Law of Contract - Terms in a Contract (Part 3)

Boilerplate clauses

There are a number of terms that sophisticated commercial people will always try to incorporate in their contracts. This may be done by incorporating them in their standard terms and conditions.

Many of these are in a standard form and can be found in precedent books or on electronic databases. In practice, a solicitor will take a precedent and adapt it for each particular client rather than draft a new clause from scratch.

The following are examples of Boilerplate clauses.

Choice of law clause

Many professionally drafted contracts contain a choice of law clause. In many situations it is up to the parties to agree which law they wish to govern the agreement. This is particularly important when the parties are in different countries. Traditionally, due to the high regard that English law was held in, English law governed a large proportion of international contracts.

Jurisdiction clause

A jurisdiction clause stipulates which country’s courts will hear litigation arising from the contract.

Please note this is not the same as a choice of law clause. It is quite possible for the High Court in London to have jurisdiction whilst French law governs the contract. 

Exclusion clause

Clauses which seek to exclude or limit liability. 

Force Majeure clause

These are clauses that stipulate what the consequences are of unexpected events which render the contract impossible to perform. Although it is outside the ambit of this syllabus, please note that the effect of this clause is to override the doctrine of frustration.

Liquidated damages clause

These clauses stipulate how much an offending party should pay in the event of a breach of contract. These can be very useful devices because they can save a good deal of time when it comes to litigation. They must however be a genuine covenanted pre-estimate of damage and not a disproportionate sum. If the courts believe that the clause is a penalty clause it will be unenforceable. (Dunlop Pneumatic Tyre Co. v New Garage & Motor Co. Ltd [1915] AC 79)

Arbitration Clauses

Many contracts contain arbitration clauses. Arbitration is an alternative to litigation. This is important – arbitration and litigation do not co-exist.

Historically it was considered desirable to go to arbitration for a number of reasons. Arbitration avoids the harmful publicity of litigation, it can be more flexible and it is sometimes cheaper and quicker.

It is important to note that the advantages of arbitration are today not quite as obvious as in previous years. Since the Woolf reforms (the Civil Procedural Rules) litigation is more streamlined and in many cases may be the cheaper and quicker option. In addition, forms of alternative dispute resolution – mediation in particular - are increasingly popular.

Retention of Title Clauses

These are sometimes referred to as Romalpa (Aluminium Industrie Vaasen BV v Romalpa Aluminiul Ltd [1976] 1 WLR 676) clauses after the case that introduced retention of title into English law. These are used in virtually every standard sale of goods contract. The seller reserves title (ownership) in the goods until the seller has paid him. This means that if the buyer becomes insolvent before the seller has been paid, the buyer can reclaim the goods. 
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