This article is written by Amarnath Simha, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from Lawsikho.com. Here he discusses “How Should You Customize Or Draft Boilerplate Clauses in a Commercial Contract? (Even If You Take Them From Another Website Or Someone Else Document)”.
The term “boilerplate” dates back to the 1890s when printing plates of text for advertisements or syndicated columns were cast or stamped in steel ready for the printing press and distributed to newspapers around the United States. They were called boilerplates because of their resemblance to the thick, tough steel sheets used to build steam boilers (https://www.lexology.com/library/detail.aspx?g=7e0158de-2456-4035-b62e-069b9b1b4cf8). Subsequently, the term ‘boilerplate’ came to denote the clauses which were part and parcel of each agreement without any changes because they were so set and standardised. Sometimes they are categorised into Miscellaneous provisions of the contract. These are rarely negotiated between the parties and is assumed to denote only the existing provisions in the earlier contract. However, there is no set definition of ‘boilerplate clause’ and is used to denote a set of clauses which are common in all contracts. For some contracts in particular industries like construction, contracts have a determined set of boilerplate clauses which may not be found in other contracts. Hence, there is no firm opinion as to whether the boilerplate clauses are restricted to a few clauses or not. Some opinions include the clauses at the beginning of the agreement in the boilerplate clauses while most of the opinion includes only the clauses at the end of the agreement in the boilerplate clauses.
Some of the boilerplate clauses used in various contracts are mentioned hereunder:
- Parties Clause
- Definitions and Interpretation Clause
- Confidentiality clause
- Announcements clause
- Assignment clause
- Costs and expenses clause
- Joint and several liability clause
- Exclusion of liability clause
- Exclusive/Non-exclusive Remedies Clauses
- Equitable relief clause
- Dispute Resolution clause
- Health and Safety clause
- Time of the essence clause
- Force Majeure Clause
- Waiver Clause
- Further Assurance Clause
- Amendment Clause
- Severance Clause
- Reliance/No Reliance clause
- Conflict with other Agreements
- Entire Agreement Clause
- Conflict within an Agreement clause
- Notices clause
- No partnership or agency clause
- Language clause
- Governing Law clause
- Jurisdiction clause
- Counterparts clause
- Testimonium clause
Is it necessary to have Boilerplate Clauses?
It is not necessary for the validity of the agreement to contain the boilerplate clauses. It is extremely necessary to ascertain whether for the effective enforcement of the obligations, a boilerplate clause is required or not. This ascertainment has to be done for each agreement separately, though they are boilerplate clauses. This is because, each of the clauses have its own effect and can ultimately give rise to litigations or favour one party to the contract in the litigation. For e.g., if the notice clauses state that the notice has to be given by a particular manner only i.e., by post, then any other mode of communication like through email might be held to be invalid and all communications including termination of the contract may become invalid. If such a notice clause was not included in the agreement, then the communication through email would have become valid. Hence, it is necessary to ascertain as to whether a particular clause is required or not.
Effect of Boilerplate Clauses and their Language
It is necessary to have knowledge of the existing law to understand the effect of the boilerplate clause. For e.g., in the parties clause at the beginning of the agreement, it is routine to include the word ‘assignee’ of the party also being referred to as a party. In the absence of an assignment clause prohibiting the assignment, the question would arise whether the contract can be assigned. That would depend upon the question whether the obligations are of a personal nature or not. In the case of Kapiilaben and others vs. Ashok Kumar Jayanthilal Sheth (CA No. 10683-86 of 2014), the Hon’ble Supreme Court held that a development agreement for a housing scheme is not assignable even if there is no prohibition against assignment as it was based upon the certain personal understanding between the parties. This decision expounds the meaning of Section 15(b) of the Specific Relief Act.
A testimonium clause came up for consideration before the Hon’ble Supreme Court in the case of Alka Bose vs. Parmatma Devi (CA 6197 of 2000). It was a case of an agreement to sell containing a testimonium clause which was as follows: In witnesses whereof, the parties hereto have
hereunto set and subscribed their respective hands and seals on these presents. The Hon’ble Supreme Court observed that the agreement is in an archaic form which has lost its meaning and the parties no longer subscribe their respective hands and seals. It further observed that it is true that the format obviously refers to signatures of the parties. The question arose in that case as to the validity of an agreement to sell which was executed only by the vendor and not by the purchaser. The validity of the agreement was upheld in spite of the testimonium clause which stated the signature by both the parties. This was arrived at by looking in other evidence on record regarding the conduct of the parties. However, this interpretation may not adhere in respect of other agreements and contexts. Hence, clauses by themselves sometimes become inconsequential and it is better to be aware of the effect of those clauses in different circumstances.
In All India Power Engineers Federations and others vs. Sasan Power Ltd and others (CA 5881 of 2016), the question arose as to whether there was an amendment and a waiver. The requirement under Article 6 of the Power Purchase Agreement was 95% of the contracted capacity while it was submitted that 17% of the contracted capacity was accepted and hence there was a waiver. The clauses regarding amendment and waiver are as follows:
18: Miscellaneous Provisions
The Agreement may only be amended or supplemented by a written agreement between the Parties and after duly obtaining the approval of the Appropriate Commission, where necessary.
18.3. No Waiver
A valid waiver by a Party shall be in writing and executed by an authorized representative of that Party. Neither the failure by any Party to insist on the performance of the terms, conditions, and provisions of this Agreement nor time or other indulgence granted by any Party to the other Parties shall act as a waiver of such breach or acceptance of any variation or the relinquishment of any such right or any other right under this Agreement, which shall remain in full force and effect.
It was argued based on the emails that there was an amendment. The Hon’ble Supreme Court went into the emails to see whether there was an amendment or not and came to the conclusion that there was no such amendment. But the fact is that the Hon’ble Supreme Court went into the email correspondence to see if there was an amendment or not. If the language of clause 18.1 was in writing and signed by parties, then the question of going into email correspondence may not have arisen as those emails could be argued to not have been signed.
More importantly, it was urged clause 18.3 was only with regard to the mode of waiver and not with regard to the waiver itself and ultimately waiver was to be looked from the aspect of Section 63 of the Indian Contract Act, 1872. The court held that in the question of waivers under contracts, Section 63 would be applicable. In the facts of that case, it was held that since the PPA was of a public interest contract, no waivers of such kind could be allowed to pass the musters and hence the submission of waiver being applicable was rejected. However, the Hon’ble Supreme Court also later in the judgment went into the email correspondences to see whether there was a waiver and came to the conclusion that it was not. If the language of clause 18.3 was that the waiver had to be signed by the authorised representative of the party and not just in writing, it would have been interesting to see the Hon’ble Supreme Court held that the emails sent could be interpreted as being signed as the party sending it. Hence, it is necessary to properly word the clauses and understand the meaning and effect of each word before using them.
In the case of Governing Law clause and Arbitration clause, they are always subject to the law of the land. In fact in the case of TDM Infrastructure Private Limited vs. UE Development India Private Limited (Arbitration Application No.2 of 2008), the Hon’ble Supreme Court rejected the contention of an Indian company to hold the arbitration as per Malaysian law and in Malaysia only because the directors of that company were in Malaysia by relying upon Section 28 of the Indian Arbitration and Conciliation Act, 1996. A similar question as to whether two Indian nationalities could have arbitration outside India was not considered in the case of Sasan Power Ltd vs. North American Coal Corporation India Private Limited (CA No.8299 of 2016). Hence, the Governing Law clause is not a straight forward copy paste clause and requires an understanding of the contract and parties at hand.
Hence, while considering any boilerplate clause, the need would be to see if there is a requirement for it, the effect of its language and the applicable law before incorporating the same into the agreement.
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