Danger! Contracts under pressure

When the lawyers say "now for the boilerplates" at the end of a long contract meeting, we all switch off. Should we?

Housing Today's fly-on-the-wall listens in as a chief executive questions the senior partner of her law firm …

Chief executive: I know I will regret asking this, but what are boilerplates?

Senior partner: They are the clauses which every agreement should contain to some extent or other. The weightier the contract, the stronger the boilerplates have to be. Just as boilerplates hold a steam engine together, boilerplate clauses hold a contract together. They're also a guide to interpreting the agreement.

CE: So should I worry about them?

SP: Oh yes. Paying insufficient attention to them can have disastrous results.

CE: Such as?

SP: In any agreement, watch the notices clause. Time is money and the meter can start to run on service of a notice, but how and when and where is the notice to be served? Not email, and even faxes should be confirmed. What is the latest time of receipt before service is taken over to the next working day? Who should it be sent to? Should delivery only be valid with a receipt? All that should be clear. In a development agreement you will want proper time for considering requests for changes to the specification.

CE: And 'entire agreement' clauses? I always think they're nonsense – you can't write down all the understandings between the parties in one agreement. What about side letters, comfort letters and so on?

SP: I wish I could give you clear guidance. Current case law suggests that a clause which says that the agreement contains the whole agreement between the parties means that neither party can raise any external comfort letters, side letters or even in some property transactions, collateral agreements. Cases dealing with commercial property situations, such as the recent Allied Dunbar, seem to enforce that but there are doubts as to whether an entire agreement clause is appropriate in any consumer contract as a result of the 1999 Consumer Contracts Regulations.

CE: So where does that leave us?

SP: Perhaps RSLs and public-sector bodies are somewhere between a consumer and a private company, so who can say whether and when entire agreement clauses are effective? That reminds me of Britvic.

CE: Make mine a double.

SP: The Britvic v Messer case is on exclusion of liability clauses, another boilerplate, particularly in leases. It's a commercial case, but for RSLs and public bodies it suggests that exclusion clauses are more likely to be effective under the Unfair Contract Terms Act if they limit liability rather than try to exclude it altogether and that the courts do not like any clauses which try to exclude liability for quality. Don't simply patch in the machismo clauses of the CCT period – tailor them to the specific situation.

Just as boilerplates hold a steam engine together, boilerplate clauses hold a contract together

CE: That's the partnering approach, but then one of the boilerplates is a no-partnership clause. How can you be partnering without being partners?

SP: A partnership means each partner has a duty of the utmost good faith to the others and they have joint and several and unlimited liability. Public sector bodies insist on the no-partnership clause to avoid any suggestion of cross-liability if things go wrong. Partnering is an attempt to resolve disputes on a constructive rather than an adversarial basis but is as yet untested in law – the no-partnership clause is the safe play.

CE: Partnering is also about the people you work with, so what about the assignment clauses?

SP: Unless there is a clause restricting assignment, the benefit of the agreement can be assigned without the other party knowing until they receive a notice telling them. You may also want to be able to end the contract if the party you are relying on merges or the persons controlling it change – we see that in private finance initiative contracts, for instance. Then there is subcontracting. The contracting party retains the prime liability but with restructuring they could be a shell company, and you may find the company actually providing the services to your tenants has a bad reputation.

CE: And will have its head office in a tax haven.

SP: Usually law and jurisdiction clauses won't be necessary, but remember what I said about assignment. If there is any possibility of dealing with a foreign body, perhaps in an IT contract, you need to provide that the law should be English, but make sure you can chase the suppliers' assets.

CE: Anything else?

SP: Severance is particularly important if you are dealing with a public sector body. If one clause turns out to be unlawful for a public sector body, it should not destroy the rest of the contract. If you are dealing with a local authority and big money is involved, you should press for Local Government Act certification. There are other clauses that some call boilerplates but others think are a notch above that. Definitions, termination, warranties and confidentiality all require and usually get close scrutiny, so I will just mention three others …

CE: Let me guess – VAT and interest on late payments if we are selling services. I do occasionally listen to what you say. What's the third? Intellectual property?

SP: No, but that is a good one. In developer and consultant agreements, if you have to sack them, make sure you can use the designs and plans you have paid for. Check service contracts with wide indemnity clauses which can even make the RSL responsible for anything done by the authority or its employees and contractors. Quite how effective such a clause would be has to be tested but if you can't amend it, you should clear it with your insurers before signing.

Oh, and now we have the interesting case of Way v The World Online Telecom where even though there was a boilerplate in the contract which said that any amendments in the agreement had to be made in writing, the Court of Appeal allowed an oral agreement to vary the terms to go to trial. That doesn't mean the clause was not effective, but simply that the Court of Appeal felt that there should be argument on the point. Is that a crack in the boilerplate?

CE: Don't these boilerplates drive you crazy?