When the business calls for shorter and more user-friendly contracts, how many lawyers think “I’ve always used this clause” and “Who knows what may happen if I stop using it”? But, where there’s a business need to reduce contract terms, we need a good business reason to include each clause, not just fear of an unidentified risk.
To help identify that risk, we reviewed 37 of the most common clauses in business-to-business contracts. We looked for the effect and value of each clause and the legal position without it, and published the results in a new practice note: Boilerplate: do I really need this clause and why?
As expected, we found some clauses that could easily be cut, and others that would be useful in most contracts.
Which terms are essential?
We tried dividing our boilerplate clauses into Normally, Sometimes and Rarely Essential, and giving them marks out of ten for importance. That didn’t work. We found that:
- A lot depended on context. For example, a termination clause might be essential in a long-term supply agreement, but pointless in a low-value contract of sale for overnight delivery.
- Some clauses might never be essential, but they could still be useful if space allowed. For example, you don’t need a mediation clause to take a dispute to mediation, but it may be helpful to have a pre-agreed dispute resolution procedure that includes this relatively cheap and productive process.
So, which clauses can you leave out?
Top of my personal list of redundant clauses are those that state what English law would do anyway, such as most severance and survival clauses. Opinions differed on this point. Some thought it was helpful to state in the contract what only a lawyer might know – if space allows.
Other clauses try to improve on English law, for the benefit of one party or sometimes both, as set-off and interest clauses may do. We listed our selection of these clauses in the note, under the heading Where English law provides an acceptable solution. Then, for each of these (and for all 37 clauses discussed in the note), we suggested the effect of leaving it out, to help users decide whether it’s worth including the clause in a contract.
We also looked for clauses whose legal effect was so doubtful that they could safely be left out of many agreements. We found only a few, which we listed under Clauses of limited effect. One candidate was variation, dictating formalities for a valid change to the contract terms. We were ready to suggest that a variation clause might be helpful if followed in practice but was of doubtful legal value, since an informal variation might be taken to have varied the variation clause.
Our view changed sharply when the Supreme Court rejected that argument on 16 May 2018, in Rock Advertising Ltd v MWB Business Exchange Centres Ltd  UKSC 24. Parties who want to rely on an informal variation despite this sort of clause will now have to prove an estoppel, which the Supreme Court suggested wouldn’t be easy. So the law now backs up those lawyers who were already convinced that this clause provides a useful discipline for their colleagues who perform the contracts.
Other sections of the new practice note suggest clauses to consider cutting in specific contexts:
- Transactions with no connection outside England or Wales.
- Short-term contracts.
- Low-risk contracts.
- Simple transactions.
- Transaction-specific clauses.
And which clauses should you keep?
The note identifies separately for each clause our suggested reasons for including it in or omitting it from a contract. But it became clear that some boilerplate clauses create rights that are rarely or never implied in a contract.
For example, there is no English law of force majeure. Without a force majeure clause, there is usually no excuse if performance becomes impossible. And in the rare case of frustration, the position is not much better; the contract ends automatically, often with inadequate compensation. Clauses in this class are identified under the heading Clauses that are valuable in many contracts. They won’t all be essential in all contracts but, if you want them, you need express wording.
Many of our short-form agreements already contain a reduced selection of our shorter boilerplate clauses. We plan to publish a set of short-form boilerplate clauses for use in other contracts. A longer-term project will be to produce a set of clauses in minimal language, shorn of all inessential words, no matter how familiar they may be. If you would like to contribute to this project or help review a draft, please get in touch.
Please help us to improve this resource
Hundreds of hours of work by experienced lawyers have already gone into this new practice note. Senior editors from Practical Law’s Commercial, Dispute Resolution and Cross-border services wrote, reviewed and discussed each section. Then members of our Commercial and IP & IT consultation boards gave valuable comments, as did other subscribers. They raised practical questions and made many useful suggestions.
We are grateful to everyone who contributed. But nothing is ever perfect. We welcome all comments and suggestions for improvement. Leave a reply at the end of this blog, or send a query through Ask at any time. Our resources for all contract users will be better for it.