The Importance of Boilerplate Clauses in Commercial Contracts

I have been training UK lawyers and international lawyers in the area of business and commercial law for over a decade and when we discuss commercial contracts, they all find the topic of boilerplate clauses in commercial contracts most interesting but unfortunately, the reality is that boilerplate clauses tends to get overlooked by commercial parties.

So, what are boilerplates clauses? - They are standard provisions which are generally to be found in commercial contracts. They also may be referred to as “Miscellaneous” provisions. Common boilerplate clauses include “governing law and jurisdiction”, “confidentiality”, and “entire agreement” clauses.

Despite their significant practical implications, the importance of boilerplate clauses in commercial contracts is sometimes overlooked while negotiating the commercial terms of the contract and many businesses are not sure as to how this area of the law can impact them.

For example, boilerplate clauses may include provisions restricting certain of the parties’ rights, such as the right of assignment, or imposing other obligations, such as the manner in which notice under the agreement must be delivered. It is important for anyone who reviews and negotiates commercial contracts to understand the meaning and impact of these provisions while drafting a commercial contract.

Whatever the nature of the transaction, they can have significant practical implications for all parties if they are overlooked. The clauses are often in a more or less standard form. In essence, these clauses form the backbone of the contract and it is vital that they are drafted in a considered manner.

The two boilerplate clauses which we will look at in this article and which, in my opinion, are of paramount importance to international businesses and their commercial contracts are the Governing law and the Jurisdiction clause.

“Governing law” and “jurisdiction” clauses are important in any cross-border contracts as they determine the choice of law and jurisdiction to which the parties will submit themselves, in case of any dispute. Generally, to avoid complications, the parties choose the same country to have governing law and jurisdiction.

Governing Law Clause

A Governing law clause establishes which country's law will be applicable to resolve any dispute between the parties. The clause does not specify any procedure according to which the disputes are to be resolved, making it necessary, if the parties desire, to include a separate dispute resolution clause in the agreement to expressly identify the means for resolving disputes. Even where the parties agree to settle their disputes through arbitration, such clause should nonetheless specify the governing law of the contract.

Jurisdiction Clause

A jurisdiction clause, also known as a forum selection clause, names the jurisdiction in which the courts will have the power to resolve disputes between the parties. In the absence of such a clause, rules of private international law will be applied to ascertain the jurisdiction.

Types:

a. Exclusive jurisdiction

The presence of such a clause in the agreement restricts the parties from bringing proceedings in other countries than the country set in the agreement. However, in the event a party to the agreement starts proceedings in a court outside the purview of the agreed jurisdiction, the court identified to have jurisdiction by the terms of the agreement has to be approached to stay all proceedings until the first court rules that it lacks jurisdiction

b. Non-exclusive jurisdiction

Non-exclusive clauses give the parties an option to either bring proceedings in the chosen country or any other country which has jurisdiction over the dispute as per its procedural rules

Warning!

A common mistake is to refer to a country which has more than one legal system, e.g, “USA”, “UK” or “China”. It is better to be clear by referring to, say, “New York", “England” or "Hong Kong".