clause not only ensure the survival of the remaining contract, but also address what else happens in the event of severance.

Some commonly used clauses are:

1. Confidentiality – it lays down a guarantee by both parties that neither of them shall disclose any information related to the contract to any person unconcerned with the same.

2. Notice – this clause lays down the procedure in which communication is to be made between the parties. This seemingly plain clause is helpful in case there is an error in communication and the validity of the contract is challenged. The clause generally provides that the notice must be in writing and refers to the medium of communicating the same to the other party.

3. Dispute Resolution Clause– It contains procedures with regard to all stages of dispute resolution. The idea behind this clause for the parties to have a mechanism in place to resolve disputes as quickly and cost effectively as possible without the need to approach the court.

Conclusion

Often ignored as they are ‘standard’ in nature, the examples above show that these clauses come in handy during a dispute between the parties. Therefore, parties must make sure that boilerplate clauses are updated as per the requirements. These clauses increase certainty in the contract and clarifies the intentions of the parties on different fronts.

[1] AIR (1975) Cal 8. [2] See here for an insight into Force Majeure. [3] 2017 (6) SCJ 398 [4] (1954) SCR 310.