Boilerplate clauses – what are they and why are they important?
You will often hear contract drafters referring to boilerplate clauses and you are probably left wondering what boilerplate clauses are and why they are important.
It is important to know the different clauses that should be in your contracts and what they mean. In every contract, there are clauses that are called Boilerplate clauses. Boilerplate clauses are also called standard or general clauses. These clauses are usually at the end of each contract. They provide instructions on how to act in a variety of situations and clarify the relationship between the parties. In order to understand contracts it is important to understand the meaning and importance of these boilerplate clauses.
This blogs aims to educate you as much as possible on the Boilerplate clauses that you should look out for in your contracts and why these are important.
Contents of this Blog
- Whole Agreement
- Return of Information
- Restraint of Trade
Before you sign a contract, it is important that you know how that contract may be amended or changed and a Variation clause tells you if the terms of a contract can be changed and if yes, how. This clause is important for clarity and it ensures that the terms of the contract are not varied accidentally or informally, and to stop any one of the parties from falsely claiming that a contract has been varied when it has not .
In 1964, the Supreme Court of Appeal, in Graanmaatskappy Bpk v Shifren , held that contracting parties could protect their interests by limiting their future contractual freedom by including a Variation clause into their contracts. This clause often provides that variation is only valid if done in the form prescribed in the relevant contract (typically in writing). This clause ensures certainty and formality and the inclusion of such clauses into contracts has since coined the term, ‘The Shifren Principle’.
It is possible that a part of any contract may be declared invalid or illegal and naturally, the rest of the contract will be deemed as illegal or invalid as well. The Severability clause provides for such instances, where parts of the contract are no longer enforceable. This clause states that in such a case, the rest of the contract will still be valid and enforceable and only the part that has been rendered invalid and illegal will be unenforceable. This clause is of extreme importance because without it, the whole agreement will not be enforceable and deemed invalid, if a part of it is rendered invalid or illegal.
The declaration of a clause within a contract being invalid or illegal poses a question of what happens to the rest of the agreement? In accordance with the prudence principle, contracts now include severability clauses to provide for such cases. The Severability clause provides that should a part of the contract be deemed invalid or illegal the rest of the agreement will still be valid and enforceable. However, the presence of such a clause within a contract is only prima facie evidence that the clauses will be severable and a court will need to sever the parts of the contract.
In Malesela Taihan Electric Cable (Pty) Ltd vs Fidelity Security Services (Pty) Ltd, the court discussed the factors that would be taken into consideration when deciding whether parts of a contract will be severable and these include but are not limited to; whether it was the parties intention to sever the clauses which can be evidenced by a Severability clause, whether the illegal/invalid part of the contract is distinct from the rest of the contract and whether that part is not a subsidiary of a main part of the contract. When the Severability test discussed above is passed, a court will render only the invalid or illegal part of the contract unenforceable, and the rest of the contract will remain valid and enforceable.
It is normal that there may be smaller agreements, or side discussions which parties make before agreeing to the final terms of the actual contract, and there may even be other agreements that parties make after signing a contract. The Whole Agreement clause stipulates that everything comprising the parties agreement has been reduced to writing within that contract and that there are no other terms or undertakings that will be enforceable if they do not fall within the contract.
It is important to ensure that any previous agreements and undertakings are included within the contract or they will not be enforceable because of the Whole Agreement clause. This clause provides contractual certainty and prevents parties from relying on any other agreements or conversations other than those in the contract.
In AXA Sun Life Services Plc v Campbell Martin Ltd and Others, a foreign case, the court agreed that if parties want to effectively exclude liability for some representation, a clear statement to that effect will be required and that statement is usually the Whole Agreement clause. The utterance in a Whole Agreement clause usually includes a declaration that the document in which it appears, and any documents referred to, contain the totality of the parties’ agreement. The clause is usually also drafted to include a statement of non-reliance and an express exclusion of liability.
Indulgences are ‘favours’ or ‘relaxations’ granted by one party to another. For example, a company may give an individual an extension on the due date of a payment. The party that grants the favour is considered the grantor, while the other party is considered the grantee. The Indulgence clause provides that the relaxation does not constitute a waiver of the grantor’s rights. This means that, for example, a company still has their right to claim payment from the individual in terms of an agreement even if it did not act and try claim the outstanding payment previous.
The court in Triodos v Dobbs confirmed this position and agreed that “the resulting obligations did not replace the original obligations” because of the Indulgence clause. A clear understanding of this clause is important to ensure clarity and avoid the unnecessary losses that may occur based on a possible assumption, on the part of the grantee, that the indulgence constitutes a waiver of the grantos rights.
An assignment clause is a clause included in contracts that allows or disallows a person or a business the opportunity to assign or completely transfer their contractual obligations, rights, and benefits to a separate entity. For example, the Assignment clause may not allow an accounting clerk to give somebody else to their same job. This clause is important to provide certainty on whether the rights and duties may be transferred to any other person or entity. This clause is important because it protects parties from uncontrolled transfer of contractual rights and obligations. The Assignment clause may also include exceptions and the instances where the contractual rights and obligations of parties may be transferred.
The basic law is that A cannot transfer rights or obligations to B that are under an agreement with B, without B’s consent. In contracts where an Assignment clause provides that rights and obligations may not be transferred, any subsequent transfer of rights thereof will be considered void ab intio based on the nemo plus iuris rule which states that one may not transfer more rights than those which one possesses.
The Non Disparagement clause which is also known as the Protection of Reputation clause restricts a party to a contract from taking any action that may negatively impact the other party, its reputation, products, services, management or employees. Most of these clauses usually include a description of the prescribed action or examples of prohibited actions. For example, a Non-Disparagement clause may prohibit an employee from speaking ill of their employer.
While non-disparagement clauses are not discussed often, it is of paramount importance that you know the actions that you may or may not take and protects the reputation of the parties. You naturally would not want to be apart of an agreement that does not ensure the protection of your reputation and so it is important to ensure that your contracts include a Non-Disparagement clause.
Non-Disparagement clauses have become increasingly popular in contracts with the increase in awareness of individuals rights to freedom of expression. The National Media v Bogoshi case discusses the right to reputation and freedom of expression. It is important to note that the right to reputation which is protected in the Non-Disparagement clause does not take away from the right of freedom of expression and the persons maintain their right to express themselves notwithstanding the presence of a Non-Disparagement clause in a contract, for as long as their expressions consist of the truth.
Return of Information
A Return of Information clause provides for instances that involve the sharing of proprietary information such as trade secrets, confidential information etc. This clause typically contains requirements to either return or destroy of such information. Most business contracts will include a Return of Information clause as it ensures that parties will keep and protect their proprietary information. Such a clause may also provide for instances in which information is not returned or destroyed and what you can do in such a case.
The exchange of proprietary information is common and almost unavoidable when parties enter into a contract. After the conclusion of a contract, it is important that the information is return or destroyed. However, it is common that parties do not return or destroy information received during the course of an agreement and this practice has resulted in the increasing popularity of a Return of Information Clause. With the presence of a Return of Information clause in a contract, retaining such information after the conclusion of a contract will be considered breach of contract and may be considered theft and that may constitute grounds and good reason for immediate legal action against the non-complying party.
Restraint of Trade
A restraint of trade clause limits the ability of an employee to accept future employment which could be to the detriment of their current employer. A Restraint of Trade clause has a similar effect as that of a Non-Solicitation clause. The Restraint of Trade clause is normally included in an agreement between two parties that work closely together, and neither party wants to allow the other party the opportunity to steal their respective staff members or share any confidential information with any other party.
This clause has become increasingly popular with the rise of cases where individuals approach the clients or employees their former employer on behalf of their new employee or their own business. This clause is very important to both the employer and employees. On the one hand, it protects the employer from the potential loss of clients/employees, and on the other hand, it provides clarity to the employees that they may not solicit the employers clients or employees, else the employee will be found to be in breach of this contract.
There is often a misconception that a Restraint of Trade clause provides that an employee cannot seek any employment after their employment with their current employer comes to an end. The court in Reddy v Siemens  SCA 164 stated that a Restraint of Trade clause only prevented the employee from taking up employment with the competitor of the former employer. It does not prevent the employee from being employed, it merely limited the specific employer. Accordingly the restraint of trade agreement was found to be valid and enforceable.
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