Boilerplate clauses are commonly included in agreements to address various legal matters, such as dispute resolution, governing law and indemnification. They are often seen as the standard or generic clauses in contracts. While these clauses are often viewed as a formality, they can carry significant legal implications. Understanding their role and the potential risks they pose can help parties avoid unintended legal consequences and ensure clarity in contractual relationships. This article outlines what boilerplate clauses are and
What Are Boilerplate Clauses?
Boilerplate clauses are standard provisions inserted into contracts that deal with routine, administrative or technical matters, rather than the core subject of the agreement. These clauses are usually placed at the end of the contract.
Common examples of boilerplate clauses you are likely to come across include:
- Governing Law and Jurisdiction: Specifies the legal system and courts that will govern any disputes that arise under the contract.
- Force Majeure: Provides relief for parties from performing obligations due to unforeseen events outside their control, such as a pandemic.
- Indemnity: Outlines one party’s obligation to compensate the other for specific losses or damages.
- Confidentiality: Imposes a duty of secrecy regarding sensitive information.
- Entire agreement: States that the written contract is the full and final agreement between the parties.
- Severability: Ensures that if part of the contract is unenforceable, the rest of the contract remains valid.
To protect your business, ensure supplier contracts meet your business’ needs. Our free Commercial Contracts Checklist will help.
Positives of Boilerplate Clauses
Boilerplate clauses provide significant benefits to parties entering into contracts. These standard provisions are designed to address legal and administrative issues that arise during the life of an agreement.
1. Clarity and Consistency
Boilerplate clauses standardise key aspects of a contract, providing clarity and reducing the need for repeated negotiations on common issues. Established wording ensures consistency across different agreements, helping businesses save time and effort in drafting each new contract. This consistency can be particularly useful for businesses with multiple contracts or transactions.
2. Risk Allocation
Many boilerplate clauses, such as indemnity, limitation of liability and force majeure, allocate risk between the parties. By clearly defining the responsibilities of each party, these clauses help manage potential disputes and reduce uncertainty, enabling both parties to understand their legal obligations and the scope of their liability.
3. Dispute Resolution
Boilerplate clauses related to dispute resolution, such as choice of jurisdiction or arbitration, help preemptively address how disputes will be resolved. These clauses ensure that both parties are on the same page about where and how disputes will be settled, potentially avoiding costly litigation or jurisdictional conflicts.
4. Protection of Interests
Boilerplate clauses, such as confidentiality provisions, protect sensitive information, while entire agreement clauses prevent the introduction of extraneous terms or oral agreements that could complicate the contract. These clauses help safeguard business interests by maintaining clear and enforceable terms.
5. Efficiency
Boilerplate clauses streamline the contract drafting process, reducing the time and cost involved in creating bespoke provisions for every contract. This makes the contracting process more efficient, particularly for businesses with high volumes of agreements.
Continue reading this article below the formRisks and Challenges
Despite their simplicity and efficiency, boilerplate clauses can still pose certain risks and challenges in contracts.
1. Ambiguity
A boilerplate clause that is poorly drafted can lead to confusion, leaving it open to interpretation. This ambiguity can result in disputes, litigation, or the need for judicial clarification. For example, an overly broad force majeure clause may not be enforced if it is not specific enough about the types of events that excuse performance.
2. Unequal Bargaining Power
In some cases, boilerplate clauses may favour one party over the other, particularly where one party has significantly more bargaining power. For instance, indemnity clauses that impose heavy liability on one party without reciprocal protection could be deemed unfair. Under NZ’s Fair Trading Act 1986, the courts could challenge and invalidate clauses that are deemed unfair.
3. Changing Legal Environment
Boilerplate clauses must be regularly reviewed to ensure compliance with evolving laws. Legislative changes or new case law may impact the interpretation or enforceability of these clauses. For example, amendments to the Privacy Act 2020 may affect how confidentiality clauses are enforced, particularly in relation to data collection and protection.
Key Takeaways
Boilerplate clauses, although often overlooked, are critical components of contract law. They determine:
- how disputes are resolved;
- which laws apply; and
- how risk is allocated between the parties.
To ensure these clauses are effective and enforceable, it is essential for parties to carefully review and draft them, taking into consideration the specific contractual context. Careful attention to boilerplate clauses can help mitigate the risk of legal disputes and ensure that the contract performs as intended.
If you drafting a boilerplate clause, our experienced contract lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers who can answer your questions and draft and review your documents for a low monthly fee. Call us today at 0800 447 119 or visit our membership page.
Frequently Asked Questions
The governing law and jurisdiction clause specifies which legal system and courts will oversee any disputes arising from the contract. This ensures that both parties know where and how legal issues will be resolved, providing clarity and potentially preventing jurisdictional disputes.
Boilerplate clauses like indemnity, limitation of liability, and force majeure allocate risk between parties by clearly defining responsibilities and liabilities. This helps manage potential disputes by ensuring both parties understand their obligations and the extent of their legal liabilities.
We appreciate your feedback – your submission has been successfully received.
