Downloadable precedents

In previous editions of The A–Z of Boilerplate Clauses, the precedents have been
available separately on a CD-ROM.
For the new 4th edition, the precedents are available to download electronically
from www.bloomsburylawonline.com/boilerplate.
They are password-protected and the password is BJG36hzP.
They can be downloaded individually or in totality.
If you have any problems downloading the precedents or have any questions,
please contact Bloomsbury Professional customer services on 01444 416119 or
by email at [email protected].
For a Licence agreement relating to the use of this Data, please see overleaf
at p vi.

A01_Boilerplate_Prelims.indd 5 08/09/2017 07:46

 Licence agreement

The Data on www.bloomsburylawonline.com/boilerplate is © Bloomsbury

Professional 2017.
Bloomsbury Professional (‘the Publishers’) grant you a non-exclusive and
non-transferable licence to use the Data from www.bloomsburylawonline.
com/boilerplate.
You may download, copy or print the Data from www.bloomsburylawonline.
com/boilerplate for private use or use in the ordinary course of your business
but you may not make any profit from the use of the Data other than would
ordinarily be made in the course of your business. You may not sell the Data
under any circumstances or make or sell any copy or reproduction of it. You
may not copy or print out any part of the Software for any purpose or make
any modifications to the Software.
If you have any queries about the use of the Data from www.
bloomsburylawonline.com/boilerplate, please contact customer services at
Bloomsbury Professional: [email protected].

vi

A01_Boilerplate_Prelims.indd 6 08/09/2017 07:46

 Preface

The goal we set for the first edition of the A–Z Guide to Boilerplate and Commercial
Clauses, back in the 1990s, was that it should be a useful source of information
across the main areas covered by boilerplate clauses.
As the title states, this is the fourth edition, but the goal remains equally true
this time around – to provide a sourcebook of:
• precedent material;
• the key reasons for including a particular boilerplate or commercial
clause;
• the essential legal principles underpinning a boilerplate or commercial
clause; and
• practical points to consider when drafting or understanding a boilerplate
or commercial clause.
So what is new? As in previous editions, we continue to add to individual
sections, by providing more guidance and example wording, and taking
account of new statute and case law.
Since the third edition, several new legislative measures have appeared, such
as the Consumer Rights Act 2015, the Trade Secrets Directive (2016/943) and
the General Data Protection Regulation (2016/679). They have modified or
added to existing law, of course, but not to the extent that substantial new or
additional wording will be necessary for a mainstream commercial contract
(as far as we can tell at present!).
The same applies to the many cases on boilerplate clauses which have been
reported since the third edition; too many to be listed here. Many of these
cases concern the meaning of a contract clause (or words within a clause).
A couple of examples will suffice:
• a force majeure clause is a classic boilerplate provision and a topic which,
as far as significant new case law is concerned, appeared to have fallen
asleep for several years. Then there is one new case which helps focus
attention on the meaning of ‘beyond reasonable control’;
• the perennial classic, the entire agreement clause. If it includes wording
such as ‘supersedes … any prior written or oral representations’ then it is
not enough, normally, to exclude liability for pre-contract representations.
Even if new cases don’t affect how clauses of this kind should be worded, it is
valuable to see how the court interprets them.

vii

A01_Boilerplate_Prelims.indd 7 08/09/2017 07:46

 Preface

This book is a companion to Drafting and Negotiating Commercial Contracts,

the fourth edition of which appeared in December 2016. The preface to that
edition reported a (third party) view that lawyers had become ‘copy and paste
monkeys’. The same is just as true of non-lawyers, especially as so many terms
and conditions are now available online for them to copy and paste.
This book is one of the answers to that criticism. By providing the reader with
information on the meaning and use of boilerplate clauses, he or she can
avoid the mindless repetition of contract wording.
Another point made in the preface to Drafting and Negotiating Commercial
Contracts was the strong message sent out by the most senior courts in the UK
(in cases such as Rainy Sky SA v Kookmin Bank [2011] UKSC 50 and culminating
in Arnold v Britton and others [2015] UKSC 36) that parties are bound by the
words they have chosen to use in their contracts. Just because they draft their
contract poorly, or one or both parties is commercially disadvantaged or has
made a bad deal, the answer from the courts is likely to be: tough.
In signing off, we would like to mention a countervailing ‘message’. That
it is easy for the parties to depart from the wording of their contract. A ‘no
amendment, no variation’ clause is one found in many contracts, and typically
provides that the parties to contract cannot amend or vary their contract unless
they comply with a particular procedure or formality. Recent court decisions
have decided that such wording is of no effect if the parties’ subsequent
conduct or oral agreement is sufficient to vary or amend their contract.
This is due partly, no doubt, by the lack of formality required to enter into legal
relations under UK law. But this second message is really all part of the same
approach of the courts, that in the event of a dispute, a court will look at the
objective reality of what has occurred, not what the parties think has occurred.
Not only must the contract drafter or user pay attention to the words they use,
but also to their own behaviour. Having a judge pick over what you say or do is
rarely a happy experience. This book and its companion can help with the first
message; as to the second: watch your step…
Mark Anderson and Victor Warner
www.andlaw.eu
August 2017

viii

A01_Boilerplate_Prelims.indd 8 08/09/2017 07:46

 How to negotiate boilerplate clauses

Driftwood: Oh that’s the usual clause. That’s in every contract. That just says,
uh, it says, uh, if any of the parties participating in this contract is shown not
to be in their right mind, the entire agreement is automatically nullified …
That’s what they call a ‘sanity clause’.
Fiorello: Ha, Ha, Ha, Ha, Ha. You can’t fool me. There ain’t no Sanity Clause!
‘A Night at the Opera’, Marx Bros. (MGM Studios, 1935)

ix

A01_Boilerplate_Prelims.indd 9 08/09/2017 07:46

A01_Boilerplate_Prelims.indd 10 08/09/2017 07:46
 Table of Statutes

References at the right-hand side of the column are to page numbers.

page page
Acquisition of Land Act 1981 Companies Act 2006 – contd
s 23(4)............................................... 455 s 47..................................................... 128
Arbitration Act 1996............. 63, 64, 65, 69, 70, 112................................................... 17
71, 72, 73, 78 287................................................... 496
Pt I (ss 1–84)..................................... 70 442(2)............................................. 455
s 1(a).................................................. 63 735................................................... 263
2(1)................................................. 70 Pt 25 (ss 859A–894).......................... 543
3....................................................... 70 s 860................................................... 536
4(1), (2).......................................... 65 861(4)............................................. 405
9–11, 24, 43..................................... 65 871(1)............................................. 536
67, 68............................................... 65, 72 875................................................... 536
69(1)............................................... 71 1159........................................ 16, 17, 18, 19,
91..................................................... 72 20, 21, 22, 24
Sch 1.................................................. 65 (1)(a)–(c)............................... 24
Banking and Financial Dealings Act 1160................................................. 22
1971................................................ 458 1161............................................... 16, 22, 23
Bills of Sale Act 1878............................. 536 (5)........................................... 19, 664
Bills of Sale Act (1878) Amendment 1162............................ 17, 18, 20, 21, 23, 26
Act 1882......................................... 536 (2)(a), (b)............................... 26
Capital Allowances Act 2001 (c)...................................... 27
s 466................................................... 311 (d)...................................... 26
Civil Jurisdiction and Judgments Act (4)(a)...................................... 27
1982................................................ 452 (5)........................................... 19
s 32, 33............................................... 446 1173................................................. 16
42..................................................... 496 Sch 6.................................................. 24
Companies Act 1948 para 1–3........................................ 24
s 725................................................... 481 4–8........................................ 25
Companies Act 2006.... 17, 21, 31, 32, 126, 9, 10...................................... 26
127, 128, 263, 264, Sch 7.................................................. 24, 25
265, 266, 274, 426, para 1, 2........................................ 26
494, 645 3............................................ 26, 27
s 3....................................................... 263 4, 5........................................ 27
33..................................................... 221 6–8........................................ 27, 28
39..................................................... 124, 645 9–11...................................... 28
40............................................ 124, 128, 645 Competition Act 1980........................... 662
(1)............................................... 126 Competition Act 1998........................... 662
(2)............................................... 645 Consumer Credit Act 1974................... 422, 656
43..................................................... 124 s 100................................................... 286
44.............................................. 31, 128, 263 Consumer Rights Act 2015.... 194, 195, 196, 197,
(2), (3)........................................ 265 199, 203, 204, 208,
(5)............................................... 269 211, 286, 300, 371
(6), (7)........................................ 268 Pt 2 (ss 61–72).......................... 195, 196, 200
(8)............................................... 264 s 3(3)................................................. 196
45(1)............................................... 263 9....................................................... 204
46............................................ 263, 264, 266 (2), (3).......................................... 197
(2)............................................... 266 10..................................................... 204

xxv

A02_Boilerplate_Statutes.indd 25 07/09/2017 12:56

 Table of Statutes

page page
Consumer Rights Act 2015 – contd Contracts (Rights of Third Parties)
s 11..................................................... 204 Act 1999 – contd
(4)............................................... 196 s 2....................................................... 223
12............................................ 196, 201, 204 6....................................................... 221
13–17............................................... 204 7(1)................................................. 219
28..................................................... 204 (4)................................................. 220
(2), (3)........................................ 204 8....................................................... 228
29..................................................... 204 10..................................................... 220
30..................................................... 203 Copyright, Designs and Patents Act
31..................................................... 200, 204 1988................................................ 404, 405
(2), (3)........................................ 205 s 3....................................................... 404
34–37............................................... 204 11(1)............................................... 404
36..................................................... 201 92(1)............................................... 311
37..................................................... 196 119D, 225........................................ 311
41..................................................... 204 Corporate Bodies’ Contracts Act 1960
47..................................................... 200, 204 s 1....................................................... 124
(2)............................................... 205 Corporation Tax Act 2009.................... 405
49..................................................... 205 s 921................................................... 311
50..................................................... 205 County Courts Act 1984........................ 420
(3)............................................... 196, 201 s 74..................................................... 420
51, 52............................................... 205 Data Protection Act 1998............ 249, 250, 251,
57..................................................... 200, 205 252, 253, 254,
(4), (5)........................................ 205 255, 656
62..................................................... 200 s 1(1)................................................. 251
(2), (3)........................................ 195 2....................................................... 251
(4)............................................... 371 4(4)................................................. 251
(6)............................................... 195 Sch 2.................................................. 252
63..................................................... 200 Sch 3.................................................. 252
64(1)............................................... 199 Finance Act 1999................................... 562
(2)............................................... 195, 199 s 112................................................... 562
(3), (4)........................................ 195 Finance Act 2000
(5)............................................... 199 s 129(2), (3), (5)............................... 563
65(1)............................................... 200 Sch 34
68, 71............................................... 195 para 4............................................ 563
Sch 2.......................................... 199, 200, 288 Finance Act 2003
para 1............................................ 211 s 42(2)(b), (c)................................... 563
(b)....................................... 551 43..................................................... 563
2, 3........................................ 211 (1), (3)........................................ 563
4............................................ 211, 288 48(1)(a).......................................... 563
5, 6........................................ 211 76(3)............................................... 563
7–14...................................... 212 85..................................................... 563
15.......................................... 212, 213 125................................................... 562
16.......................................... 213 Sch 13................................................ 562
17.......................................... 213, 299 Finance Act 2009
18–21.................................... 213 s 129(2)(a)........................................ 563
22–25.................................... 214 Forgery and Counterfeiting Act 1981
Contracts (Applicable Law) Act 1990 s 9(1)(g)............................................ 136, 257
s 2....................................................... 446 Freedom of Information Act 2000....... 57, 349,
Contracts (Rights of Third Parties) 350, 352, 353, 355,
Act 1999..................... 2, 3, 19, 87, 90,206, 356, 357, 358, 359,
218, 219, 220, 221, 360, 361, 362
222, 223, 224, 225, s 22, 40............................................... 349
226, 227, 228, 229, 41..................................................... 351, 352
569, 668 42..................................................... 349
s 1....................................................... 229 43............................................ 349, 353, 354
(1)................................................. 218, 220 Sch 1.................................................. 356
(a)............................................ 218, 222 Health and Safety at Work etc Act
(b)................................... 218, 219, 222, 1974................................................ 655
227, 228 Insolvency Act 1986.............................. 426
(2)........................................ 218, 222, 226, s 123................................................... 397
227, 228 252................................................... 393
(3)................................................. 222, 230 253................................................... 394, 397
(5)................................................. 220 264................................................... 393

xxvi

A02_Boilerplate_Statutes.indd 26 07/09/2017 12:56

 Table of Statutes

page page
Insolvency Act 1986 – contd Limited Liability Partnerships Act
s 267, 268........................................... 397 2002................................................ 30
273, 286........................................... 394, 397 s 1(2)................................................. 31
Interpretation Act 1978.............. 274, 425, 426, 3....................................................... 31
463, 464, 612 Local Government Act 1972
s 5............................................. 273, 427, 429, s 1, 20, 73........................................... 612
453, 612 Misrepresentation Act 1967................. 296, 304
6....................................................... 427, 429 s 3.............................................. 301, 303, 318,
17..................................................... 71, 429 329, 331
(2)(a).......................................... 22, 425 Partnership Act 1890..................... 30, 392, 435
21, 22............................................... 430 s 9....................................................... 435
23..................................................... 71 Patents Act 1977.................................... 405, 662
(3)............................................... 22, 425 s 30 (6).............................................. 42
Sch 1......................................... 273, 427, 429, 40, 41............................................... 660
453, 612 68..................................................... 310
Sch 2 130(1)............................................. 311
Pt I (paras 1–5)............................. 430 Powers of Attorney Act 1971................ 364
para 5(a)................................... 612 s 1....................................................... 261
Landlord and Tenant Act 1927 (1)................................................. 364
s 19(2)............................................... 178 4....................................................... 368
Land Registration Act 2002.................. 261 (1)................................................. 364
s 18, 21............................................... 261 Sale of Goods Act 1979............... 120, 203, 205,
25(1)............................................... 261 314, 316, 318,
Late Payment of Commercial Debts 332, 333, 533,
(Interest) Act 1998........................ 420, 422 534, 626, 630
s 1....................................................... 421 s 3(2)................................................. 124
2(1)................................................. 420 8....................................................... 502
(5)................................................. 421 10..................................................... 504
3....................................................... 420 (1), (2)........................................ 621
4, 5, 5A............................................ 421 13..................................................... 332
6....................................................... 420 14..................................................... 291, 332
8(1)................................................. 421 Pt III (ss 16–26)................................ 630
9....................................................... 421 s 16............................................ 626, 627, 630
(3)................................................. 421, 422 17............................................ 533, 626, 630
13..................................................... 422 (1), (2)........................................ 627
Law of Property Act 1925 18........................................... 505, 626, 627,
s 41..................................................... 621 630, 631
49(2)............................................... 286 r 1–4........................................... 631
52(1)............................................... 261 5............................................... 631, 632
53..................................................... 573 19..................................................... 626, 632
61..................................... 427, 429, 453, 463 20..................................................... 626, 632
71(1A)............................................. 264 (1), (4)........................................ 627
72..................................................... 263 20A.................................................. 630
74A(1)(a)........................................ 264 21(1)............................................... 537
(b)....................................... 266 25(1)............................................... 537
(2)............................................. 266 61..................................................... 626
104................................................... 261 Stamp Act 1891
109(1)............................................. 261 s 122................................................... 562
Law of Property (Miscellaneous Supply of Goods and Services Act
Provisions) Act 1989...................... 263 1982................................................ 205, 318
s 1(2)(a)............................................ 264 s 14..................................................... 621
(b)............................................ 263, 264 15..................................................... 502
(2A)............................................... 264 18 r 1............................................... 533, 534
(3)........................................ 265, 267, 268 Trade Marks Act 1994........................... 405
(b)............................................ 266 s 29(1)............................................... 311
(4)................................................. 265 Unfair Contract Terms Act 1977......... 194, 195,
(4A)............................................... 264 315, 317, 318, 320,
2........................................... 42, 50, 573, 588 321, 324, 333, 345,
Law Reform (Frustrated Contracts) 372, 381, 398, 551
Act 1943......................................... 338 s 1....................................................... 327
Limitation Act 1980.............................. 12 (2)................................................. 318
s 5....................................................... 263 2....................................................... 332
29, 30............................................... 11 (1)................................................. 317, 331

xxvii

A02_Boilerplate_Statutes.indd 27 07/09/2017 12:56

 Table of Statutes

page page
Unfair Contract Terms Act 1977 – contd Union with Scotland Act 1706
s 2(2)................................................. 317 art 1.................................................... 612
3............................................... 317, 325, 549 Value Added Tax Act 1994................... 405
(1)................................................. 321 s 1, 4................................................... 633
4....................................................... 321 19(2)............................................... 504
6(1)................................................. 318 31..................................................... 633
(3)................................................. 324 44(1)............................................... 636
7(3), (4).......................................... 324 47, 59............................................... 635
8....................................................... 301 Sch 9.................................................. 633
11..................................................... 320, 329 Sch 10
(1)............................................... 318 para 2............................................ 636
(4)............................................... 319, 400 3(7)....................................... 636
13..................................................... 549
24..................................................... 320
26..................................................... 318 NEW ZEALAND
Sch 1.................................................. 318 Contracts (Privity) Act 1982
Sch 2................................. 319, 320, 324, 330 s 4....................................................... 228

xxviii

A02_Boilerplate_Statutes.indd 28 07/09/2017 12:56

 Table of Statutory Instruments

References at the right-hand side of the column are to page numbers.

page page
Cancellation of Contracts made in Consumer Contracts (Information,
a Consumer’s Home or Place Cancellation and Additional
of Work etc Regulations 2008, Charges) Regulations 2013 – contd
SI 2008/1816................................. 196 Sch 1.................................................. 201
Civil Procedure Rules 1998, SI 1998/ Freedom of Information Act (Environ-
3132................................................ 35, 437 mental Information) Regulations
Pt 6 (rr 6.1–6.52).............................. 35 2004, SI 2004/3391....................... 350, 359
r 6.4(4).............................................. 481 Land Registration Rules 2003, SI 2003/
6.11(1), (2)..................................... 35 1417
6.12, 6.15, 6.16................................ 36 r 74, 75, 98, 206–209......................... 261
6.32, 6.33......................................... 35 Late Payment of Commercial Debts
6.36, 6.37......................................... 35 (Rate of Interest) (No 3) Order
PD 6B................................................. 35 2002, SI 2002/1675....................... 421
r 16.6.................................................. 550 Limited Liability Partnerships
44.3(2)............................................ 66 (Application of the Companies
Commercial Agents (Council Direc- Act) Regulations 2009, SI 2009/
tive) Regulations 1993, SI 1993/ 1804
3053................................................ 30 reg 4................................................... 124, 263
reg 2(1)............................................. 427 Overseas Companies (Execution of
3, 4............................................... 371 Documents and Registration
Companies (Model Articles) Regula- of Charges) Regulations 2009,
tions 2008, SI 2008/3229 SI 2009/1917................................. 263, 266
Sch 1 Unfair Arbitration Agreements
art 49............................................. 265 (Specified Amount) Order 1999,
Consumer Contracts (Information, SI 1999/2167
Cancellation and Additional art 3.................................................... 72
Charges) Regulations 2013, Unfair Terms in Consumer Contracts
SI 2013/3134........................ 196, 201. 202 Regulations 1999, SI 1999/2083.. 72,
reg 6(1), (2)...................................... 201 194, 195, 196,
7, 9, 10, 13................................... 201 206, 209, 324
28(1)–(3).................................... 202

xxix

A03_Boilerplate_StatIns.indd 29 01/09/2017 12:21

A03_Boilerplate_StatIns.indd 30 01/09/2017 12:21
 Table of Cases

References at the right-hand side of the column are to page numbers.

A
AIB Group (UK) plc (formerly Allied Irish Banks plc & AIB Finance Ltd) v Martin
[2001] UKHL 63, [2002] 1 WLR 94, [2002] 1 All ER (Comm) 209.............................. 435, 437
Adelphi (Estates) Ltd v Christie (1984) 47 P & C R 650, (1984) 269 EG 221, [1984]
1 EGLR 19.......................................................................................................................... 276
Afovos Shipping Co SA v R Pagnan & Fratelli (The Afovos) [1983] 1 WLR 195, [1983]
1 All ER 449, [1983] 1 Lloyd’s Rep 335........................................................................... 456
African Export-Import Bank v Shebah Exploration & Production Co Ltd [2016] EWHC 311
(Comm), [2016] 2 All ER (Comm) 307, [2016] 2 BCLC 412........................................ 323
Agricultural, Horticultural & Forestry Industry Training Board v Aylesbury Mushrooms
Ltd [1972] 1 WLR 190, [1972] 1 All ER 280................................................................... 189, 190
Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd (The Strathallan) [1983] 1 WLR 964,
[1983] 1 All ER 101, [1983] 1 Lloyd’s Rep 183 (Note).................................................. 327, 331
Air Transworld Ltd v Bombardier Inc [2012] EWHC 243 (Comm), [2012] 2 All ER
(Comm) 60, [2012] 1 Lloyd’s Rep 349................................................. 291, 292, 315, 317, 332
Aktion Maritime Corpn of Liberia v S Kasmas & Brothers (The Aktion) [1987] 1 Lloyd’s
Rep 283.............................................................................................................................. 82
Alexander v Webber [1922] 1 KB 642..................................................................................... 285
Alexander v West Bromwich Mortgage Co Ltd [2016] EWCA Civ 496, [2017] 1 All ER 942,
[2017] 1 All ER (Comm) 667.......................................................................... 511, 514, 515, 516
Allardyce (Keith) v Roebuck (Philip) [2004] EWHC 1538 (Ch), [2005] 1 WLR 815,
[2004] 3 All ER 754........................................................................................................... 619
Alpha Lettings Ltd v Neptune Research & Development Inc [2003] EWCA Civ 704,
(2003) 147 SJLB 627......................................................................................................... 608, 609
Aluminium Industrie Vaasen BV v Romalpa Aluminium Ltd [1976] 1 WLR 676, [1976]
2 All ER 552, [1976] 1 Lloyd’s Rep 443.................................................................. 533, 534, 535
Amble Assets LLP (in administration) v Longbenton Foods Ltd (in administration)
[2011] EWHC 3774 (Ch), [2012] 1 All ER (Comm) 764............................................... 285
Amin Rasheed Sjipping Corpn v Kuwait Insurance Co (The Al Wahab) [1984] AC 50,
[1983] 3 WLR 241, [1983] 2 All ER 884.......................................................................... 441
Anglo-American Asphalt Co Ltd v Crowley, Russell & Co Ltd [1945] 2 All ER 324............. 96
Antaios Compania Naviera SA v Salen Rederierna AB (The Antaios) [1988] AC 191,
[1984] 3 WLR 592, [1984] 3 All ER 229.......................................................................... 117, 597
Armour v Thyssen Edelstahlwerke AG [1991] 2 AC 339, [1990] 3 WLR 810, [1990] 3 All
ER 481................................................................................................................................ 534
Arnold v Britton [2015] UKSC 36, [2015] AC 1619, [2015] 2 WLR 1593.......... 216, 316, 390, 504
Aspen Insurance UK Ltd v Pectel Ltd [2008] EWHC 2804 (Comm), [2009] 2 All ER
(Comm) 873, [2009] Lloyd’s Rep IR 440........................................................................ 243
AstraZeneca UK Ltd v Albermarle International Corpn [2011] EWHC 1574 (Comm),
[2011] 2 CLC 252, [2011] All ER (D) 162 (Jun)................................... 147, 151, 374, 484, 491
Attwood v Lamont [1920] 3 KB 571........................................................................................ 554
Ault & Wiborg Paints Ltd v Sure Services Ltd (The Times, 2 July 1983).............................. 112
Avraamides v Colwill [2006] EWCA Civ 1533, , [2007] BLR 76, [2006] All ER (D) 167
(Nov).................................................................................................................................. 222, 230
Axa Sun Life Services plc v Campbell Martin Ltd [2011] EWCA Civ 133, [2012] Bus
LR 203, [2011] 2 Lloyd’s Rep 1.............................................................................. 296, 305, 549

B
BP Exploration Operating Co Ltd v Dolphin Drilling Ltd [2009] EWHC 3119 (Comm),
[2010] 2 Lloyd’s Rep 192.................................................................................................. 136, 138
BP Oil UK Ltd v Lloyds TSB Bank plc [2004] EWCA Civ 1710, [2005] 1 EGLR 61, [2004]
1 All ER (D) 336 (Dec)..................................................................................................... 486, 490

xxxi

A04_Boilerplate_Cases.indd 31 07/09/2017 12:56

 Table of Cases

BSkyB Ltd v HP Enterprise Services UK Ltd (formerly t/a Electronic Data Systems Ltd)
[2010] EWHC 86 (TCC), [2010] BLR 267, 129 Con LR 147......................................... 296, 304
Beecham v Smith (1858) El Bl & El 442, 120 ER 574............................................................. 434
Bennett v Bennett [1952] 1 KB 249, [1952] 1 All ER 413, [1952] 1 TLR 400...................... 554
Bensley v Burden (1830) 8 LJ (OS) Ch 85.............................................................................. 525
Berkeley v Hardy (1826) 5 B & C 355, 108 ER 132................................................................. 128
Bespoke Couture Ltd v Artpower Ltd (No 4) [2006] EWCA Civ 1696, (2004)
150 SJLB 1463........................................................................................................... 598, 600, 605
Beta Investment SA v Transmedia Europe Inc [2003] EWHC 3066 (Ch), [2003] All ER
(D) 133 (May).......................................................................................................... 112, 575, 582
Bikam OOD v Adria Cable Sarl [2013] EWHC 1985 (Comm).............................................. 11
Bikam OOD v Adria Cable Sarl [2012] EWHC 621 (Comm)................................................ 315
Blackpool & Fylde Aero Club Ltd v Blackpool Borough Council [1990] 1 WLR 1195,
[1990] 3 All ER 25, 88 LGR 864....................................................................................... 189
Blue Metal Industries Ltd v RW Dilley [1970] AC 827, [1969] 3 WLR 357, [1969] 3 All
ER 437................................................................................................................................ 275
Bominflot Bunkergesellscahft für Mineralole mbH & Co KG v Petroplus Marketing AG
(The Mercini Lady) [2010] EWCA Civ 1145, [2011] 2 All ER (Comm) 522, [2011]
1 Lloyd’s Rep 442.............................................................................................................. 317
Bond Worth Ltd, Re [1980] Ch 228, [1979] 3 WLR 629, [1979] 3 All ER 919.................... 536
Bonython v Australia [1951] AC 201, 66 TLR (Pt 2) 969, [1948] 2 DLR 672....................... 246
Borden (UK) Ltd v Scottish Timber Products Ltd [1981] Ch 25, [1979] 3 WLR 672,
[1979] 3 All ER 961........................................................................................................... 536
Bottin (International) Investments Ltd v Venson Group plc [2004] EWCA Civ 1368,
[2004] All ER (D) 322 (Oct)............................................................................................ 471, 480
Boufoy-Bastick v University of West Indies [2015] UKPC 27, [2015] IRLR 1014................. 454
Bravo Maritime (Chartering) Est v Alsayed Abdullah Mohamed Baroom (The Athinoula)
[1980] 2 Lloyd’s Rep 481.................................................................................................. 512
Bridgewater’s Settlement, Re [1910] 2 Ch 342....................................................................... 525
British Electrical & Associated Industries (Cardiff) Ltd v Patley Pressings Ltd [1953]
1 WLR 280, [1953] 1 All ER 94, (1953) 97 SJ 96............................................................. 339
British Fermentation Products Ltd v Compair Reavell Ltd [1998] TCC 577........................ 323
British Gas Trading Ltd v Eastern Electricity (The Times, 2 November 1996).................... 90
British Waggon Co v Lea & Co; Parkgate Waggon Co v Lea & Co (1880) 5 QBD 149......... 566
Bunge Corpn v Tradax Export SA [1981] 1 WLR 711, [1981] 2 All ER 540, [1981]
2 Lloyd’s Rep 1.................................................................................................................. 620
Burford UK Properties Ltd v Forte Hotels (UK) Ltd (formerly Trusthouse Forte)
[2003] EWCA Civ 1800, (2004) 148 SJLB 145, [2003] NPC 159................................... 146

C
C Czarnikow Ltd v Centrala Handlu Zagranicznego Rolimpex (CHZ) [1979] AC 351,
[1978] 3 WLR 274, [1978] 2 All ER 1043........................................................................ 148
CDV Software Entertainment AG v Gamecock Media Europe Ltd [2009] EWHC 2965
(Ch)................................................................................................................................... 216
Cadogan Petroleum Holdings Ltd v Global Process Systems LLC [2013] EWHC 214
(Comm), [2013] 2 Lloyd’s Rep 26, [2013] 1 CLC 721................................................... 286
Caledonia North Sea Ltd v London Bridge Engineering Ltd 2000 SLT 1123, [2000]
Lloyd’s Rep IR 249, 2000 GWD 3-84................................................................................ 81
Canada Steamship Lines Ltd v R [1952] AC 192, [1952] 1 All ER 305, [1952] 1 Lloyd’s
Rep 1.................................................................................................................................. 316, 381
Capitol Films Ltd (in administration), Re; Rubin v Cobalt Pictures Ltd [2010] EWHC 2240
(Ch)................................................................................................................................... 30
Cartwright v MacCormack [1963] 1 WLR 18, [1963] 1 All ER 11, [1962] 2 Lloyd’s Rep
328...................................................................................................................................... 454
Channel Island Ferries Ltd v Sealink UK Ltd [1998] Lloyd’s Rep 323................................. 343
Chartbrook Homes Ltd v Persimmon Homes Ltd [2007] EWHC 409 (Ch), [2007] 1 All
ER (Comm) 1083, [2007] 2 P & CR 9; aff’d [2008] EWCA Civ 183, [2008] 2 All ER
(Comm) 387, [2008] 11 EG 92 (CS); revs’d [2009] UKHL 38, [2009] 1 AC 1101,
[2009] 3 WLR 267............................................................................................................. 276, 504
Chemidus Wavin Ltd v Société pour la Transformation et l’Exploitation des Resines
Industrielles SA [1978] 3 CMLR 514, [1977] FSR 181................................................... 554
Cheverny Consulting Ltd v Whitehad Mann Ltd [2007] EWHC 3130 (Ch)........................ 297
Chilingworth v Esche [1924] 1 Ch 97, [1923] All ER Rep 97................................................ 286

xxxii

A04_Boilerplate_Cases.indd 32 07/09/2017 12:56

 Table of Cases

Chrion Corpn v Murex Diagnostics Ltd (No 2); Chrion Corpn v Organon Teknika Ltd
(No 12) [1996] FSR 153, )1997) 37 BMLR 28, (1996) 19 (3) IPD 19018..................... 447
City & General (Investment) Ltd v Razama Ltd [2009] EWCA Civ 1568.................... 106, 178, 180
City Inn (Jersey) Ltd v Ten Trinity Square Ltd [2008] EWCA Civ 156, [2008] 10 EG 167
(CS), [2008] NPC 28......................................................................................................... 276
City Inn Ltd v Shepherd Construction Ltd [2003] BLR 468, 2003 SLT 885......................... 146
Clerical Medical & General Life Assurance Society v Fanfare Properties Ltd (unreported,
2 June 1981)...................................................................................................................... 177
Clough Mill Ltd v Martin [1985] 1 WLR 111, [1984] 3 All ER 982, (1985) 82 LSG 1075... 535,
536
Coca-Cola Financial Corpn v Finsat International Ltd (The Ira) [1998] QB 43, [1996]
3 WLR 849, [1996] 2 Lloyd’s Rep 274............................................................................. 550
Coco v AN Clark (Engineers) Ltd [1968] FSR 415, [1969] RPC 41...................................... 155, 352
Cohen v Nessdale Ltd [1982] 2 All ER 97............................................................................... 581
Columbia Tristar Home Video (International) Inc v Polygram Film Internatonal BV
(formerly Manifesto Film Sales BV) [2000] 1 All ER (Comm) 385............................... 96, 98
Commercial Management (Investments) Ltd v Mitchell Design & Construct Ltd
[2016] EWHC 76 (TCC), 164 Con LR 139...................................................................... 323
Communication Technology Investments Ltd v International Environmental
Management Ltd [2005] EWHC 3292 (Ch).................................................................... 524
Compaq Computer Ltd v Abercorn Group Ltd (t/a Osiris) [1991] BCC 484,
[1993] BCLC 603.............................................................................................................. 537
Compass Group UK & Ireland Ltd (t/a Medirest) v Mid Essex Hospital Services NHS Trust
[2012] EWHC 781 (QB), [2012] 2 All ER (Comm) 300; rev’sd [2013] EWCA Civ 200,
[2013] BLR 265, [2013] CILL 3342........................................................................ 118, 374, 375
Confetti Records v Warner Music UK Ltd [2003] EWHC 1274 (Ch), [2003] ECDR 31,
[2003] EMLR 35................................................................................................................ 575, 580
Connaught Restaurants Ltd v Indoor Leisure Ltd [1994] 1 WLR 501, [1994] 4 All ER 834,
[1993] 46 EG 184.............................................................................................................. 550
Co-operative Group Ltd v Birse Developments Ltd (in liquidation) [2014] EWHC 530
(TCC), [2014] BLR 359 153 Con LR 103........................................................................ 83
Cornfoot v Royal Exchange Assurance Corpn [1904] 1 KB 40............................................. 454
Cornish v Midland Bank plc [1985] 3 All ER 513, [1985] FLR 298, (1985) 135 NLJ 869... 42
Cott UK Ltd v FE Barber Ltd [1997] 3 All ER 540.................................................................. 428
Courtauld’s Application, Re [1956] RPC 208......................................................................... 309
Criterion Properties plc v Stratford UK Properties LLC [2004] UKHL 28, [2004]
1 WLR 1846, [2004] BCC 570.......................................................................................... 30
Cryer v Scott Bros (Sudbury) Ltd (1986) 55 P & CR 183....................................................... 177
Cutlan v Dawson (1897) 14 RPC 249....................................................................................... 593

D
DB Rare Books Ltd v Antiqbooks (a limited partnership) [1995] 2 BCLC 306................... 116
DMA Financial Solutions Ltd v BaaN UK Ltd [2000] All ER (D) 411................................... 575, 583
DRC Distribution Ltd v Ulva Ltd [2007] EWHC 1716 (QB)................................................. 152
Dairy Containers Ltd v Tasman Orient Line CV (The Tasman Discoverer) [2004] UKPC 22,
[2005] 1 WLR 215, [2004] 2 All ER (Comm) 667.......................................................... 315
Dais Contractors Ltd v Fareham UDC [1956] AC 696, [1956] 3 WLR 37, [1956] 2 All
ER 145................................................................................................................................ 338
Dalkia Utilities Services plc v Celtech International Ltd [2006] EWHC 63 (Comm)....... 118, 120,
597
Damon Compania Naviera SA v Hapag-Lloyd International SA (The Blankenstein)
[1985] 1 WLR 435, [1985] 1 All ER 475, [1985] 1 Lloyd’s Rep 93................................ 82
Dany Lions v Bristol Cars Ltd [2014] EWHC 817 (QB), [2014] 2 All ER (Comm) 403,
[2014] Bus LR D11............................................................................................................ 485
Data Direct Technologies Ltd v Marks & Spencer plc [2009] EWHC 97 (Ch), [2009] All
ER (D) 198 (Jan).............................................................................................................. 512, 546
Davies v Collins [1945] 1 All ER 247....................................................................................... 566
Davstone Estate Ltd’s Leases, Re; Manprop Ltd v O’Dell [1969] 2 Ch 378, [1969]
2 WLR 1287, [1969] 2 All ER 849.................................................................................... 554
Dawson International plc v Coates Paton plc [1990] BCLC 560........................................... 111
Days Medical Aids Ltd v Pihsiang Machinery Manufacturing Co Ltd [2004] EWHC 44
(Comm), [2004] 1 All ER (Comm) 991, [2004] 2 CLC 489.......................................... 112
Decro-Wall v Practitioners in Marketing Ltd [1971] 1 WLR 361, [1971] 2 All ER 216,
(1970) 115 SJ 171.............................................................................................................. 610

xxxiii

A04_Boilerplate_Cases.indd 33 07/09/2017 12:56

 Table of Cases

Deepak Fertilisers & Petrochemicals Ltd v Davy McKee (London) Ltd [1999] 1 All ER
(Comm) 69, [1999] 1 Lloyd’s Rep 387, [1999] BLR 41................................................. 296, 302
Denmark Productions Ltd v Boscobel Productions Ltd [1969] 1 QB 699, [1968]
3 WLR 841, [1968] 3 All ER 513...................................................................................... 338
Department of Health v ICO (EA/2008/0081; 18 November 2008).................................... 351
Derry City Council v Information Commissioner (EA/2006/0014; 11 December 2006).... 351
Dies v British & International Mining & Finance Corpn [1939] 1 KB 724........................... 285, 286
Dodds v Walker [1981] 1 WLR 1027, [1981] 2 All ER 609, (1981) 42 P & CR 131.............. 455, 463
Dolphin Maritime & Aviation Services Ltd v Sveriges Angartygs Assurans Forening
[2009] EWHC 716 (Comm), [2010] 1 All ER (Comm) 473, [2009] 2 Lloyd’s Rep
123...................................................................................................................................... 219
Dominion Corporate Services Ltd v Debenhams Properties Ltd [2010] EWHC 1993
(Ch), [2010] 23 EG 106 (CS), [2010] NPC 63................................................................ 117, 597
Don King Productions Inc v Warren (No 1) [1998] 2 All ER 608, [1998] 2 Lloyd’s Rep
176, [1998] 2 BCLC 132; aff’d [2000] Ch 291, [1999] 3 WLR 276, [1999] 2 All
ER 218................................................................................................................................ 83

E
EA Grimstead & Son Ltd v McGarrigan [1999] All ER (D) 1163, [1998-99] Info
TLR 384.................................................................................................................... 296, 301, 303
ENE Kos 1 Ltd v Petrolio Brasiliero SA Petrobas (The Kos) [2012] UKSC 17, [2012]
2 AC 164, [2012] 2 WLR 976............................................................................................ 117, 597
EPI Environmental Technologies Inc v Symphony Plastic Technologies plc
[2004] EWHC 2945 (Ch), [2005] 1 WLR 3456, [2005] FSR 22; aff’d [2006] EWCA Civ
3, [2006] 1 WLR 495............................................................................................... 158, 161, 171
Eagle Star Insurance Co Ltd v Cresswell [2004] EWCA Civ 602, [2004] 2 All ER (Comm)
244, [2004] 1 CLC 926...................................................................................................... 146, 151
Earl of Lonsdale v A-G [1982] 1 WLR 887, [1982] 3 All ER 579, (1983) 45 P & CR 1......... 215
Elpis Maritime Co Ltd v Marti Charter Co (The Maria D) [1992] 1 AC 21, [1991]
3 WLR 330, [1991] 3 All ER 758...................................................................................... 43
Emeraldian Ltd Partnership v Wellmix Shipping Ltd (The Vine) [2010] EWHC 1411
(Comm), [2011] 1 Lloyd’s Rep 301, [2010] 1 CLC 903................................................. 343
Ener-G Holdings plc v Hormell [2012] EWCA Civ 1059, [2013] 1 All ER (Comm) 1162,
[2012] CP Rep 47.............................................................................................................. 471
Etablissements Chainbaux SARL v Harbormaster Ltd [1955] 1 Lloyd’s Rep 303................ 620
Exmek Pharmaceuticals SAC v Alkem Laboratories Ltd [2015] EWHC 3158 (Comm),
[2016] 1 Lloyd’s Rep 239.................................................................................................. 449
Exxonmobil Sales & Supply Corpn v Texaco Ltd [2003] EWHC 1964 (Comm), [2004]
1 All ER (Comm) 435, [2003] 2 Lloyd’s Rep 686........................................................... 297

F
F Goldsmith (Sicklesmere) Ltd v Baxter [1970] Ch 85, [1969] 3 WLR 522, [1969] 3 All
ER 733................................................................................................................................ 495
Faccenda Chicken Ltd v Fowler [1987] Ch 117, [1986] 3 WLR 288, [1986] 1 All ER 617.. 407
Fairstate Ltd v General Enterprise & Management Ltd [2010] EWHC 3072 (QB), [2011]
2 All ER (Comm) 497, 133 Con LR 112.......................................................................... 524
Famous Army Stores Ltd v Meehan [1993] 1 EGLR 73, [1993] 09 EG 111.......................... 550
Farstad Supply A/S v Enviroco Ltd [2011] UKSC 16, [2011] 1 WLR 921, [2011] 3 All
ER 451................................................................................................................................ 17
Fastframe Ltd v Lohinski (unreported, 3 March 1993).......................................................... 549, 551
Fell v Goslin & Morgan (1852) 7 Exch 185, 155 ER 909........................................................ 433
Figgis, Re; Roberts v MacLaren [1969] 1 Ch 123, [1968] 2 WLR 1173, [1968] 1 All
ER 999................................................................................................................................ 456
Fillite (Runcorn) Ltd v APV Pasilac Ltd (The Buyer, July 1995)........................................... 321
Firma C-Trade SA v Newcastle Protection & Indemnity Association (The Fanti) [1991]
2 AC 1, [1990] 3 WLR 78, [1990] 2 All ER 705............................................................... 382
First National Bank plc v Thompson [1996] Ch 231, [1996] 2 WLR 293, [1996] 1 All
ER 140................................................................................................................................ 525
Fitzroy House Epworth Street (No 1) Ltd v Financial Times Ltd [2006] EWCA Civ 329,
[2006] 1 WLR 2207, [2006] 2 All ER (D) 463 (Mar)...................................................... 116, 118
Fitzroy Robinson Ltd & Mentmore Towers Ltd;; Fitzroy Robinson Ltd v Good Start Ltd
(No 3) [2009] EWHC 3365 (TCC), [2010] BLR 165m 128 Con LR 103...................... 420
Floor v Davis (Inspector of Taxes) [1980] AC 695, [1979] 2 WLR 830, [1979] 2 All
ER 677................................................................................................................................ 275

xxxiv

A04_Boilerplate_Cases.indd 34 07/09/2017 12:56

 Table of Cases

Fomento (Sterling Area) Ltd v Selsdon Fountain Pen Co Ltd [1958] 1 WLR 45, [1958]
1 All ER 11, [1958] RPC 8................................................................................................ 95, 96
Force India Formula One Team Ltd v Ethad Airways PJSC [2010] EWCA Civ 1051,
[2011] ETMR 10, (2010) 107 (40) LSG 22...................................................................... 638
Francotyp-Postalia Ltd v Whitehead [2011] EWHC 367 (Ch)............................................... 555, 558
Frank W Clifford Ltd v Garth [1956] 1 WLR 570, [1956] 2 All ER 323, (1956)
100 SJ 379.......................................................................................................................... 554
Frans Maas (UK) Ltd v Samsung Electronics (UK) Ltd [2004] EWHC 1502 (Comm),
[2005] 2 All ER (Comm) 783, [2004] 2 Lloyd’s Rep 251..................................... 315, 317, 330
Fraser v Thames Television Ltd [1984] QB 44, [1983] 2 WLR 917, [1983] 2 All ER 101.... 484
Freeman v Read (1863) 4 B & S 174, 122 ER 425................................................................... 464
Frontier International Shipping Corpn v Swissmarine Corpn Inc (The Cape Equinox)
[2005] EWHC 8 (Comm), [2005] 1 All ER (Comm) 528, [2005] 1 Lloyd’s
Rep 390.............................................................................................................................. 343

G
Galbraith v Mitchenall Estates Ltd [1965] 2 QB 473, [1964] 3 WLR 454, [1964] 2 All
ER 653................................................................................................................................ 286
Gallaher International Ltd v Tlais Enterprises Ltd [2008] EWHC 804 (Comm)................. 524, 597
Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689, [1973]
3 WLR 421, [1973] 3 All ER 195...................................................................................... 551
Gillespie Bros & Co Ltd v Roy Bowles Transport Ltd [1973] QB 400, [1972] 3 WLR 1003,
[1973] 1 All ER 193........................................................................................................... 316, 381
Global Container Lines Ltd v Black Sea Shipping Co [1997] CLY 4535.............................. 374
Globe Motors v TRW LucasVarity Electric Steering Ltd [2016] EWCA Civ 396, [2017]
1 All ER (Comm) 601, [2016] CLC 712.......................................................................... 31, 47
Glolite Ltd v Jasper Conran Ltd (The Times, 28 January 1998)............................................ 597
Glyn v Margetson & Co [1893] AC 351......................................................................... 512, 515, 516
Goodinson v Goodinson [1954] 2 QB 118, [1954] 2 WLR 1121, [1954] 2 All ER 255........ 554
Government of Gibraltar v Kenney [1956] 2 QB 410, [1956] 3 WLR 466, [1956] 3 All
ER 22.................................................................................................................................. 70
Grant v Maddox (1846) 15 M & W 737, 153 ER 1048............................................................ 454
Granville Oil & Chemicals Ltd Davies Turner & Co Ltd [2003] EWCA Civ 570, [2003]
1 All ER (Comm) 819, [2003] 2 Lloyd’s Rep 356........................................................... 296, 319
Graves v Masters (1883) Cab & El 73....................................................................................... 126
Great Eastern Shipping Co Ltd v Far East Chartering Ltd [2011] EWHC 1372 (Comm),
[2011] 2 Lloyd’s Rep 309.................................................................................................. 222
Great Elephant Corpn v Trafigura Beheer BV [2013] EWCA Civ 905, [2013] 2 All ER
(Comm) 992, [2014] 1 Lloyd’s Rep 1.............................................................................. 343
Griffon Shipping LLC v Firodi Shipping Ltd [2013] EWHC 593 (Comm), [2013] 2 All ER
(Comm) 246, [2013] 2 Lloyd’s Rep 50........................................................... 243, 284, 285, 286
Guyot v Thomson [1894] 3 Ch 388......................................................................................... 593

H
HHR Pascal BV v W2005 Puppet II BV [2009] EWHC 2771 (Comm), [2010] 1 All ER
(Comm) 399...................................................................................................................... 618
HIH Casualty & General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6, [2003]
1 All ER (Comm) 349, [2003] 2 Lloyd’s Rep 61.................................................... 296, 317, 331
Hadley Design Associates v City of Westminster [2003] EWHC 1617 (TCC), [2004] TCLR 1,
[2004] Masons CLR 3....................................................................................................... 323
Hagee (London) Ltd v Co-operative Insurance Society (1992) 63 P & CR 362, [1992]
1 EGLR 57, [1991] NPC 92.............................................................................................. 238
Hall v Burnell [1911] 2 Ch 551................................................................................................ 284, 285
Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576, [2004] 1 WLR 3002,
[2004] 4 All ER 920........................................................................................................... 66
Hammond v Haigh Castle & Co Ltd [1973] 2 All ER 289, [1973] ICR 148,
[1973] IRLR 91.................................................................................................................. 456
Harold Wood Brick Co Ltd v Ferris [1935] 2 KB 198............................................................. 618
Harrison v Shepherd Homes Ltd [2011] EWHC 1811 (TCC), (2011) 27 Const LJ 709;
aff’d [2012] EWCA Civ 904, 143 Con LR 69, [2012] 3 EGLR 83.................................... 208
Hart v Middleton (1845) 2 Car & K 9, 175 ER 4..................................................................... 453
Hashwani v Jivraj [2009] EWHC 1364 (Comm), [2010] 1 All ER 302, [2009] 2 All ER
(Comm) 778...................................................................................................................... 555

xxxv

A04_Boilerplate_Cases.indd 35 07/09/2017 12:56

 Table of Cases

Haughland Tankers AS v RMK Marine Gemi Yapin Sanayii ve Deniz Tasimaciligri Isletmesi
AS [2005] EWHC 321 (Comm), [2005] 1 All ER (Comm) 679, [2005] 1 Lloyd’s Rep
573............................................................................................................................. 484, 485, 489
Heath v Crealock 1(1874-75) LR 10 Ch App 22..................................................................... 525
Hector Whaling Ltd, Re [1936] Ch 208.................................................................................. 456
Henrich Hirdes GmbH v Edmund [1991] 2 Lloyd’s Rep 546............................................... 457
Hellewell v Chief Constable of Derbyshire [1995] 1 WLR 804, [1995] 4 All ER 473, (1995)
92 (7) LSG 35.................................................................................................................... 352
Helstan Securities Ltd v Hertfordshire County Council [1978] 3 All ER 262, 65 LGR 735.... 83
Hendry v Chartsearch Ltd (1998) CLC 1382, (2000) 2 TCLR 115....................................... 82
Hendy Lennox (Industrial Engines) Ltd v Grahame Puttick Ltd [1984] 1 WLR 485,
[1984] 2 All ER 152, [1984] 2 Lloyd’s Rep 422............................................................... 535, 536
Hickman v Haynes (1874-75) LR 10 CP 598........................................................................... 638
Higher Education Funding Council for England v ICO & Guardian News & Media Ltd
(EA/2009/0036; 13 January 2010).................................................................................. 352
Hillel v Christoforides (1991) 63 P & CR 301......................................................................... 285
Hinton v Sparkes (1867-68) LR 3 CP 161................................................................................ 285
Hiscox Syndicates Ltd v The Pinnacle Ltd [2008] EWHC 145 (Ch), [2008] 5 EG 166
(CS).................................................................................................................................... 106
Hong Kong & Shanghai Banking Corpn v Kloeckner & Co AG [1990] 2 QB 514, [1990]
3 WLR 634, [1989] 3 All ER 513...................................................................................... 550
Household Fire & Carriage Accident Insurance Co Ltd v Grant (1879) 4 Ex D 216........... 470
Howe v Smith (1884) 27 Ch D 89............................................................................................ 285
Hughes v Pendragon Sabre (t/a Porsche Centre Bolton) [2016] EWCA Civ 18, [2017]
1 All ER (Comm) 173, [2016] 1 Lloyd’s Rep 311........................................................... 31
Humble (Grace) v Hunter (1848) 12 QB 310, 116 ER 885................................................... 82
Hydraulic Engineering Co Ltd v McHaffie Goslett & Co (1878) 4 QBD 670....................... 459

I
IBM United Kingdom Ltd v Rockware Glass Ltd [1980] FSR 335....................... 104, 105, 111, 112
IFE Fund SA v Goldman Sachs International [2006] EWHC 2887 (Comm), [2007]
1 Lloyd’s Rep 264, [2006] All ER (D) 268 (Nov)............................................................ 323, 332
Inntrepreneur Pub v East Crown [2000] 2 Lloyd’s Rep 611, [2000] 3 EGLR 31, [2000]
41 EG 209........................................................................................................................... 295, 302
International Asset Control Ltd (t/a IAC Films) v Films Sans Frontieres
SARL [1999] EMLR 268, [1998] All ER (D) 476............................................................ 620
Internet Broadcasting Corpn Ltd (t/a NETTV) v MAR LLC (t/a MARHedge)
[2009] EWHC 844 (Ch), [2010] 1 All ER (Comm) 112, [2009] 2 Lloyd’s Rep 295..... 316
Investors Compensation Scheme v West Bromwich Building Society (No 1) [1998]
1 WLR 896, [1998] 1 All ER 98, [1998] 1 BCLC 531............................................ 216, 280, 524

J
JIS (1974) Ltd v MCP Investment Nominees I Ltd (Construction of Lease)
[2003] EWCA Civ 721, (2003) 100 (24) LSG 36............................................................. 276
J Lauritzen AS v Wijsmuller BV (The Super Servant Two) [1990] 1 Lloyd’s Rep 1............. 339
JP Morgan Chase Bank (formerly Chase Manhattan Bank) v Springwell Navigation Corpn
[2008] EWHC 1186 (Comm), [2008] All ER (D) 167 (Jun)............................... 318, 323, 331
JSC BTA Bank Ablyazov [2011] EWHC 2506 (Comm).......................................................... 36
Jackson Distribution Ltd v Tum Yeto Inc [2009] EWHC 982 (QB), [2009] All ER (D) 107
(May).................................................................................................................................. 593, 608
Jet2.com Ltd v Blackpool Airport Ltd [2012] EWCA Civ 417, [2012] 2 All ER (Comm)
1053, [2012] 1 CLC 605.......................................................................................... 105, 106, 115
John Connor Press Associates Ltd v Information Commissioner (EA/2005/0005;
25 January 2006)............................................................................................................... 354
Johnson v The Edgeware etc Rly Co (1866) 35 Beav 480, 55 ER 982.................................... 215
Joint London Holdings Ltd v Mount Cook Land Ltd [2005] EWCA Civ 1171, [2006 2 P &
CR 17, [2005] 3 EGLR 119............................................................................................... 216
Joseph Constantine Steamship Line Ltd v Imperial Smelting Corpn Ltd [1942] AC 154,
[1941] 2 All ER 165, (1941) 70 Ll L Rep 1...................................................................... 338

K
Kall Kwick Printing (UK) Ltd v Rush [1996] FSR 114........................................................... 555
Kawasaki Kisen Kabushiki Kaisha v Belships Co Ltd Skibs A/S [1939] 2 All ER 108, (1939)
63 Ll Rep 175..................................................................................................................... 485

xxxvi

A04_Boilerplate_Cases.indd 36 07/09/2017 12:56

 Table of Cases

Kendell v Hamilton (1879) 4 App Cas 504............................................................................. 433

Kinance v Mackie-Conteh [2004] EWHC 998 (Ch), [2004] 19 EGCS 164 (CS).................. 573
King v Hoare (1844) 13 M & W 494, 153 ER 206................................................................... 434
Kleinwort Benson Ltd v Malaysian Mining Corpn Bhd [1988] 1 WLR 799, [1988] 1 All
ER 714, [1988] 1 Lloyd’s Rep 556.................................................................................... 216
Kyprianou (Pheobus D) v Cyprus Textiles [1958] 2 Lloyd’s Rep 60..................................... 148

L
Laemthong International Lines Co Ltd v Artis (The Laemthong Glory) (No 2)
[2005] EWCA Civ 519, [2005] 23 All ER (Comm) 167, [2005] 1 Lloyd’s Rep 688...... 222, 230
Lafarge (Aggregates) Ltd v Newham London Borough Council [2005] EWHC 1337
(Comm), [2005] 2 Lloyd’s Rep 577................................................................................. 454
Lancrest Ltd v Asiwaju [2005] EWCA Civ 117, [2005] L & TR 22, [2005] 1 EGLR 40........ 619
Landlord Protect Ltd v S Anselm Development Corpn Co Ltd [2008] EWHC 1582 (Ch),
[2008] 28 EG 113 (CS), [2008] NPC 82.......................................................................... 216
Lee-Parket v Izett (No 2) [1972] 1 WLR 775, [1972] 2 All ER 800, (1972) 23 P & CR 301.... 147
Lemmerbell Ltd v Britannai LAS Direct Ltd [1999] L & TR 102, [1998] 3 EGLR 67,
[1998] 48 EG 188.............................................................................................................. 470
Leofelis SA v Lonsdale Sports Ltd [2008] EWCA Civ 640, [2008] ETMR 63, (2008)
158 NLJ 1041..................................................................................................................... 117, 597
Levison v Fairn [1978] 2 All ER 1149...................................................................................... 216
Linden Gardens Trust Ltd v Lenesta Sludge Disposal Ltd [1994] 1 AC 85, [1993]
3 WLR 408, [1993] 3 All ER 417................................................................................. 81, 83, 551
Linggi Plantations Ltd v Joagtheesa [1972] 1 MLJ 89............................................................ 284
Little v Courage Ltd [1995] CLC 164, (1994) 70 P & CR 469............................................... 373
Lockett v A & M Charles Ltd [1938] 4 All ER 170.................................................................. 433
London & Regional Investments Ltd v TBI plc [2002] EWCA Civ 355................................ 373
London Regional Transport v Wimpey Group Services Ltd (1987) 53 P & CR 356, [1986]
2 EGLR 41, (1986) 280 EG 898........................................................................................ 503

M
MSAS Global Logistics v Power Packaging Inc [2003] EWHC 1393 (Ch)............................ 620, 624
MSC Mediterranean Shipping Co SA v Cottonex Anstalt [2016] EWCA Civ 789, [2017]
1 All ER (Comm) 483, [2016] 2 Lloyd’s Rep 494........................................................... 374
MWB Business Exchange Centres Ltd v Rock Advertising [2016] EWCA Civ 553,
[2017] QB 604, [2016] 3 WLR 1519................................................................................ 31, 47
MacArdle, Re [1951] Ch 66..................................................................................................... 262
McCausland v Duncan Lawrie Ltd [1997] 1 WLR 38, [1996] 4 All ER 995, (1997) 74 P &
CR 343................................................................................................................................ 50
McCrone v Boots Farm Sales Ltd 1981 SC 68, 1981 SLT 103................................................. 321, 327
McMillan Williams (a firm) v Range [2004] EWCA Civ 294, [2004] 1 WLR 1858, [2004] All
ER (D) 335 (May)............................................................................................................. 66
Mamidoil-Jetoil Greek Petroleum Co SA v Okta Crude Oil Refinery AD (No 3)
[2003] EWCA Civ 1031, [2003] 2 All E (Comm) 640, [2003] 2 Lloyd’s Rep 635......... 341, 343
Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749, [1997]
2 WLR 945, [1997] 3 All ER 352...................................................................................... 470
Margerison v Bates [2008] EWHC 1211 (Ch), [2008] 3 EGLR 165...................................... 276
Martin-Baker Aircraft Co Ltd v Canadian Flight Equipment Ltd [1955] 2 QB 556, [1955]
3 WLR 212, [1955] 2 All ER 722, (155) 72 RPC 236...................................... 334, 593, 609, 610
Mayson v Clouet [1924] AC 980, [1924] 3 WWR 211............................................................. 285
Mendll v Smith (1943) 112 LJ Ch 279..................................................................................... 420
Mikeover Ltd v Brady [1989] 3 All ER 618, (1989) 21 HLR 513, (1990) 59 P & CR 218..... 433
Millichamp v Jones [1982] 1 WLR 1422, [1983] 1 All ER 267, (1983) 45 P & CR 169........ 484
Ministry of Sound (Ireland) Ltd v World Online Ltd [2003] EWHC 2178 (Ch), [2003]
2 All ER (Comm) 823....................................................................................................... 340
Mitas v Hyams [1961] 2 TLR 1215........................................................................................... 263
Mitsui Construction Co Ltd v A-G of Hong Kong 1(1986) 33 BLR 14.................................. 280
Monde Petroleum v WesternZagros Ltd [2016] EWHC 1472 (Comm), [2017] 1 All ER
(Comm) 1009, [2016] 2 Lloyd’s Rep 229........................................................................ 374
Moon, ex p Dawes, Re (1886) 17 QBD 275............................................................................. 523, 525
Multiplex Construction (UK) Ltd v Cleveland Bridge UK Ltd [2006] EWHC 1341 (TCC),
107 Con LR 1..................................................................................................................... 373
Multiservice Bookbinding Ltd v Marden [1979] Ch 84, [1978] 2 WLR 535, [1978] 2 All
ER 489................................................................................................................................ 246

xxxvii

A04_Boilerplate_Cases.indd 37 07/09/2017 12:56

 Table of Cases

Multi Veste 226 BV v NI Summer Row Unitholder BV [2011] EWHC 2026 (Ch), 139 Con
LR 23, [2011] 33 EG 63.................................................................................................... 620, 624
Mylcrist Builders Ltd v Buck [2008] EWHC 2172 (TCC), [2009] 2 All ER (Comm) 259,
[2008] BLR 611................................................................................................................. 208, 209

N
National Bank of Saudi Arabia v Skab (unreported, 23 November 1995)............................ 550
National Grid v Mayes [2001] UKHL 20, [2001] 1 WLR 864, [2001] 2 All ER 417............. 243
Navigators & General Insurance Co v Ringrose [1962] 1 WLR 173, [1962] 1 All ER 97,
[1961] 2 Lloyd’s Rep 415.................................................................................................. 612
Newfoundland v Newfoundland Rly Co (1888) 13 App Cas 199........................................... 551
Newland Shipping & Forwarding Ltd v Toba Trading FZC [2014] EWHC 661 (Comm)... 117, 597
Nisshin Shipping Co Ltd v Cleaves & Co Ltd [2003] EWHC 2602 (Comm), [2004] 1 All
ER (Comm) 481, [2004] 1 Lloyd’s Rep 38...................................................................... 222, 226
Nittan (UK) Ltd v Solent Steel Fabrications Ltd [1981] 1 Lloyd’s Rep 633.......................... 495
Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014, [1940] 3 All ER 549...... 566
Norbury Natzio & Co Ltd v Griffiths [1918] 2 KB 369, (1918) 87 LJ KB 952....................... 433

O
OTV Birwelco Ltd v Technical & General Guarantee Co Ltd [2002] EWHC 2240 (TCC),
[2002] 4 All ER 668, [2002] 2 All ER (Comm) 1116...................................................... 495
Office of Fair Trading v Abbey National plc [2009] UKSC 6, [2010] 1 AC 696, [2009]
3 WLR 1215....................................................................................................................... 195, 199
Okolo v Secretary of State for the Environment [1997] 4 All ER 242, [1997] JPL 1009,
[1998] COD 8.................................................................................................................... 455, 464
Omar v El-Wakil [2001] EWCA Civ 1090, [2002] 2 P & CR 3, (2001) 98 (30) LSG 40........ 285
Overseas Medical Supplies Ltd v Orient Transport Services Ltd [1999] 1 All ER (Comm)
981, [1999] 2 Lloyd’s Rep 273, [1999] CLC 1243.................................................. 319, 322, 324
Owen v Wilkinson (1858) 5 CB NS 526, 141 ER 213.............................................................. 434
Oxford Gene Technology Ltd v Affymetrix Inc [2001] IP & T 93, [2000] IP & T 1006...... 90, 91,
92, 93
Oxonica Energy Ltd v Neuftec Ltd [2008] EWHC 2127 (Pat); aff’d ]2009] EWCA Civ
668.................................................................................................................... 216, 275, 276, 279

P
Page v Combined Shipping & Trading Co Ltd [1997] 3 All ER 656, [1996] CLC 1952,
[1999] Eu LR 1.................................................................................................................. 371
Pagnan SpA v Tradax Ocean Transportation SA [1987] 3 All ER 565, [1987] 2 Lloyd’s
Rep 342.............................................................................................................................. 511, 515
Panoutsos v Raymond Haldy Corpn of New York [1917] 2 KB 473....................................... 638
Patel v Brent London Borough Council (No 3) [2004] EWHC 763 (Ch), [2005] 1 P &
CR 20, [2004] 3 PLR 74.................................................................................................... 114
Peachdart Ltd, Re [1984] Ch 131, [1983] 3 WLR 878, [1983] 3 All ER 204........................ 536
Peekay Intermark Ltd v Australia & New Zealand Banking Group Ltd [2006] EWCA Civ
386, [2006] 2 Lloyd’s Rep 511, [2006] 1 CLC 582.......................................................... 13
Pegler Ltd v Wang (UK) Ltd (No 1) [2000] BLR 218, 70 Con LR 68, [2000] ITCLR 617...... 323
Pera Shipping Corpn v Petroship SA (The Pera) [1984] 2 Lloyd’s Rep 363........................ 215
Peter Pan Manufacturing Corpn v Corsets Silhouette Ltd, [1964] 1 WLR 96, [1963] 3 All
ER 402, [1963] RPC 45..................................................................................................... 96
Petromec Inc v Petroleo Brasileiro SA [2004] All ER (D) 10 (Feb)...................................... 575
Petromec Inc v Petroleo Brasileiro SA Petrobras (No 3) [2005] EWCA Civ 891, [2006]
1 Lloyd’s Rep 121.............................................................................................................. 372, 373
Phillips Petroleum Co (UK) Ltd v Enron (Europe) Ltd [1997] CLC 329............................ 105, 113
Phoenix Media Ltd v Cobweb Information (unreported, 16 May 2000).............................. 118, 597
Photo Production Ltd v Securicor Transport Ltd [1980] AC 827, [1980] 2 WLR 283,
[1980] 1 All ER 556........................................................................................................... 316
Pips (Leisure Productions) Ltd v Walton (1982) 43 P & CR 415.......................................... 111
Pitt v PHH Asset Management Ltd [1994] 1 WLR 327, [1993] 4 All ER 961, (1994) 68 P &
CR 269................................................................................................................................ 374
Plymouth Corpn v Harvey [1971] 1 WLR 549, [1971] 1 All ER 623, 69 LGR 310................ 263
Port Line Ltd v Ben Lin Steamers Ltd [1958] 2 QB 146, [1958] 2 WLR 551, [1958] 1 All
ER 787................................................................................................................................ 87
Poulton v Moore [1915] 1 KB 400........................................................................................... 525
Price v Bouch (1986) 53 P & CR 257, [1986] 2 EGLR 179, (1986) 279 EG 1226................. 177

xxxviii

A04_Boilerplate_Cases.indd 38 07/09/2017 12:56

 Table of Cases

Primus Build Ltd v Pompey Centre Ltd [2009] EWHC 1487 (TCC), [2009] BLR 437,
[2009] All ER (D) 14 (Jul)............................................................................................... 474
Prudential Assurance Co Ltd v Ayres [2007] EWHC 775 (Ch), [2007] 3 All ER 946,
[2007] L & TR 35.............................................................................................................. 219

Q
QR Sciences Ltd v BTG International Ltd [2005] EWHC 670 (Ch), [2005] FSR 43........... 484, 493
QR Sciences Ltd v BTG International Ltd (Supplemental Judgment) [2005] EWHC 1500
(Ch)................................................................................................................................... 493
Quest 4 Finance Ltd v Maxfield [2007] EWHC 2313 (QB), [2007] 2 CLC 706................... 13, 215

R
R v North & East Devon Health Authority, ex p Coughan [2001] QB 213, [2000]
2 WLR 622, [2000] 3 All ER 850...................................................................................... 189
R v Secretary of State for Social Services, ex p Association of Metropolitan Authorities
[1986] 1 WLR 1, [1986] 1 All ER 164, (1985) 17 HLR 487............................................ 189
RJB Mining (UK) Ltd v National Union of Mineworkers (1995) [1995] IRLR 556............. 457
RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH & Co KG (UK Production)
[2010] UKSC 14, [2010] 1 WLR 753, [2010] 3 All ER 1................................................ 577, 585
RWE npower Renewables Ltd v JN Bentley Ltd [2014] EWCA Civ 150,
[2014] CILL 3488.............................................................................................................. 511
R (on the application of Capenhurst) v Leicester City Council [2004] EWHC 2124
(Admin), (2004) 7 CCL Rep 557, [2004] ACD 93.......................................................... 189
R (on the application of Mercury Tax Group) v R & C Comrs [2008] EWHC 2721
(Admin), [2009] STC 743, [2009] Lloyd’s Rep FC 135......................................... 236, 267, 268
Rackham v Peek Foods Ltd [1990] BCLC 895........................................................................ 111
Rainy Sky SA [2011] UKSC 50, [2011] 1 WLR 2900, [2012] 1 All ER 1137.......................... 216, 316
Rank Xerox Ltd v Lane (Inspector of Taxes) [1981] AC 629, [1979] 3 WLR 594, [1979]
3 All ER 657....................................................................................................................... 238
Rasbora Ltd v JCL Marine Ltd [1977] 1 Lloyd’s Rep 645...................................................... 82
Ray v Classic FM plc [1998] ECC 488, [1999] ITCLE 256, [1998] All ER (D) 105.............. 404
Reardon Smith Line Ltd v Ministry of Agriculture, Fisheries & Food [1963] AC 691,
[1963] 2 WLR 439, [1963] 1 All ER 545.......................................................................... 454
Registrar of Companies v Radio-Tech Engineering Ltd [2004] BCC 277............................. 455
Rhodia International Holdings Ltd v Huntsman International LLC [2007] EWHC 292
(Comm), [2007] 2 All ER (Comm) 577, [2007] 2 Lloyd’s Rep 325.............................. 106
Rice (t/a the Garden Guardian) v Great Yarmouth Borough Council [2003] TCLR 1,
(2001) 3 LGLR 4, [2000] All ER (D) 902........................................................................ 117, 597
Richardson v Cartwright (1844) 1 Car & K 328, 174 ER 833................................................. 126
Right, on the demise of William Jeffrys v Bucknell (Henry) (1831) 2 B & Ad 278,
109 ER 1146....................................................................................................................... 525
Robson v Drummond (1831) 2 B & Ad 303, 109 ER 1156..................................................... 82
Rohlig (UK) Ltd v Rock Unique Ltd [2011] EWCA Civ 18, [2011] 2 All ER (Comm)
1161.................................................................................................................................... 549
Rossetti Marketing Ltd v Diamond Sofa Co Ltd [2011] EWHC 2482 (QB), [2012] 1 All
ER (Comm) 18, [2012] Bus LR 571................................................................................. 427
Royal Albert Hall Corpn v Winchillsea (1891) 7 TLR 362..................................................... 433
Royal Boskalis Westminster NV v Mountain [1999] QB 674, [1998] 2 WLR 538, [1997]
2 All ER 929....................................................................................................................... 554
Rust Consulting Ltd (in liquidation) v PB Ltd (formerly Kennedy & Donkin Ltd)
[2010] EWHC 3243 (TCC), [2011] 1 All ER (Comm) 951, 135 Con LR 69; aff’d
[2011] EWCA Civ 899, [2012] 1 All ER (Comm) 455, 137 Con LR 92......................... 524
Rust Consulting Ltd (in liquidation) v PB Ltd (formerly Kennedy & Donkin Ltd)
[2011] EWCA Civ 1070, [2012] BLR 427, 144 Con LR 63............................................. 524
Ruttle Plant Hire Ltd v Secretary of State for the Environment, Food & Rural Affairs
[2009] EWCA Civ 97, [2010] 1 All ER (Comm) 444, [2009] BLR 301......................... 421
Ryanair Ltd v SR Technics Ireland Ltd [2007] EWHC 3089 (QB)........................................ 297

S
St Albans City & District Council v International Computers Ltd [1996] 4 All ER 481,
[1997-98] Info TLR 58, [1997] FSR 251.......................................................................... 319, 321
Sainsbury’s Supermarkets Ltd v Bristol Rovers (1883) Ltd [2016] EWCA Civ 160.............. 105
Saltman Engineering Co Ld v Campbell Engineering Co (1948) [1963] 3 All ER 413
(Note), (1948) 65 RPC 203.............................................................................................. 158

xxxix

A04_Boilerplate_Cases.indd 39 07/09/2017 12:56

 Table of Cases

Salvage Association v CAP Financial Services Ltd [1995] FSR 654........................................ 321, 327
Samarenko v Dawn Hill House Ltd [2011] EWCA Civ 1445, [2013] Ch 36, [2012]
3 WLR 638......................................................................................................................... 619
Sargent v Macepark (Whittlebury) Ltd [2004] EWHC 1333 (Ch), [2004] 4 All ER 662,
[2004] 3 EGLR 26............................................................................................................. 178
Satyam Computer Services Ltd v Upaid Systems Ltd [2008] EWCA Civ 487, [2008] 2 All
ER (Comm) 465, [2008] 2 CLC 864................................................................................ 297
Savill Bros Ltd v Bethell [1902] 2 Ch 523............................................................................... 215
Scottish Coal Co Ltd v Danish Forestry Co Ltd [2009] CSOH 171, 2010 GWD 5-79........... 373
Scruttons Ltd v Midland Silicones Ltd [1962] AC 446, [1962] 2 WLR 186, [1962] 1 All
ER 1.................................................................................................................................... 87
Seager v Copydex Ltd (No 1) [1967] 1 WLR 923, [1967] 2 All ER 415, [1967] RPC 349... 173
Seakom Ltd v Knowledgepool Group Ltd [2013] EWHC 4007 (Ch)................................... 82
Seay v Eastwood [1976] 1 WLR 1117, [1976] 3 All ER 153, (1976) 120 SJ 734.................... 274
Sere Holdings Ltd v Volkswagen Group UK Ltd [2004] EWHC 1551 (Ch)......................... 297
Shaker v Vistajet Group Holding SA [2012] EWHC 1329 (Comm), [2012] 2 All ER
(Comm) 1010, [2012] All ER (D) 141 (May)......................................................... 372, 373, 377
Sheffield District Rly Co v Great Central Rly Co (1911) 27 TLR 451.................................... 111, 112
Shell UK Ltd v Total UK Ltd; Colour Quest Ltd v Total Downstream UK Ltd
[2010] EWCA Civ 180, [2011] QB 86, [2010] 3 All ER 793........................................... 242, 243
Silver Queen Maritime Ltd v Persia Petroleum Services plc [2010] EWHC 2867 (QB).267
Smith v Anderson (1880) 15 Ch D 247................................................................................... 92
Smith v The Hull Glass Co (1852) 11 CB 897, 138 ER 729.................................................... 126
Smith v South Wales Switchgear Ltd; Smith v UMB Chrysler (Scotland) Ltd [1978]
1 WLR 165, [1978] 1 All ER 18, 1978 SC (HL) 1............................................................ 381
Société Italo-Belge pour le Commerce et l’Industrie SA (Antwerp) v Palm & Vegetable
Oils (Malaysia) Sdn Bhd (The Post Chaser) [1982] 1 All ER 19, [1981] 2 Lloyd’s Rep
695, [1981] Com LR 249.................................................................................................. 619
Sonat Offshore SA v Amerada Hess Development & Texaco (Britain) [1988] 1 Lloyd’s
Rep 145, 39 BLR 1, [1987] 2 FTLR 220........................................................................... 343
Soper v Arnold (1889) 14 App Cas 429................................................................................... 284
Southway Group Ltd v Wolff (1991) 57 BLR 33, 28 Con LR 109, [1991] EG 82 (CS)......... 566
South West Water Services Ltd v International Computers Ltd [1999] BLR 420, [1999]-
[2000] Info TLR 1, [1998-99] Info TLR 154.......................................................... 321, 322, 329
Spenborough UDC’s Agreement, Re [1968] Ch 139, [1967] 2 WLR 1403, [1968] 1 All
ER 959................................................................................................................................ 334
Springwell Navigation Corpn (a body corporate) v JP Morgan Chase Bank (a body
corporate) (formerly known as Chase Manhattan Bank) [2010] EWCA Civ 1221,
[2010] 2 CLC 705.............................................................................................................. 11
Square Mile Partnership Ltd v Fitzmaurice McCall Ltd [2006] EWCA Civ 1690, [2007]
2 BCLC 23, [2006] All ER (D) 262 (Dec)........................................................................ 524
Staunton v Wood (1851) 16 QB 638, 117 ER 1025................................................................. 459
Steiglitz v Egginton (1815) Holt NP 141, 171 ER 193............................................................ 128
Stephen v Scottish Boat Owners Mutual Insurance Association (The Talisman) [1989] 1
Lloyd’s Rep 535, 1989 SC (HL) 24, 1989 SLT 283.......................................................... 114
Steria Ltd v Sigma Wireless Communications Ltd [2008] BLR 79, 118 Con LR 177,
[2008] CILL 2544.............................................................................................................. 216
Stevenson & Sons v Maule & Son 1920 SC 335, 1920 1 SLT 237........................................... 566
Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] QB 600, [1992] 2 WLR 721, [1992] 2 All
ER 257........................................................................................................................ 324, 549, 551
Stockloser v Johnson [1954] 1 QB 476, [1954] 2 WLR 439, [1954] 1 All ER 630................ 285
Styles v Wardle (1825) 4 B & C 908, 107 ER 1297.................................................................. 457
Superior Overseas Development Corpn & Phillips Petroleum (UK) Ltd v British Gas
Corpn [1982] 1 Lloyd’s Rep 262...................................................................................... 116
Swift v Dairywise Farms Ltd (No 1) [2000] 1 WLR 1177, [2003] 1 All ER 320,
[2000] BCC 642................................................................................................................. 83

T
T & N Ltd (in administration) v Royal & Sun Alliance plc [2003] EWHC 1016 (Ch),
[2003] 2 All ER (Comm) 939, [2004] Lloyd’s Rep IR 106............................................. 276
TSG Building Services plc v South Anglia Housing Ltd [2013] EWHC 1151 (TCC),
[2013] BLR 484, 148 Con LR 228.................................................................................... 375
Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd (No 1) [1984] 1 Lloyd’s Rep 555... 315

xl

A04_Boilerplate_Cases.indd 40 07/09/2017 12:56

 Table of Cases

Tajik Aluminium Plant v Hydro Aluminum AS [2005] EWCA Civ 1218, [2006] 1 WLR 767,
[2005] 4 All ER 1232......................................................................................................... 64
Tarkin AG v Thames Steel UK Ltd [2010] EWHC 207 (Comm)........................................... 619
Tatung (UK) Ltd v Galex Telesure Ltd (1988) 5 BCC 325..................................................... 537
Tele2 International Card Co SA v Post Office Ltd [2009] EWCA Civ 9, [2009] All ER (D)
144 (Jan)............................................................................................................................ 638
Telewest Communications plcl v C & E Comrs [2005] EWCA Civ 102, [2005] STC 481,
[2005] BTC 5125............................................................................................................... 82
Terrell v Mabie Todd & Co [1952] 2 TLR 574, (1952) 69 RPC 234, [1952] WN 434.......... 111, 115
Tersons Ltd v Stevenage Development Corpn [1965] 1 QB 37, [1964] 2 WLR 225, [1963]
2 Lloyd’s Rep 333.............................................................................................................. 215
Thomas Witter Ltd v TBB Industries Ltd [1996] 2 All ER 573.................... 296, 300, 302, 303, 304
Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd; Associated Portland
Cement Manufacturers (1900) Ltd v Tolhurst [1903] AC 414....................................... 566
Tradigrain SA v Intertek Testing Services (ITS) Canada Ltd [2007] EWCA Civ 154, [2007]
1 CLC 188, [2007] Bus LLR D32...................................................................................... 315
Triodos Bank NV v Dobbs [2005] EWCA Civ 630, [2005] 2 Lloyd’s Rep 588, [2005] All ER
(D) 364 (May)................................................................................................................... 50, 52
Trow v Ind Coope (West Midlands) Ltd [1966] 3 WLR 1300, [1967] 1 All ER 19, (1966)
110 SJ 964; aff’d [1967] 2 QB 899, [1967] 3 WLR 633, [1967] 2 All ER 900................. 456, 457
Truegold International Ltd v Questrock Ltd [2010] EWHC 966 (Ch)................................. 486
Tudor Grange Holdings Ltd v Citibank NA [1992] Ch 53, [1991] 3 WLR 750, [1991] 4 All
ER 1.................................................................................................................................... 331
Tweddle v Atkinson (1861) 1 B & S 393, 121 ER 762............................................................. 262

U
UBH (Mechanical Services) Ltd v Standard Life Assurance Co (The Times, 13 November
1986).................................................................................................................................. 105, 113
UR Power GmbH v Kuok Oils & Grains Pte Ltd [2009] EWHC 1940 (Comm), [2009] 2
Lloyd’s Rep 495, [2009] 2 CLC 386................................................................................. 147
United Bank of Kuwait Ltd v Hammoud; City Trust Ltd v Levy [1988] 1 WLR 1051, [1988]
3 All ER 418, (1988) 138 NLJ Rep 281............................................................................ 127
United Scientfic Holdings v Burnley Borough Council [1978] AC 904, [1977] 2 WLR 806,
[1977] 2 All ER 62............................................................................................................. 619

V
Valilas v Januzaj [2014] EWCA Civ 436, [2015] 1 All ER (Comm) 1047, 154 Con LR 38.... 617

W
W v Edgell [1990] 1 Ch 359, [1990] 2 WLR 471..................................................................... 352
WW Gear Construction Ltd v McGee Ltd [2010] EWHC 1460 (TCC), 131 Con LR 63,
(2011) 27 Const LJ 39....................................................................................................... 146
Walford v Miles [1992] 2 AC 128, [1992] 2 WLR 174, [1992] 1 All ER 453............... 372, 373, 376,
485, 574
Walker v Great Western Rly Co (1866-67) LR 2 Exch 228...................................................... 126
Wallis Son & Wells v Pratt & Haynes [1911] AC 394, [1911-13] All ER Rep 989.................. 316, 317
Watford Electronics v Sanderson CFL Ltd [2001] EWCA Civ 317, [2001] 1 All ER (Comm)
696, [2001] IP & T 588.................................................... 295, 296, 301, 302, 303, 319, 321, 329
Watson v Mid Wales Rly Co (1866-67) LR 2 CP 593............................................................... 551
Weldtech Equipment Ltd, Re [1991] BCC 16, [1991] BCLC 393......................................... 537
White v John Warrick & Co Ltd [1953] 1 WLR 1285, [1953] 2 All ER 1021, (1953)
97 SJ 740............................................................................................................................ 315
Whitehead Mann Ltd v Cheverny Consulting Ltd [2006] EWCA Civ 1303, [2007] 1 All ER
(Comm) 124...................................................................................................................... 573
William Hare Ltd v Shepherd Construction Ltd [2010] EWCA Civ 283, [2010] BLR 358,
130 Con LR 1..................................................................................................................... 395, 426
Winn v Bull (1877) 7 Ch D 29.................................................................................................. 573
Woodroffe v Box [1954] ALR 474, 28 ALJ 90 (Australian High Court)................................ 484
Workers Trust & Merchant Bank Ltd v Dojap Investments Ltd [1993] AC 573, [1993]
2 WLR 702, [1993] 2 All ER 370...................................................................................... 285

xli

A04_Boilerplate_Cases.indd 41 07/09/2017 12:56

 Table of Cases

Y
Yewbelle Ltd v London Green Developments Ltd (Knightsbridge Green Ltd Pt 20
defendant) [2006] EWHC 3166 (Ch), [2007] 1 EGLR 137, [2006] All ER (D) 122
(Dec).................................................................................................................................. 114, 115
Youell v Bland Welch & Co Ltd (No 1) [1992] 2 Lloyd’s Rep 127......................................... 215
Young v Schuler (1883) 11 QB 651.......................................................................................... 43
Yuanda (UK) Co Ltd v WW Gear Construction Ltd [2010] EWHC 720 (TCC), [2011]
1 All ER (Comm) 550, [2010] All ER (D) 157 (May)..................................................... 322, 422

xlii

A04_Boilerplate_Cases.indd 42 07/09/2017 12:56

 Introduction

Boilerplate and commercial clauses of ‘lesser importance’ are unglamorous.1

In the heat of negotiating a commercial deal, few business people are likely
to spend much time or emotional capital arguing over the wording of a force
majeure clause or a waiver clause. Instead, they leave the negotiation of such
dry details to the persons responsible for preparing the agreement (or their
lawyers).
Good lawyers will have a clear idea of which boilerplate clauses are important,
and how they should be worded. Although there is a strong ‘legal’ element
to many boilerplate clauses, they also raise commercial issues (often critical
commercial issues). For example:
• should a party be allowed to assign its rights or obligations to another?
• should flooding, a failure in the electricity supply or a strike at the supplier’s
premises entitle the supplier to delay delivery of contract goods?
• should the parties take a dispute to arbitration or to a court?
• should any statements made prior to the contract by one party which
the other has relied on in entering into the contract become part of the
contract?
It may be difficult to get detailed instructions on what the client requires
on some of these issues. In many cases, it will be necessary to ‘take a view’.
Commercially, it is easier to justify including extensive boilerplate provisions
in a 50-page agreement than in a two page agreement. From a legal perspective
such a distinction is less easy to justify.
The problem, of course, is that it is very difficult to predict whether any
particular boilerplate provision will prove to be important in a particular
agreement. A dispute might arise unexpectedly over whether a party may
assign its rights under the agreement, or whether a reference to a ‘year’ in
an agreement means a year starting on 1 January or a year starting on an
anniversary of the date of the agreement. The contract drafters will often have
to weigh up potentially conflicting objectives: legal certainty, a commercial
desire to ‘keep it simple but effective’, efficient use of an expensive lawyer’s
time, the likelihood of a dispute arising, and so on.

1 ‘Lesser importance’ means clauses which are often not the focus of a business person: that is provi-
sions other than those which concern what a party is to supply, what price a party will pay or charge
for it or when a party will be supplying it.

M01_Boilerplate_Clauses_Intro.indd 1 29/08/2017 13:58

 Introduction

What the contract drafter should not do is just include a ‘standard’ set of
boilerplate clauses in the agreement without considering whether they are
appropriate for the particular transaction. When preparing a suitable set of
clauses, the contract drafter needs to understand why each boilerplate clause is
useful, when it is important to include it and the potential legal consequences
of including or not including it. A related point is that the wording of some
‘standard’ clauses needs modification from time to time in light of detailed
and continuing judicial scrutiny and interpretation. Entire agreement and
assignment clauses are just two of the more recent examples. Other clauses are
sometimes added because of changes in the law (such as following the passing
of the Contracts (Rights of Third Parties) Act 1999).
This book aims to provide guidance on the purpose and effect of boilerplate
clauses that are in common use. It also covers a selection of other contract
clauses, that are typically classified as ‘boilerplate’, but are nevertheless
frequently encountered in many types of commercial agreement (for
example, confidentiality clauses). The main purpose of this book is to discuss
why such clauses are used, discuss drafting issues that arise, and provide
practical samples of commonly used precedents. Also included are extracts
from judgments where particular clauses have been defined, analysed or
interpreted.
The main part of this book consists of approximately 80 topics arranged
in alphabetical order, starting with ‘Acknowledgments’ and ending with
‘Warranties’. Also included is a set of typical boilerplate terms in a form in
which they might be found in a lengthy commercial agreement (see the
‘Boilerplate Agreement’ in Appendix A).

What is ‘boilerplate’?

In this book, the term ‘boilerplate’ is used broadly to mean contract terms that
are often found in commercial agreements, almost irrespective of the subject
matter of the agreement. Usually these terms are found towards the end of
the agreement, after the ‘interesting’ commercial terms that are concerned
with the main purpose of the transaction. Sometimes, boilerplate terms are
concerned with the operation of the agreement as a legal document (eg law
and jurisdiction, notice and interpretation clauses). In other cases, they clarify
the rights and obligations of the parties (eg force majeure, assignment and
waiver clauses). In all cases, it is important to be aware of their purpose and
legal effect.

Which boilerplate clauses are the most important?

The safe answer is ‘it all depends’. For example, a force majeure clause may
be thought essential in a contract involving a country where a civil war is likely
to take place, but irrelevant to most contracts for the purchase of stock items
from a shop. Nevertheless, it is possible to make a few generalisations as to

M01_Boilerplate_Clauses_Intro.indd 2 29/08/2017 13:58

 Introduction

the boilerplate provisions that are frequently encountered in different types of

agreement. It should be stressed that many contracts will not conform to these
generalisations.
No boilerplate. Sometimes, no boilerplate clauses are included in a contract. It
may be felt that any kind of ‘legal’ language is commercially unacceptable or
off-putting. This is a decision for the commercial client to take, rather than
a contract drafter. In practice, written contracts containing no boilerplate
clauses tend to be short documents, often drafted without legal advice.
Minimal boilerplate. Sometimes the instructions are to keep the boilerplate
to an absolute minimum, eg when drafting a short letter agreement. The
contract drafter will often wish to include the following boilerplate clauses in
this situation:
• A Notices clause.
• A Law and Jurisdiction clause (unless there is absolutely no foreign
element).
• A Contracts (Rights of Third Parties) Act 1999 clause.
Light boilerplate. Where the intention is to keep the contract short and simple,
the contract drafter may wish to include the following provisions in addition
to those already mentioned:
• some brief Interpretation provisions; and
• perhaps set out any definitions in a separate Definitions clause.
Medium boilerplate. Where the agreement can accommodate more detailed
boilerplate provisions, but it is felt to be inappropriate to ‘go the whole hog’,
the contract drafter may wish to include some or all of the following provisions,
in addition to those already mentioned. The following list concentrates on
‘pure’ boilerplate clauses, such as those to be found in the final clause of the
specimen Boilerplate Agreement (see Appendix A). The contract drafter may
include other common clauses, eg warranties, exemption clauses, termination
provisions, payment terms and confidentiality provisions, but it is more
difficult to generalise about which clauses will be included.
• More extensive Interpretation provisions.
• Entire Agreement and Amendment clauses.
• Assignment clause.
• Waiver clause.
• In contracts involving a programme of work or co-operation between the
parties, an Agency clause and a Force Majeure clause.
• In contracts involving the provision of business, technical or other
information from one party to another, a Confidentiality clause, a Data
Protection clause and, if a party is a public authority, a Freedom of Information
clause.

M01_Boilerplate_Clauses_Intro.indd 3 29/08/2017 13:58

 Introduction

• In contracts involving a transfer of property or the grant of rights in

property, a Further Assurances clause.
• If there is doubt over whether provisions would be upheld by a court, a
Severance clause.
• Perhaps a clause dealing with how Announcements about the contract can
be made.
Full-scale boilerplate. In some situations, the requirement is to make the contract
as watertight and unambiguous as it can be, and the business person is happy
to include lengthy boilerplate provisions if these will protect their interests. In
effect there is no commercial pressure to limit the number or extent of such
provisions. For example, commercial bank guarantees are sometimes very
detailed. In this situation, the contract may include some or all of the provisions
mentioned above, as well as a large number of further boilerplate provisions.

Location of clauses in an agreement

There is generally no requirement for a contract under English law to follow

a particular format or layout, however most modern commercial contracts
prepared by lawyers follow a similar structure. There are advantages to having a
structured and standard layout, including giving a logical and clear framework.
The aim is to draft an agreement so that it can be read, understood and used
quickly and efficiently (whether by the parties to the contract, the contract
drafter or anyone else who needs to).
In this book, for each clause we have suggested (in the Location section)
where, in a typical commercial agreement, the clause might go, using the
classification shown in the first column of the table, below. Grouping particular
clauses in this way can be of assistance to users of commercial agreements, to:
• ensure that all the relevant provisions on a particular theme are considered
or included; and
• consider whether any further provisions should be added.
The following table indicates in the first column the different sections of a
typical commercial agreement, and in the second column, those provisions
that might typically be included in each such section.

Section of an agreement Clauses that might appear in that section

Top of the Subject to contract
agreement Date of the agreement
Date of the Commencement date
agreement
Deeds (to state document is a deed)
Parties Parties
Successors and assigns

M01_Boilerplate_Clauses_Intro.indd 4 29/08/2017 13:58

 Introduction

Section of an agreement Clauses that might appear in that section

Recitals Recitals
Definitions
Definitions Affiliates etc
Charges
Commencement date
Completion
Definitions
Exclusive, non-exclusive and sole (where these words
have particular meanings)
Force majeure
Intellectual property
Interpretation
Months (and other expressions of time)
Net sales value
Parties
Price (which refers to payment terms and Interest
clause)
Sub-contracting (such as the meaning of a particular
sub-contractor)
Territory
Main Commercial Acknowledgments (usually within another clause)
Provisions Appointment (usually within another clause such as
X appoints Y to do Z)
Audit and records (usually with a Payments clause)
Best and reasonable endeavours (usually within
other clauses—X to use the best endeavours to
provide service Z to Y)
Breach (usually within another clause—eg stating
what the consequence of failure to perform a key
commercial obligation)
Commencement date (usually within another clause—
eg within a main commercial provision to indicate
when performance is to start)
Completion (usually within another clause—eg within
a main commercial provision to indicate when
certain defined activities to take place)
Conditions precedent and subsequent (usually within
another clause)
Consent (usually within another clause)
Consultation
Currency (usually with a Payment clause)

M01_Boilerplate_Clauses_Intro.indd 5 29/08/2017 13:58

 Introduction

Section of an agreement Clauses that might appear in that section

Main Commercial Deposits and part payments (usually with a Payment
Provisions—contd clause)
Exclusive, non-exclusive and sole (usually within
another clause—such as within a main commercial
clause, such as X grants an exclusive licence to Y to
use the materials)
Good faith (if a specific contractual obligation on the
parties to work or co-operate on something specific)
Indexation (usually with a Payment clause)
Intellectual property (usually within another clause—
eg in the main commercial provisions concerning
the licensing, use of and ownership of intellectual
property)
Interest (usually with a Payments clause)
Net sales value (usually with a Payments clause)
Options
Payment terms and interest
Receipts (usually within another clause—eg such as the
manufacturer indicating it has received materials)
Reporting
Retention of title (usually with a Payments clause)
Set-off and retention (usually with a Payments
clause)
Sub-contracting (where there are particular obligations/
requirements, etc on a sub-contractor)
Time of the essence (usually within another clause—
such as a main commercial provision: the delivery
of the goods will be of the essence, or a Payment
clause, so that payment of the contract price is of
the essence)
Title (or property) and risk (usually within a
Payments or Retention of title clause)
VAT (usually with a Payments clause)
Secondary Acknowledgments (usually within another clause)
Commercial Best and reasonable endeavours (usually within other
Provisions clauses—X to use the best endeavours to provide
service Z to Y)
Breach (usually within another clause—eg within
Termination or Warranty provisions)
Capacity (usually within another clause—eg within
a Warranties clause, whether party has capacity/
authority to enter into clause)

M01_Boilerplate_Clauses_Intro.indd 6 29/08/2017 13:58

 Introduction

Section of an agreement Clauses that might appear in that section

Secondary Completion (usually within another clause—eg within
Commercial Termination clause to indicate when certain
Provisions—contd defined activities are take place)
Conditions precedent and subsequent (usually within
another clause)
Confidentiality
Consent (usually within another clause)
Consequences of termination (usually with a
Termination clause)
Consultation (usually within another clause)
Covenants (usually with Warranties or Exemptions
clauses)
Cumulative remedies (usually within another clause—
such as Payment and Termination clauses)
Data Protection
Disclaimers (usually party of a Warranties clause)
Exemption clauses (usually grouped with clauses such
as Warranties and Indemnities)
Freedom of Information
Expiry and termination at will (usually included with a
Termination clause)
Force majeure (sometimes included with a
termination or similar provision to indicate the
consequences of a force majeure event occurring)
Indemnities (usually grouped with Exemption and
Warranties clauses)
Insolvency (usually with a Termination clause)
Insurance (usually grouped with Exemption,
Warranties and Indemnities clauses)
Intellectual property (usually within other clauses—
eg in such clauses in Warranties (what warranties
are given in relation to the intellectual property),
Termination (what is to happen to any licences
of intellectual property when the agreement
terminates)
Termination for breach
Warranties (usually grouped with Exemption,
Indemnity and Insurance clauses)
Boilerplate Agency and partnership (denials of)
Agents for services
Amendment or variation
Announcements

M01_Boilerplate_Clauses_Intro.indd 7 29/08/2017 13:58

 Introduction

Section of an agreement Clauses that might appear in that section

Boilerplate—contd Arbitration and ADR (sometimes with Law and
jurisdiction)
Assignment and novation
Capacity
Charges (sometimes included within an Assignment
clause)
Certificate of value
Contracts (Rights of Third Parties)
Costs and expenses
Counterparts (or duplicates)
Cumulative remedies
Entire agreement/final agreement
Exclusive, non-exclusive and sole (usually within an
Interpretation clause where this clause is located
in this section)
Force majeure (usually where a short provision)
Further assurance
Interpretation
Joint and several liability
Language
Law and jurisdiction
Months (and other expressions of time) (sometimes
within an Interpretation clause)
Notices
Partnership (denial of) (sometimes within an Agency
and partnership (denials of) clause)
Priority of terms
Retention of title (if not included with a Payments
clause)
Set-off and retention (if not included with a Payments
clause)
Severance and invalidity
Stamp duty
Sub-contracting (usually with an Assignment and
novation clause to indicate that sub-contracting
is permitted, or a separate clause to indicate sub-
contracting is permitted)
Successors and assigns
Time of the essence (usually within another clause—
such as in a Notices clause)
Waivers and releases

M01_Boilerplate_Clauses_Intro.indd 8 29/08/2017 13:58

 Introduction

Section of an agreement Clauses that might appear in that section

Signing section Capacity (usually as a statement with execution and
signature block clauses)
Execution and signature block clauses
Deeds (to state document is a deed or executed as a
deed)
Schedules Schedules

Origin of the meaning of ‘boilerplate’

Some readers may be curious as to the origins of the term ‘boilerplate’ and
its meaning. It appears that the term was in common use in the United States
for many years, used both in a legal and non-legal context (in the latter
case, used principally by journalists). It seems that the expression originated
in nineteenth century newspaper production in the United States. Local
newspapers used to incorporate sections of national news that were sent to the
local newspaper office by train, already typeset and ready for printing on metal
drums. The metal drums were known as boilerplate. Boilerplate text became
a name for standard text that was slotted into the newspaper along with more
tailored, local news.

M01_Boilerplate_Clauses_Intro.indd 9 29/08/2017 13:58

 Acknowledgments

Purpose of the clause

An acknowledgment is used to indicate such matters as:
• the existence of a (particular type of) legal relationship between the
parties; or
• the existence of a fact or a set of facts; or
• the deemed existence of a fact or a set of facts; or
• the occurrence of an event; or
• that one or more of the parties have not relied on statements (such as
warranties, representations or undertakings, etc) or a set of facts.
Such acknowledgments are either made by one party and upon which both
parties intend the recipient to rely, or are made by both parties and upon
which both parties intend to rely.
A person may give an acknowledgment in a stand-alone document or as part
of another document that deals with other matters.
As such, it is provided in writing and may appear as either a separate
document or as part of an agreement. Also, if some important event occurs
or the assumptions or facts change during the course of an agreement, the
parties may acknowledge that in writing (ie as a way of documenting what has
occurred or changed). An acknowledgment can also be a form of receipt, such
as one party acknowledging that it has received a sum of money, documents or
materials etc.
Acknowledgments are often used in non-commercial matters, such as
conveyancing and probate matters, where some right or possession of a
document is acknowledged.
In commercial agreements, one party may acknowledge that another party is
the owner of specified property or that specified facts are true or that it owes a
certain amount. For example, in a franchise agreement, the franchisee might
be required to acknowledge that the licensed trademarks are the property
of the franchisor, or that the franchisor has advised the franchisee to seek
independent advice before entering into the franchise agreement.
The above points relate to a party or the parties acknowledging some fact, etc;
however, it is possible that a party or the parties agree on a point when they
know it is not correct or true. Eg:

10

M02_Boilerplate_Clauses_A.indd 10 04/09/2017 08:04

 Acknowledgments

• the parties may acknowledge that one party did not make any pre-contractual
representations about the quality or nature of a product supplied by that
party, when in fact that party did make such statements; or
• the parties may agree that an amount that one party owes to another is
different to what is stated in the contract or is owed.

Such acknowledgments (or agreements, the precise terminology is not

determinative) are likely to be binding and will create a contractual estoppel
(see Springwell Navigation Corpn (a body corporate) v JP Morgan Chase Bank (a body
corporate) (formerly known as the Chase Manhattan Bank) [2010] EWCA Civ 1221;
Bikam OOD v Adria Cable SARL [2013] EWHC 1985 (Comm). In the earlier case
the court stated: ‘I see commercial utility in such clauses being enforceable,
so that parties know precisely the basis on which they are entering into their
contractual relationship’.

Drafting issues
• What is not an ‘acknowledgment’? Acknowledgments are not to be confused
with:
• warranties or representations; or
• statements made in recitals; or
• acknowledgments of a claim for the purposes of the Limitation Act
1980, s 29. The effect of this particular type of acknowledgment is that
the time limit for a party to bring a claim under a contract is ‘reset’
(when a party acknowledges the claim of the other party or makes a
payment and the acknowledgment is made in writing) (Limitation
Act 1980, s 30).
• Effect of warranties, recitals and acknowledgments:
• Warranties. If a party warrants that a statement is true, then that party
is positively asserting the statement. The other contracting party may
rely on it and may also be able to sue the party making the statement
for breach of contract if the statement turns out to be untrue. But if
a party merely acknowledges a statement, then that party will not be
liable for breach of a warranty if the statement is untrue. However,
that party may be unable to claim that it was not aware of the stated
fact at a later date (that is the party may be estopped from denying
that it made the acknowledgment).
Although the giver of an acknowledgment may not be able to
deny making it, the precise legal effect of the acknowledgment
will be dependent on the wording used in the agreement and the
circumstances. A court will wish to come to its own view as to the
true nature of a statement made by a party, as to whether it is an
acknowledgment, warranty, representation etc.
• Recitals. Recitals are not usually legally binding and their aim is to set
out the background to an agreement. However, some recitals, rather

11

M02_Boilerplate_Clauses_A.indd 11 04/09/2017 08:04

 Acknowledgments

than expressing a willingness or wish to undertake certain acts under

the agreement, are statements of facts, eg:
‘Party A has the resources, facilities and equipment to
manufacture the Goods.’
However, a recital nowadays may be used as part of the factual
background to an agreement when a court comes to interpret the
provisions of an agreement (see Recitals).
• Acknowledgment of claim. An acknowledgment of claim or part payment
in the form required by the Limitation Act 1980 has the effect of
stopping the effect of the 1980 Act and restarting the limitation
period (see above).
• Interpretation of an acknowledgment. How an acknowledgment is interpreted
will depend on the circumstances in which the agreement was made and
who drafted it; a non-legal drafter may ‘get away’ with less precise use of
language than a lawyer.
• If a party is to be responsible for the truth of the statement, then the
party should give a warranty, not an acknowledgment.
• ‘Acknowledges and agrees’. Some clauses are stated so that a party
‘acknowledges and agrees’ to something. The precise legal effect is not
certain, but perhaps it is used to indicate a stronger level of commitment
to the something than a ‘mere’ acknowledgment.
• What is to happen if an underlying fact, etc is untrue? Before giving an
acknowledgment, a party should consider what the consequences would
be if the statement turned out to be untrue and whether this possibility
should be specifically addressed in the contract.

Location in the agreement

An acknowledgment is often not a stand-alone clause but found to be part
of another clause, usually in the Main Commercial Provisions or Secondary
Commercial Provisions. The next section gives some examples.

Linkage and use

It is possible to use an acknowledgment for some of the following purposes:
• indicating the existence of a legal relationship between the parties or with
one or more third parties:
eg, that a party is a subsidiary or parent of another company, that the
parties to an agreement are legally not connected;
• requiring the party providing the acknowledgment to indicate the
existence (or non-existence) of some fact or state of affairs:
eg, that materials provided by the other party are hazardous; that a party’s
decision to enter into an agreement is based solely on their own personal
judgement; that information given is correct; that the agreement has been
read by a party;

12

M02_Boilerplate_Clauses_A.indd 12 04/09/2017 08:04

 Acknowledgments

• indicating that some document, thing or financial matter has been sent,
received or taken place:
eg, that a payment has been sent or received; an application required to be
made (to a regulatory or registration authority) has been made; or a letter
has been sent or received;
eg, that a notice sent by one party is assumed to be received by another
party a certain number of days after it is sent;

• indicating that a party has a right to call for documents to be produced;

• stating that – other than the thing acknowledged – everything else relating
to the matter is not permitted or excluded; and
• indicating that a party has not relied on any (pre-contract) representation.
These type of statements are normally included (if they are) within an
entire agreement clause (Quest 4 Finance Ltd v Maxfield [2007] EWHC 2313
(QB); Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd
[2006] EWCA Civ 386) (see Entire agreement).

Sample precedent material

Precedent 1—Confirmation of a fact

[Party A] acknowledges that [Party B] has assigned certain R&D Contracts
with [Party C] to [Party A] [as set out in [Schedule [ ]] to this Agreement]
(‘R&D Contracts’).

Precedent 2—Confirmation of a state of affairs

The Parties acknowledge that it is not possible for [Party A] to negoti-
ate a complying sub-licence as required by Clause [no] because [ ], and
[Party A] will negotiate or enter into a sub-licence on the best terms and
conditions (most closely complying with Clause [no]) as [Party A] is able
to obtain.

Precedent 3—Franchisee
The Franchisee acknowledges:
1 that he has been advised by the Franchisor to discuss his intention to
enter into this agreement with other franchisees of the Franchisor and
to seek other appropriate independent advice; and
2 that his decision to enter into this agreement has been taken solely on
the basis of the personal judgement and experience of the Franchisee
having taken such independent advice.

Precedent 4—Acknowledgment from account bank of receipt of letter

We hereby acknowledge receipt of a letter (a copy of which is attached)
dated [date] and addressed to us by [name of company] (‘the Company’)
and accept the instructions and authorisations contained in that letter

13

M02_Boilerplate_Clauses_A.indd 13 04/09/2017 08:04

 Acknowledgments

and undertake to act in accordance and comply with its terms. Terms de-
fined in that letter shall have, when used in this letter, the same meanings.
We acknowledge and confirm to the Agent on behalf of the Bank that:
1 no rights of counterclaim, rights of set-off or any other equities what-
soever have arisen in our favour against the Company in respect of
the Account Funds or the debts represented by them or any part of
them and we will not make any claim or demands or exercise any
rights of counterclaim, rights of set-off or any other equities what-
soever against the Company in respect of the Account Funds or any
part thereof;
2 we have not, as at the date hereof, received any notice that any third
party has or will have any right or interest whatsoever in or has made
or will be making any claim or demand or taking any action whatso-
ever against the Account Funds or the debts represented thereby or
any part thereof;
3 we undertake that, in the event of our becoming aware at any time
that any person or entity other than the Agent has or will have any
right or interest whatsoever in the Account Funds or the debts rep-
resented by them or any part of them, we shall forthwith give written
notice of the terms thereof to the Agent; and
4 we have made the acknowledgments and confirmations and have
given the undertakings set out in this letter in the knowledge that they
are required by the Agent in connection with the security which has
been constituted by the Company in favour of the Agent as agent for
the Bank under the Deed.
This letter shall be governed by English law.

Precedent 5—Acknowledgment for production of deeds (for unregistered

land)
AB acknowledges the right of CD to production and delivery [of copies] of
the deeds and documents described in Schedule [5] below and to deliv-
ery of them and undertakes for their safe custody.

Precedent 6—Conveyance/transfer to contain acknowledgment

The [transfer or conveyance] shall contain an acknowledgment by [name
of party giving the acknowledgment] of the right of the Buyer to produc-
tion of the documents listed in Schedule [no] and to delivery of copies
of them.

Precedent 7—Memorandum on deed where acknowledgment given for

its production
[Purchaser] as purchaser of [description of property] being part of the
land comprised in the within-written deed is entitled to the production
and delivery of copies of the within-written deed [and to the benefit of an
undertaking for the safe custody of the same].

14

M02_Boilerplate_Clauses_A.indd 14 04/09/2017 08:04

 Acknowledgments

Precedent 8—Acknowledgment of copyright information to be displayed

[Party] undertakes and agrees as follows:
1 to include the original title of the Work, the name of the Author and
the original publisher on the title page or the reverse of the title page
of all Copies of the Translation;
2 to ensure that the Copyright Notice appears on the title page or the
reverse of the title page of all Copies of the Translation;
3 to submit to the Owner a proof of the preliminary pages of the
Translation for the Owner’s approval prior to publication; and
4 to procure the inclusion of the Author’s name prominently on the
jacket cover, the spine and title page of all Copies and in all pub-
licity and advertisements relating to the exercise of the Publisher’s
Rights granted under this agreement Provided that any such use of
the Author’s name is not without the Author’s prior written consent to
be included by way of endorsement or testimonial for the Translation.

15

M02_Boilerplate_Clauses_A.indd 15 04/09/2017 08:04

 Affiliates, group companies and
subsidiaries

Purpose of the clause

A company or individual that is connected or associated with a party to an
agreement is often referred to as an ‘affiliate’.
The purpose of referring to a party’s affiliates is usually to enable an affiliate:
• to receive a specific benefit under an agreement; or
• to subject them to specific obligations under an agreement.

Drafting issues

• General points:
• in the UK there is no standard definition as to the meaning of an
affiliate;
• accordingly, the parties should define the meaning of affiliates in
their agreement;
• UK companies legislation contains no definition of ‘affiliate’;
• often (although not always) other companies in the same group of
companies as a contracting party are defined as its affiliates.
• Use of statutory definitions:
• many definitions of ‘affiliate’ in agreements use the meanings of
certain words found in the Companies Act 2006 (the text of these is
found at the end of this section):
• s 1159. ‘subsidiary’, ‘holding company’ and ‘wholly owned
subsidiary’ are defined in the Companies Act 2006; and
• ss 1161, 1173. ‘parent undertaking’, ‘subsidiary undertaking’,
‘parent company’, ‘undertaking’ and ‘group undertaking’ are
also defined. These sections appear in a section dealing with
various accounts matters and provide a wider definition than
under ss 1159 etc. They were originally introduced following the
introduction of EC Seventh Directive on Group Accounts;

16

M02_Boilerplate_Clauses_A.indd 16 04/09/2017 08:04

 Affiliates, group companies and subsidiaries

• where the term ‘affiliate’ is used to mean, in effect, another company

in the same group as a party to the contract, wording based on s 1159
is sometimes used (see Precedent 1);
• to make the definition broader, the definition of ‘group undertaking’
in the Companies Act 2006 can be used (see Precedent 3);
• sometimes parties will wish to make the definition of group companies
broader still, to include joint ventures which are not majority-owned
subsidiaries;
• if there are parties to an agreement who are not incorporated or
based in the UK then the contract drafter should consider using a
more general definition, which does not refer to UK companies
legislation. The reference in Precedent 4 to less than 50% ownership
of shares, etc, takes account of the fact that in some countries, foreign
investment in a company may not exceed a specified percentage of
the share capital. For practical purposes, such a company may still be
regarded as a member of the same group as the foreign parent, even
though the percentage shareholding is less than 50%;
• if an affiliates definition refers to specific wording that is used in the
Companies Act 2006, then it is likely that the courts, in the event of a
dispute, will interpret the wording used as having the meaning used
in the 2006 Act. In Farstad Supply A/S v Enviroco Ltd [2011] UKSC 16,
a decision on what is now Companies Act 2006, s 1159, the court held
that the word ‘member’ used in that section of the Act as to whether a
holding company of the subsidiary must be a member of the subsidiary
must have a meaning consistent with that found in another section of
the Companies Act 2006, (s 112, that a member is a person who agrees
to become a member of the company and whose name is entered into
the register of members);
• if the parties to an agreement want a definition of an affiliate where
a holding company or subsidiary does not need to be a member of
one or the other then either the Companies Act 2006, s 1162 may be
used or there should be use of alternative wording that does not make
reference to the Act and that clearly explains the intentions of the
parties.
• Points to note: When using a definition of ‘affiliates’ or ‘group companies’,
references to affiliates or group companies are often included in a contract
to enable them to receive a benefit under the contract. It may not be clear
who is or is not a party to the agreement unless careful consideration is
given to the drafting of such provisions.
In general, if a person is to be a party to the contract then they should be
named as such, and then the person or the person’s agent (or, in the case
of a company, an authorised signatory) must also sign the contract. If a
party to an agreement does not also sign as agent of any of its affiliates (if
none of the affiliates are to sign themselves), then the affiliates will not be

17

M02_Boilerplate_Clauses_A.indd 17 04/09/2017 08:04

 Affiliates, group companies and subsidiaries

bound by the contract and will not have enforceable contractual rights
under it.
A contract drafter, when drafting a clause referring to affiliates or group
companies, should consider the following points:
• if a party is referred to as a member of a group, and the contract states
that references to the party include references to the group, are the
group and all its members parties to the agreement?
• is the term ‘affiliate’, ‘group’ (or whichever term is used) defined in
the contract? Will the definition make use of terms such as ‘subsidiary’
and ‘holding company’? If so, is the intention that the statutory
definitions set out in ss 1162 (wider definition) and 1159 (narrower
definition) of the Companies Act 2006 apply (see below)?
If the wider definition is used (s 1162) then persons who, although
not incorporated, can claim a dominant influence over a party to the
agreement may be able to claim a benefit under the contract;
• are the affiliates/group companies named as parties (such as in the
Parties clause) and will they sign the contract?
• will a (named) party to the agreement have the authority to act (and be
stated in the contract to have that authority to act) as the agent of the
other affiliates/group of companies, and accordingly be able to sign
the contract on behalf of each of the affiliates/members of the group?
• if group companies are to be parties to an agreement (either by
reference or by explicitly stating their names), it is important to be
clear which of the parties has rights or obligations under particular
clauses of the contract. If more than one party has such obligations, do
the obligations give rise to joint, several or joint and several liabilities
on the parties concerned (see Joint and several liability)?
• the above issues will need addressing on a case-by-case basis.
The above points deal with defining the meaning of an affiliate in
general terms. However, in a particular deal it may only be relevant that
one company would come within the meaning of ‘affiliate’, not all the
possible companies within the group of companies of which a party is a
member. For example, one party may wish to disclose some confidential
information to the other party, and the other party is a member of a
group of companies. Given the nature of confidential information or the
proposed deal, only one other member of the group of companies will
need to see that confidential information. The disclosing party may wish
to restrict the meaning of affiliate to that one other member of the group
of companies of which the other party is a member (see Precedent 2).

Location in the agreement

An Affiliates, etc clause will usually appear in the Definitions section of an
agreement.

18

M02_Boilerplate_Clauses_A.indd 18 04/09/2017 08:04

 Affiliates, group companies and subsidiaries

Linkage and use

The following are some of the more common situations when one or more of
the parties to an agreement might wish to make use of a definition of ‘affiliate’:
• in a confidentiality clause: where confidential information is disclosed by
one party to another party, the other party will be able to disclose the
confidential information of the first party to its affiliates;
• that the affiliates of one party can (also) enforce an obligation imposed
on another party;
• that under some types of licence agreements where royalty payments are
involved, the receipts generated by a party will include that of its affiliates;
• that warranties and/or indemnities provided by one party to another
party will also extend to the affiliates of the other party (and the clause
will sometimes extend to the affiliate having the right to bring an action
against the party in breach of the indemnity etc);
• that a party is permitted to assign its rights and/or obligations to an
affiliate (without the consent of the other party in an assignment clause);
• that an affiliate is included as a person who has the right to enforce some
or all of the provisions of an agreement under a Contracts (Rights of Third
Parties) Act 1999 clause.
Other phrases/words are sometimes used instead of, or in addition to,
‘affiliates’, such as ‘associated companies’.

Sample precedent material

Precedent 1—Using the Companies Act 2006, s 1159

In relation to a person, ‘Affiliate’ means any subsidiary or holding com-
pany of that person, and any other subsidiary of that holding company,
where ‘subsidiary’ and ‘holding company’ have the meanings given in the
Companies Act 2006, s 1159 (as amended).

Precedent 2—Specific company named as an Affiliate, using the

Companies Act 2006, s 1159
In relation to Party A, ‘Affiliate’ means [name of company]. [[name of com-
pany] shall be an Affiliate of Party A for so long as it remains a subsidi-
ary or holding company of Party A, and any other subsidiary of [name of
company], where ‘subsidiary’ and ‘holding company’ have the meanings
given in the Companies Act 2006, s 1159 (as amended)].

Precedent 3—Using the Companies Act 2006, s 1162(5)

‘Affiliate’ in relation to a Party shall mean any group undertaking of that
Party, where ‘group undertaking’ has the meaning given in the Companies
Act 2006, s 1161(5) (as amended).

19

M02_Boilerplate_Clauses_A.indd 19 04/09/2017 08:04

 Affiliates, group companies and subsidiaries

Precedent 4—Where ‘control’ may be less than that found in the

Companies Act 2006, s 1159
An ‘Affiliate’ of a Party shall mean any person controlling (directly or in-
directly), controlled by or under common control with that Party. For the
purposes of this definition, ‘control’ shall mean direct or indirect bene-
ficial ownership of [more than 50%] [50%] [(or, outside a Party’s home
territory, such lesser percentage as is the maximum permitted level of
foreign investment)] [or more] of the share capital, stock or other partici-
pating interest carrying the right to vote or to distribution of profits of that
entity or person, as the case may be.

Precedent 5—Using the Companies Act 2006, s 1162

A company or other person is affiliated to another company or person if one
is a subsidiary undertaking of the other or both are subsidiary undertakings
of the same third company or other person, where ‘subsidiary undertaking’
has the meaning given in the (UK) Companies Act 2006, s 1162.

Precedent 6—Definition of ‘group company’

‘Group Company’ means a company within the group of companies of
which [the Company] is from time to time a member.

Precedent 7—Definition of ‘group company’

‘Group Company’ means the Company and (as the context requires) the
Subsidiaries and each or any of them.

Precedent 8—Definition of ‘group company’ by ownership

‘Group Company’ means any company which either owns more than
50% of the issued share capital of A or in which either A or any subsidiary
of A owns more than 50% of the issued ordinary share capital.

Precedent 9—Definition of ‘group company’ with reference to the

Companies Act 2006, s 1159
‘Group Company’ means any of the Company or its subsidiaries or hold-
ing companies or any subsidiary of the Company’s holding company and
‘subsidiary’ and ‘holding company’ shall bear the meanings given to them
by the Companies Act 2006, s 1159.

Precedent 10—Definition of ‘subsidiary’

‘Subsidiary’ has the meaning given to that expression in the Companies
Act 2006, s 1159.

Precedent 11—Definition of ‘subsidiary’ and ‘holding company’

‘Subsidiary’ and ‘holding company’ shall bear the same respective mean-
ings as in the Companies Act 2006, s 1159.

Precedent 12—Definition of ‘subsidiary’

‘Subsidiary’ means either:
1 a subsidiary within the meaning of s 1159 of the Companies Act 2006,
or

20

M02_Boilerplate_Clauses_A.indd 20 04/09/2017 08:04

 Affiliates, group companies and subsidiaries

2 unless the context requires otherwise, a subsidiary undertaking with-

in the meaning of s 1162 of the Companies Act 2006.

Precedent 13—Definition of ‘subsidiary’ by control

‘Subsidiary’ means an entity from time to time of which A or B:
1 has direct or indirect control, or
2 owns directly or indirectly more than 50% of the share capital or simi-
lar right of ownership,
‘control’ for this purpose meaning the power to direct the management
and the policies of the entity, whether through the ownership of voting
capital, by contract or otherwise.

Precedent 14—Definition of ‘subsidiary’ by control – longer form

A ‘subsidiary’ of a company, corporation or entity shall be construed as a
reference to any company, corporation or entity:
1 that is controlled, directly or indirectly, by the first-mentioned com-
pany, corporation or entity;
2 more than half the voting rights of which are held directly or indirectly,
by the first-mentioned company, corporation or entity; or
3 that is a subsidiary of a subsidiary of the first-mentioned company,
corporation or entity,
and for these purposes a company, corporation or entity shall be treated
as being controlled by another if that other company, corporation or en-
tity is able to direct its affairs or control the composition of its board of
directors or equivalent body.

Precedent 15—No subsidiaries

The Company has no subsidiaries except (name of subsidiary) which at
Completion will be wholly owned.
References to the ‘Company’ in this agreement shall be construed as in-
cluding every Affiliate of the Company [for the time being during the contin-
uation of this agreement] [which is an Affiliate at the date of this agreement].

Extracts from legislation

Sections from the Companies Act 2006

1159 Meaning of ‘subsidiary’ etc

(1) A company is a ‘subsidiary’ of another company, its ‘holding company’, if
that other company:

21

M02_Boilerplate_Clauses_A.indd 21 04/09/2017 08:04

 Affiliates, group companies and subsidiaries

(a) holds a majority of the voting rights in it, or

(b) is a member of it and has the right to appoint or remove a majority of
its board of directors, or
(c) is a member of it and controls alone, pursuant to an agreement with
other members, a majority of the voting rights in it,
or if it is a subsidiary of a company that is itself a subsidiary of that other
company.
(2) A company is a ‘wholly-owned subsidiary’ of another company if it has no
members except that other and that other’s wholly-owned subsidiaries or
persons acting on behalf of that other or its wholly-owned subsidiaries.
(3) Schedule 6 contains provisions explaining expressions used in this section
and otherwise supplementing this section.
(4) In this section and that Schedule ‘company’ includes any body corporate.

1160 Meaning of ‘subsidiary’ etc: power to amend

(1) The Secretary of State may by regulations amend the provisions of
section 1159 (meaning of ‘subsidiary’ etc) and Schedule 6 (meaning of
‘subsidiary’ etc: supplementary provisions) so as to alter the meaning
of the expressions ‘subsidiary’, ‘holding company’ or ‘wholly-owned
subsidiary’.
(2) Regulations under this section are subject to negative resolution
procedure.
(3) Any amendment made by regulations under this section does not apply
for the purposes of enactments outside the Companies Acts unless the
regulations so provide.
(4) So much of section 23(3) of the Interpretation Act 1978 (c 30) as applies
section 17(2)(a) of that Act (effect of repeal and re-enactment) to deeds,
instruments and documents other than enactments does not apply in
relation to any repeal and re-enactment effected by regulations under this
section.

1161 Meaning of ‘undertaking’ and related expressions

(1) In the Companies Acts ‘undertaking’ means—
(a) a body corporate or partnership, or
(b) an unincorporated association carrying on a trade or business, with or
without a view to profit.
(2) In the Companies Acts references to shares—
(a) in relation to an undertaking with capital but no share capital, are to
rights to share in the capital of the undertaking; and
(b) in relation to an undertaking without capital, are to interests—

22

M02_Boilerplate_Clauses_A.indd 22 04/09/2017 08:04

 Affiliates, group companies and subsidiaries

(i) conferring any right to share in the profits or liability to contribute

to the losses of the undertaking, or
(ii) giving rise to an obligation to contribute to the debts or expenses
of the undertaking in the event of a winding up.
(3) Other expressions appropriate to companies shall be construed, in
relation to an undertaking which is not a company, as references to the
corresponding persons, officers, documents or organs, as the case may be,
appropriate to undertakings of that description.
This is subject to provision in any specific context providing for the
translation of such expressions.
(4) References in the Companies Acts to ‘fellow subsidiary undertakings’ are
to undertakings which are subsidiary undertakings of the same parent
undertaking but are not parent undertakings or subsidiary undertakings
of each other.
(5) In the Companies Acts ‘group undertaking’, in relation to an undertaking,
means an undertaking which is–
(a) a parent undertaking or subsidiary undertaking of that undertaking,
or
(b) a subsidiary undertaking of any parent undertaking of that
undertaking.

1162 Parent and subsidiary undertakings

(1) This section (together with Schedule 7) defines ‘parent undertaking’ and
‘subsidiary undertaking’ for the purposes of the Companies Acts.
(2) An undertaking is a parent undertaking in relation to another undertaking,
a subsidiary undertaking, if—
(a) it holds a majority of the voting rights in the undertaking, or
(b) it is a member of the undertaking and has the right to appoint or
remove a majority of its board of directors, or
(c) it has the right to exercise a dominant influence over the undertaking—
(i) by virtue of provisions contained in the undertaking’s articles, or
(ii) by virtue of a control contract, or
(d) it is a member of the undertaking and controls alone, pursuant to
an agreement with other shareholders or members, a majority of the
voting rights in the undertaking.
(3) For the purposes of subsection (2) an undertaking shall be treated as a
member of another undertaking—
(a) if any of its subsidiary undertakings is a member of that undertaking,
or
(b) if any shares in that other undertaking are held by a person acting on
behalf of the undertaking or any of its subsidiary undertakings.

23

M02_Boilerplate_Clauses_A.indd 23 04/09/2017 08:04

 Affiliates, group companies and subsidiaries

(4) An undertaking is also a parent undertaking in relation to another

undertaking, a subsidiary undertaking, if—
(a) it has the power to exercise, or actually exercises, dominant influence
or control over it, or
(b) it and the subsidiary undertaking are managed on a unified basis.
(5) A parent undertaking shall be treated as the parent undertaking of
undertakings in relation to which any of its subsidiary undertakings are, or
are to be treated as, parent undertakings; and references to its subsidiary
undertakings shall be construed accordingly.
(6) Schedule 7 contains provisions explaining expressions used in this section
and otherwise supplementing this section.
(7) In this section and that Schedule references to shares, in relation to an
undertaking, are to allotted shares.

SCHEDULE 6 – Meaning of ‘Subsidiary’ etc: Supplementary Provisions

Section 1159
1 Introduction
The provisions of this Part of this Schedule explain expressions used in section
1159 (meaning of ‘subsidiary’ etc) and otherwise supplement that section.
2 Voting rights in a company
In section 1159(1)(a) and (c) the references to the voting rights in a company
are to the rights conferred on shareholders in respect of their shares or, in the
case of a company not having a share capital, on members, to vote at general
meetings of the company on all, or substantially all, matters.
3 Right to appoint or remove a majority of the directors
(1) In section 1159(1)(b) the reference to the right to appoint or remove
a majority of the board of directors is to the right to appoint or remove
directors holding a majority of the voting rights at meetings of the board
on all, or substantially all, matters.
(2) A company shall be treated as having the right to appoint to a directorship
if—
(a) a person’s appointment to it follows necessarily from his appointment
as director of the company, or
(b) the directorship is held by the company itself.
(3) A right to appoint or remove which is exercisable only with the consent
or concurrence of another person shall be left out of account unless no
other person has a right to appoint or, as the case may be, remove in
relation to that directorship.

24

M02_Boilerplate_Clauses_A.indd 24 04/09/2017 08:04

 Affiliates, group companies and subsidiaries

4 Rights exercisable only in certain circumstances or temporarily incapable of

exercise
(1) Rights which are exercisable only in certain circumstances shall be taken
into account only—
(a) when the circumstances have arisen, and for so long as they continue
to obtain, or
(b) when the circumstances are within the control of the person having
the rights.
(2) Rights which are normally exercisable but are temporarily incapable of
exercise shall continue to be taken into account.
5 Rights held by one person on behalf of another
Rights held by a person in a fiduciary capacity shall be treated as not held by him.
6
(1) Rights held by a person as nominee for another shall be treated as held by
the other.
(2) Rights shall be regarded as held as nominee for another if they are
exercisable only on his instructions or with his consent or concurrence.
7 Rights attached to shares held by way of security
Rights attached to shares held by way of security shall be treated as held by the
person providing the security—
(a) where apart from the right to exercise them for the purpose of preserving
the value of the security, or of realising it, the rights are exercisable only
in accordance with his instructions, and
(b) where the shares are held in connection with the granting of loans as part
of normal business activities and apart from the right to exercise them for
the purpose of preserving the value of the security, or of realising it, the
rights are exercisable only in his interests.
8 Rights attributed to holding company
(1) Rights shall be treated as held by a holding company if they are held by
any of its subsidiary companies.
(2) Nothing in paragraph 6 or 7 shall be construed as requiring rights held by
a holding company to be treated as held by any of its subsidiaries.
(3) For the purposes of paragraph 7 rights shall be treated as being exercisable
in accordance with the instructions or in the interests of a company if they
are exercisable in accordance with the instructions of or, as the case may
be, in the interests of—
(a) any subsidiary or holding company of that company, or
(b) any subsidiary of a holding company of that company.

25

M02_Boilerplate_Clauses_A.indd 25 04/09/2017 08:04

 Affiliates, group companies and subsidiaries

9 Disregard of certain rights

The voting rights in a company shall be reduced by any rights held by the
company itself.
10 Supplementary
References in any provision of paragraphs 5 to 9 to rights held by a person
include rights falling to be treated as held by him by virtue of any other
provision of those paragraphs but not rights which by virtue of any such
provision are to be treated as not held by him.

SCHEDULE 7 – Parent and Subsidiary Undertakings: Supplementary

Provisions

Section 1162
1 Introduction
The provisions of this Schedule explain expressions used in section 1162
(parent and subsidiary undertakings) and otherwise supplement that section.
2 Voting rights in an undertaking
(1) In section 1162(2)(a) and (d) the references to the voting rights in an
undertaking are to the rights conferred on shareholders in respect of
their shares or, in the case of an undertaking not having a share capital,
on members, to vote at general meetings of the undertaking on all, or
substantially all, matters.
(2) In relation to an undertaking which does not have general meetings at
which matters are decided by the exercise of voting rights the references
to holding a majority of the voting rights in the undertaking shall be
construed as references to having the right under the constitution of the
undertaking to direct the overall policy of the undertaking or to alter the
terms of its constitution.
3 Right to appoint or remove a majority of the directors
(1) In section 1162(2)(b) the reference to the right to appoint or remove
a majority of the board of directors is to the right to appoint or remove
directors holding a majority of the voting rights at meetings of the board
on all, or substantially all, matters.
(2) An undertaking shall be treated as having the right to appoint to a
directorship if—
(a) a person’s appointment to it follows necessarily from his appointment
as director of the undertaking, or
(b) the directorship is held by the undertaking itself.
(3) A right to appoint or remove which is exercisable only with the consent
or concurrence of another person shall be left out of account unless no

26

M02_Boilerplate_Clauses_A.indd 26 04/09/2017 08:04

 Affiliates, group companies and subsidiaries

other person has a right to appoint or, as the case may be, remove in
relation to that directorship.
4 Right to exercise dominant influence
(1) For the purposes of section 1162(2)(c) an undertaking shall not be
regarded as having the right to exercise a dominant influence over
another undertaking unless it has a right to give directions with respect
to the operating and financial policies of that other undertaking which
its directors are obliged to comply with whether or not they are for the
benefit of that other undertaking.
(2) A ‘control contract’ means a contract in writing conferring such a right
which—
(a) is of a kind authorised by the articles of the undertaking in relation to
which the right is exercisable, and
(b) is permitted by the law under which that undertaking is established.
(3) This paragraph shall not be read as affecting the construction of section
1162(4)(a).
5 Rights exercisable only in certain circumstances or temporarily incapable of
exercise
(1) Rights which are exercisable only in certain circumstances shall be taken
into account only—
(a) when the circumstances have arisen, and for so long as they continue
to obtain, or
(b) when the circumstances are within the control of the person having
the rights.
(2) Rights which are normally exercisable but are temporarily incapable of
exercise shall continue to be taken into account.
6 Rights held by one person on behalf of another
Rights held by a person in a fiduciary capacity shall be treated as not held by him.
7
(1) Rights held by a person as nominee for another shall be treated as held by
the other.
(2) Rights shall be regarded as held as nominee for another if they are
exercisable only on his instructions or with his consent or concurrence.
8 Rights attached to shares held by way of security
Rights attached to shares held by way of security shall be treated as held by the
person providing the security—
(a) where apart from the right to exercise them for the purpose of preserving
the value of the security, or of realising it, the rights are exercisable only
in accordance with his instructions, and

27

M02_Boilerplate_Clauses_A.indd 27 04/09/2017 08:04

 Affiliates, group companies and subsidiaries

(b) where the shares are held in connection with the granting of loans as part
of normal business activities and apart from the right to exercise them for
the purpose of preserving the value of the security, or of realising it, the
rights are exercisable only in his interests.
9 Rights attributed to parent undertaking
(1) Rights shall be treated as held by a parent undertaking if they are held by
any of its subsidiary undertakings.
(2) Nothing in paragraph 7 or 8 shall be construed as requiring rights held
by a parent undertaking to be treated as held by any of its subsidiary
undertakings.
(3) For the purposes of paragraph 8 rights shall be treated as being exercisable
in accordance with the instructions or in the interests of an undertaking if
they are exercisable in accordance with the instructions of or, as the case
may be, in the interests of any group undertaking.
10 Disregard of certain rights
The voting rights in an undertaking shall be reduced by any rights held by the
undertaking itself.
11 Supplementary
References in any provision of paragraphs 6 to 10 to rights held by a person
include rights falling to be treated as held by him by virtue of any other
provision of those paragraphs but not rights which by virtue of any such
provision are to be treated as not held by him.

28

M02_Boilerplate_Clauses_A.indd 28 04/09/2017 08:04

 Agency, partnership and joint venture
(denials of)

Purpose of the clause

Commercial agreements sometimes include provisions stating that one party
cannot bind or act on behalf of another party. Or they are acting together
or have any relationship other than as provided in the agreement. This issue
is particularly relevant where the agreement provides for a long-term or
collaborative relationship between the parties, especially where they will work
closely together on a project. For example,
• a long-term supply agreement, where a supplier of goods sells goods
against separate orders from the buyer is unlikely to come within this
category; but
• a long-term advertising campaign involving an advertising agency, a
graphic designer and a photographer providing their services to a
company might require the parties to work closely together. Any of the
providers may need to book space in newspapers, on TV, on social media,
as well as hire or contract with sub-contractors (such as an advertising
agency hiring a photographer or video director etc).
If the wording of the agreement is not clear or its provisions are complex and/
or there are many parties, it may not be clear whether an agency or partnership
is intended.

Existence of agency, etc

Agency is the relationship that arises whenever one person (the agent) has
authority, express or implied, to act on behalf on another (the principal) and
consents so to act. An agent primarily means a person employed to place the
principal in contractual or other relations with a third party. Some agents
have authority to sign contracts on their principal’s behalf, but the exact
authority of the agent will depend on the requirements of the principal and
the negotiations between the principal and the agent
However, the term ‘agent’ is also used in a broader sense: certain types
of commercial agent merely introduce customers to the principal rather
than making specific contractual commitments (the terms of specialist

29

M02_Boilerplate_Clauses_A.indd 29 04/09/2017 08:04

 Agency, partnership and joint venture (denials of)

agency agreements, including consideration of commercial agents and the

Commercial Agents (Council Directive) Regulations 1993, SI 1993/3053, are
beyond the scope of this book).
A contractual provision between parties may be sufficient to indicate that
there is no type of agency between the parties.
But if one exists, the agent may not be permitted, for example, to enter into
contracts on behalf of the principal. Although this limitation on the authority
of the agent may not actually affect whether the agent can bind the principal
(ie acting outside or against the provisions of the contract between the agent
and the principal). If the agent enters into a contract with a third party, with
the agent indicating that it is contracting on behalf of the principal or has
apparent authority to do so, then it may bind the principal. This will be so as
long as the third party has a reasonable belief that the agent had authority
to bind the principal. The third party will find it difficult to meet the last
point if the third party knew that the contract into which it wished to enter
was not in the commercial interest of the principal (Re Capitol Films Ltd (in
administration); Rubin v Cobalt Pictures Ltd [2010] EWHC 2240 (Ch), and also
Bowstead and Reynolds on Agency (20th Edn, 2014, Sweet & Maxwell), 8-218).
Also, and more obviously, the principal will not be bound by a contract
purportedly made by the agent and the third party if the third party knew
that the agent did not have actual authority (Criterion Properties plc v Stratford
UK Properties LLC [2004] UKHL 28).
No contract wording can specifically deal with the day-to-day actions of an
agent, but the principal may need to take actions that extend beyond merely
relying on contract wording, either in instructions to the agent or notices
made publicly available indicating what its agents can and cannot do.
In most cases, parties will wish to deny the existence of an agent/principal
relationship or will need to specify exactly where such a relationship might lie.

Existence of a partnership
Whether or not a partnership exists between two persons is always a question
of fact, which does not depend solely on the documents they have executed or
even the express statements they have made.
Where a relationship has all the properties of a partnership, an express
written provision by the parties denying the existence of a partnership may be
insufficient to prevent one being held to exist. The definition of a partnership
is that set out in the Partnership Act 1890:
‘the relation which subsists between persons carrying on a business in common
with a view of profit’.

There is no requirement for formality in order to establish a partnership (ie,

under the Partnership Act 1890, unlike a limited liability partnership, which
requires registration under the Limited Liability Partnerships Act 2002), and
there will sometimes be a risk of creating a partnership under a commercial

30

M02_Boilerplate_Clauses_A.indd 30 04/09/2017 08:04

 Agency, partnership and joint venture (denials of)

agreement, particularly in agreements concerned with unincorporated joint

ventures.
A limited liability partnership is more akin to a company as:
• it has a separate legal identity: it is a body corporate (Limited Liability
Partnerships Act 2002, s 1(2));
• its existence will and can only commence when the members’ application
for registration is accepted by the Registrar of Companies (Limited
Liability Partnerships Act 2002, s 3);
• it will execute documents in the same way as for a company formed or
regulated by the Companies Act 2006 (eg, Companies Act 2006, s 44
applies, but with references to ‘director’ and ‘secretary’ replaced by
‘member’).
Where the parties to a business arrangement do not intend their relationship
to be a partnership (and the relationship lies outside the scope of the
Partnership Act 1890), the parties should state that:
• they are not partners; and
• their agreement is not a partnership agreement; and
• their subsequent actions do not amount to carrying on a partnership.
As regards the last bullet point, despite the clear wording in an agreement
that the parties are not a partnership or a joint venture, such a statement may
not cover their actions after the date of the agreement. The current trend in
interpreting contracts of parties is to focus on the conduct of the parties and
to decide, objectively, what the true nature of that conduct is. Accordingly,
if the parties start acting in a way that falls within the legal definition of a
partnership then, in the event of dispute, a court may find that the parties have
entered into a partnership even though the wording of their agreement says
otherwise. For example, in relation to other boilerplate wording concerning
‘no variations’ clauses, which provides that a contract cannot be varied except
in writing, a court will look at what the parties say and do, and in appropriate
cases a court will hold that the parties have varied their contract even though
the parties failed to comply with a ‘no variations’ clause (see MWB Business
Exchange Centres v Rock Advertising [2016] EWCA Civ 553; Hughes v Pendragon
Sabre [2016] EWCA Civ 18; Globe Motors v TRW Lucas Varity [2016] EWCA Civ
396). See Amendment or variation below.
Except where the parties have consciously chosen to enter into a partnership,
they will wish to avoid the risk of their relationship being treated as a
partnership, in view of the liability that a partner has for the acts and omissions
(and losses) of the other fellow partners. A clause denying partnership will
not be conclusive, but may assist the parties to argue their position if someone
(such as HMRC) asserts that the parties are a partnership.
Often, a clause which denies that the parties are in partnership will also state
that neither party may bind the other.

31

M02_Boilerplate_Clauses_A.indd 31 04/09/2017 08:04

 Agency, partnership and joint venture (denials of)

Joint venture
There is no English statute on joint ventures comparable to the Companies
Acts for companies. The expression ‘joint venture’ has no specific legal
meaning under English law, unlike the position in some other countries. In
practice, joint ventures are:
• set up as partnerships; or
• set up as a company in which each of the joint venturers is a shareholder.
Sometimes each joint venturer will own 50% of the issued share capital of
the company, although the precise shares of ownership (as well as other
aspects of their relationship) are subject to the agreement of the joint
venturers; or
• established by two separate parties collaborating on a project by providing
resources (human, financial etc), without there being a separate legal
entity.
A clause dealing with denials of agency and partnership will also often include
a denial that the parties are involved in a joint venture in case joint venture has
a meaning that implies legal obligations, such as with a partnership.

Drafting issues

• Default points. In commercial agreements, there should be a clear

statement that:
• a party is acting as agent for another (eg if a parent company signs an
agreement on behalf of itself and its subsidiaries); or
• the relationship between the contracting parties is not one of agent
and principal or one of partnership or joint venture. Sometimes
parties will go further and include obligations on the parties not to
represent to any other person that they have any authority to make
commitments on each other’s behalf.
• Where a form of agency exists exclude partnerships, joint venture and other
agency relationships. Where there is a form of agency in an agreement (ie a
traditional agency arrangement or where some provisions in an agreement
are intended to be that of an agent and a principal), there should be a
denial that:
• the parties wish to form a partnership; or
• the parties are carrying on a joint venture (of any type); or
• any agency arises apart from that expressly conferred by the agreement.
• Agency also plays a part when an agreement is signed, typically where a company
is involved. The company has to act through human beings, who act as
agents for, or authorised representatives of, the company. Such issues

32

M02_Boilerplate_Clauses_A.indd 32 04/09/2017 08:04

 Agency, partnership and joint venture (denials of)

are not normally addressed in this type of boilerplate provision (but are
considered further in Capacity).

Location in the agreement

The Boilerplate section of an agreement is normally the location of a no

agency, joint venture or partnership clause.

Linkage and use

This boilerplate provision is not normally specifically linked or referred

to in an agreement. However, for many types of agreements one party
may specifically be given an ‘agency’ type of role for another party, eg in a
manufacturing contract, the manufacturing party may need to buy materials,
but it is stipulated that the party is doing it as an agent for the other party.

Sample precedent material

Precedent 1—No partnership

Nothing in this agreement shall be deemed to constitute a partnership
between the parties.

Precedent 2—No partnership or agency or other relationship other than

contractual relationship
This agreement shall not constitute or imply any partnership, joint ven-
ture, agency, fiduciary relationship or other relationship between the
Parties other than the contractual relationship expressly provided for in
this agreement. Neither Party shall have, nor represent that it has, any
authority to make any commitments on the other Party’s behalf.

Precedent 3—No partnership or joint venture-limited agency only

The Parties are not partners or joint venturers nor is [Party B] able to act
as an agent of [Party A] save as authorised by this agreement.

Precedent 4—No partnership

The Parties to this agreement are not partners.

Precedent 5—No partnership

Nothing in this agreement shall be deemed to constitute a partnership
between the Parties.

Precedent 6—No agency

Nothing in this agreement shall be deemed to constitute either Party as
the agent of the other Party. Neither Party shall have any authority to make
any commitments or enter into any contracts on the other Party’s behalf.

33

M02_Boilerplate_Clauses_A.indd 33 04/09/2017 08:04

 Agency, partnership and joint venture (denials of)

Precedent 7—No agency

Each Party represents and undertakes that it is entering this agreement
as principal and not as agent for any other party. In performance of this
agreement, the status of each Party including its employees and agents
shall be that of independent contractor and not of employee, agent or
fiduciary of the other Party. Neither Party has any right to make commit-
ments for or on behalf of the other Party.

Precedent 8—Assertion of agency relationship

Party A enters into this agreement [both as principal, and] as agent for
Company X, and warrants and represents that it has been duly authorised
by Company X to enter into this agreement on Company X’s behalf.

Precedent 9—No undisclosed principal

[Party A] warrants that it is not the nominee or agent of any undisclosed
principal and that it will assume sole and complete responsibility for the
performance of the obligations in this agreement expressed to be per-
formed by [Party A].

34

M02_Boilerplate_Clauses_A.indd 34 04/09/2017 08:04

 Agents for service

Purpose of the clause

A party may require that any documents that are issued by a court in relation
to legal proceedings are not sent to that party but to someone else. Court rules
permit this in certain circumstances.

However, it may be necessary to obtain the permission of the court to do so

if a party to a contract is resident or has its registered office (or equivalent)
outside the United Kingdom.

However, an ‘agents for service’ clause aims to allow service of documents in

legal proceedings within the United Kingdom (and where possible without
the permission of the courts) on the agent of a party, whether or not they are
based in the United Kingdom.

Drafting issues

• Legal issues
• The Civil Procedure Rules (CPR), SI 1998/3132, (see CPR 6) governs
the service of documents in legal proceedings;
• if a contract contains a provision providing that if a claim is made
concerning the contract, any claim form issued in relation to that
claim may be served as specified in that contract, then the claim form
is deemed to be served if it is served by the method specified in the
contract: CPR 6.11(1);
• if a claim form needs serving outside the United Kingdom then it may
be necessary to obtain the permission of the court (under CPR 6.36)
unless it falls into a category where permission is not required (under
CPR 6.32 or CPR 6.33): CPR 6.11(2);
• the rules for determining whether a party needs to obtain the
permission of the court is found in CPR 6.36 and CPR 6.37. In
addition, Practice Direction 6B to this CPR needs consideration (the
detailed provisions of which are beyond the scope of this book);
Readers should obtain specialist advice and/or consult standard legal
books such as the Civil Court Practice);

35

M02_Boilerplate_Clauses_A.indd 35 04/09/2017 08:04

 Agents for service

• if an agreement does not contain a provision concerning the serving

of documents in legal proceedings then a party may still serve an
agent of the foreign party subject to:

• the party applying to the courts; and

• the contract to which the claim relates being entered into within
the jurisdiction with or through the foreign party’s agent; and

• the agent’s authority not being terminated, or the agent still

having business relations with the foreign party: CPR 6.12;

• it is also possible to apply for permission to serve a claim form by

an alternative method or to an alternative place if there is a good
reason (CPR 6.15), such as a saving of time by serving on the London
solicitors of a claimant rather than the place where the defendant
is resident (JSC BTA Bank Ablyazov [2011] EWHC 2506 (Comm) or
dispensing with the service of a claim form altogether in exceptional
circumstances) (CPR 6.16).

• Appointment of an agent

• where a party to an agreement is based outside the United Kingdom,

there should be provision for appointment of an agent within the
United Kingdom (see Precedent 1);

• the provision should deal with the extent of the appointment of the
agent, such as:

• whether the appointment should be irrevocable;

• the appointment being limited to the term of the agreement;

• whether it is possible to terminate the appointment on notice;

• whether the other party should receive notification on termination

of the appointment.

• Failure by agent to perform duties

• If the agent fails to notify the party who appointed the agent that
proceedings are served, then there should be wording that such
failure does not affect the validity of the service (see Precedent 2);

• if the agent takes an excessive amount of time to notify the party that
appointed the agent, then there should be wording specifying a time
limit when service is deemed effective (see Precedent 3).

• Although an Agents for service clause aims to deal with the situation where
a party (which is not based in the United Kingdom) agrees a method of
service out of the jurisdiction by means of an agent, it may still be regarded
as invalid under a foreign law, and therefore the ability to proceed in
other ways should be retained (see Precedent 4).

36

M02_Boilerplate_Clauses_A.indd 36 04/09/2017 08:04

 Agents for service

Location in the agreement

The Boilerplate section of an agreement is normally the location for an Agents

for service clause.

Linkage and use

This type of clause is not normally linked to or used by other clauses except:

• where a party is based outside England and Wales (or the United Kingdom),
the other party to the agreement should check that the address given in
the Parties clause is the address to be used for notices (including for the
service of proceedings);

• the Notices clause may include provisions of an Agents for service clause or
will need to be amended to reflect the fact that particular types of notices
(such as the service of proceedings caused by an Agents for service clause)
are dealt with elsewhere by their own clause.

Sample precedent material

Precedent 1—Appointment of an agent

[Party A] irrevocably appoints [name] at present of [address] to receive on
its behalf service of proceedings issued out of the English courts in any
action or proceedings arising out of or in connection with this agreement.

Precedent 2—Failure on the part of the agent to carry out instructions

Failure by such agent to notify [Party A] of such service shall not adversely
affect the validity of such service or any judgment based on it.

Precedent 3—Setting a time limit when service is deemed effective

Such service shall become effective 30 days after despatch.

Precedent 4—Permitting other methods of service

Nothing contained in this agreement shall affect the right to serve process
in any other manner permitted by law.

Precedent 5—Effective service on agent

All proceedings, notices of proceedings and other notices in connection
with or to give effect to this agreement shall be served upon [agent in
England for the foreign party] (the ‘Agent for Service’) at the Agent for
Service’s address in [London] on behalf of [foreign party] and [foreign par-
ty] shall be bound by such service as if [foreign party] had been personally
served within the jurisdiction.

37

M02_Boilerplate_Clauses_A.indd 37 04/09/2017 08:04

 Agents for service

Precedent 6—Effective service on agent

[Party A] irrevocably appoints [name] at present of [address] to receive on
its behalf service of proceedings issued out of the English courts in any
action or proceedings arising out of or in connection with this agreement
and agrees that failure by such agent to notify it of such service shall not
adversely affect the validity of such service or any judgment based on it.

Precedent 7—Effective service on agent

[Party A] irrevocably appoints [name] at present of [address] as its agent
to receive on its behalf service of proceedings issued out of the English
courts in any action or proceedings arising out of or in connection with
this agreement. [Party A] warrants that [name] has agreed to act as its
agent as aforesaid. Failure by such agent to notify [Party A] of such ser-
vice shall not adversely affect the validity of such service or any judgment
based on it. Such service shall become effective 30 days after despatch.
Nothing contained in this agreement shall affect the right to serve process
in any other manner permitted by law.

Precedent 8—Effective address for service

1 Any notice of proceedings or other notices in connection with or
which would give effect to any such proceedings may without preju-
dice to any other method of service be served on any party in accord-
ance with Clause [no].
2 In the event that [name] is resident outside [England] its address for
service in [England] shall be the address for such service nominated
at the head of this agreement and any time limits in any proceed-
ings shall not be extended by virtue only of the foreign residence of
[name].

Precedent 9—Appointment of process agent

1 [Party A] irrevocably appoints [name] of [address] in England as
its process agent to receive on its behalf service of process in any
Proceedings in England. Such service shall be deemed completed
on delivery to such process agent (whether or not it is forwarded to
and received by [name]). If for any reason such process agent ceases
to be able to act as process agent or no longer has an address in
England [name] irrevocably agrees to appoint a substitute process
agent acceptable to the other party to this agreement and to deliver
to such other party a copy of the new process agent’s acceptance of
that appointment within 30 days.
2 [Party A] irrevocably consents to any process in any Proceedings an-
ywhere being served in accordance with the provisions of this agree-
ment relating to the service of notices. Such service shall become
effective 30 days after despatch. Nothing contained in this agreement
shall affect the right to serve process in any other manner permitted
by law.

38

M02_Boilerplate_Clauses_A.indd 38 04/09/2017 08:04

 Agents for service

Precedent 10—Alternative form of appointment of process agent

(eg multi-currency loan agreement)
Each of the Borrower and the Guarantor hereby irrevocably and uncondi-
tionally:
1 appoints [name] of [address] in England [and in the case of the courts
of or in the State of New York [name] of [address]] to receive, for and
on its behalf service of process in any Proceedings with respect to
this agreement;
2 agrees to maintain in England and in the State of New York a duly
appointed process agent notified to the Agent, for the purposes of
Clause 1;
3 agrees that failure by any such process agent to give notice of such
process to the Borrower or, as the case may be, the Guarantor, shall
not impair the validity of such service or of any judgment based there-
on;
4 consents to the service of process out of any of the said courts in any
such Proceedings by the airmailing of copies, postage prepaid, to it
at its address for the time being applying for the purposes of Clause
[no]; and
5 agrees that nothing in this Clause shall affect the right to serve pro­
cess in any other manner permitted by law.

39

M02_Boilerplate_Clauses_A.indd 39 04/09/2017 08:04

 Agreeing to enter and signing an
agreement (execution and signature block
clauses)

Purpose of the clauses

The purpose of these clauses is for each party to state (formally) that they
consent to the provisions of the agreement and to record the party’s signature
signifying that fact. This section deals only with contracts and other documents
that do not need signing as deeds. See Deeds for the legal requirements to
execute a deed.

Note on legal terminology

Traditional (or old) legal terminology is still used (particularly in more

‘traditional’ areas of law, such as property transactions). The traditional
terminology for a clause where a party:
• signifies its consent is called a testimonium clause (in this section it is
called the ‘execution’ clause); and
• signs is called an attestation clause (it is called the ‘signature block’ in this
section).

Execution clause
The execution clause appears immediately before the signature block
and formally states the parties’ consent to the terms of the agreement and
sometimes that the signatures that follow are those of the parties. The
execution clause (for contracts) is not a legal requirement or otherwise
needed, but the usual practice is to include it in conventionally drafted
agreements. The execution clause:
‘is not necessary for the validity of the agreement but is added merely to preserve
the evidence of its due execution. For this reason it may be of importance and,
except in instruments relating to registered land, it should never in practice be
omitted…’: Encyclopaedia of Forms and Precedents, vol 12(2), para 18, 3103.

40

M02_Boilerplate_Clauses_A.indd 40 04/09/2017 08:04

 Agreeing to enter and signing an agreement (execution and signature block clauses)

Signature block
The signature block is the place in the agreement where the parties sign:
• to indicate their consent to the provisions of the agreement; and
• to indicate that the agreement is coming into operation (immediately or
at some later date).
Parties do not always sign the agreement themselves, and may appoint others
to sign on their behalf, for example:
• agents;
• directors or authorised officers for a company;
• employees; or
• the solicitors or other advisers of a party.
If this is the case then the signature block should contain wording that the
person signing is signing on behalf of someone or somebody else.
It is possible to sign agreements ‘under hand’ or as a deed. The legal
requirements for deeds are discussed in Deeds.

Drafting issues

• Commencing the execution clause

• Traditional:
• agreement (stating ‘As witness’ and then immediately following
with the signature block);
• deed (stating ‘In witness’ and then immediately following with
the signature block);
• Modern: Particularly in a commercial agreement:
• for an agreement: ‘Agreed by the parties through their authorised
signatories’ and then immediately following with the signature
block;
• for a deed: ‘Executed as a deed’ and then immediately following
with the signature block.
For some formal types of document executed as a deed (eg a power
of attorney) or transactions involving the sale/purchasing or leasing
of property, trusts, guarantees, etc), it is often best to use traditional
language, to avoid any risk that a court (or other parties or any
governmental or regulatory board) will misinterpret the document.
The relatively relaxed attitude of the courts to the format and language
of commercial contracts may not apply to other types of legal matter.

41

M02_Boilerplate_Clauses_A.indd 41 04/09/2017 08:04

 Agreeing to enter and signing an agreement (execution and signature block clauses)

• The placement of the signature block. It is up to the parties which spot in the
agreement they choose to sign. However,
• the placing of the signature(s) otherwise than at the end of the
document; and/or
• having the signature block clause drafted in other than one of the
conventional ways
may not be acceptable to some parties.
• Does an agreement need signing (at all)? Except in a few instances there is no
legal requirement for the parties to a contract to sign it. But a real signature
indicates (among other things) that the party signing is signifying their
consent to the provisions of the agreement.
Although a party need not sign a contract, it must be named (or otherwise
identified) as a party to the contract to be able to enforce it or use it as a
defence. Eg, a bank does not usually sign a guarantee that it receives.
There are, however, exceptions to this principle. Eg:
• a contract for the sale or other disposition of an interest in land needs
to be in writing, but also has to be signed by or on behalf of each party
(Law of Property (Miscellaneous Provisions) Act 1989, s 2);
• an assignment or mortgage of a patent must be in writing and signed by
or on behalf of the assignor or mortgager (Patents Act 1977, s 30(6)).
• Witnessing a signature
• A contract (unless signed as a deed) does not need to have the
signatures of the parties (or their authorised representatives)
witnessed. However, signatures are sometimes witnessed:
Eg, a bank taking a personal guarantee will require a solicitor to
witness the signature of the guarantor together with a statement
on the guarantee to indicate that the solicitor has explained its
effect to the guarantor before the guarantor signed: Cornish v
Midland Bank plc [1985] 3 All ER 513;
• signature blocks in some civil law countries are drafted in a way so that
two persons sign for each party, and sometimes one person is said to
be witnessing the signature of another party (rather than two people
signing the agreement);
• in the United States, some commercial agreements have execution
clauses, and then there is wording where the lawyer for that party is
indicating (by the lawyer’s signature or initials) that the agreement is
approved as to form.
• One person signing for more than one party. When a person signs in two or
more capacities (eg as principal and as agent of another, or as an officer
or authorised signatory of two parties (ie a party entering a contract and
the party’s parent acting as a guarantor)) then the person:

42

M02_Boilerplate_Clauses_A.indd 42 04/09/2017 08:04

 Agreeing to enter and signing an agreement (execution and signature block clauses)

• should sign for each party (ie if signing for two parties then the person
should sign twice, and accordingly there should be two signature
blocks, one for each party); or

• should sign once and the signature block should reflect that the
signature covers more than one party. A single signature is legally
effective if it is stated to be in both capacities or there is evidence that
the signatory intended it to be a double signature (Young v Schuler
(1883) 11 QBD 651; Elpis Maritime Co Ltd v Marti Charter Co Inc
[1992] 1 AC 21, [1991] 3 All ER 758, HL, in which Young v Schuler was
distinguished).

For the position concerning deeds, see Deeds.

• Adding the date to the execution clause. Some lawyers hold the view that an
execution clause in modern format for contracts should not state the
date. Rather the date should just be stated at the head of the agreement
once all parties have signed. However, in the case of agreements signed
on different dates, perhaps without the assistance of lawyers, it is
suggested that it can be helpful to include a line to enter the date after
the signatures.

Location in the agreement

The traditional English practice is that the execution and signature block
clauses are normally located after all the other provisions of the agreement
(including the schedules or annexes). However, for some agreements, the
execution and signature block clauses appear at the end of the agreement, but
before the schedules. There is no particular legal significance to this, other
than convention.

A further practice, particularly now that agreements are drafted and

exchanged electronically, is that sometimes the page containing the execution
and signature block clauses is signed without the rest of the agreement,
ie the page containing these clauses is printed off by itself and signed by the
appropriate/relevant person without having the rest of the agreement in
front of that person, either because the provisions of the agreement are not
finalised yet or it is not thought necessary to do so. In the latter case, if the
provisions are finalised, the party signing might attach a scanned copy of the
signed execution and signature block page to the rest of the agreement to
create a complete agreement. There are dangers in such a practice where a
party (who is not acting honestly, or is simply negligent) attaches a signature
page to a different version of the agreement, or a different type of agreement
altogether. A second issue is that for some types of document (such as deeds
and in particular in regard to specific types of transactions), such a practice
should never be used. See Deeds for more on this issue.

43

M02_Boilerplate_Clauses_A.indd 43 04/09/2017 08:04

 Agreeing to enter and signing an agreement (execution and signature block clauses)

Linkage and use

By convention, the names of the parties that appear in the signature block
should be their full names as they appear in the Parties clause, and not the
‘defined’ names. Eg, if the full name of a party is Jane Smith (UK) Drivers
Limited, and the defined name is ‘Chauffeur’, the former name rather than
the latter should appear. However, standard form agreements will often use
the defined name of a party in the signature block.

Sample precedent material

Precedent 1—Modern form of execution and signature clauses for
agreements under hand
AGREED by the Parties through their authorised signatories:

For, and on behalf of [ ] For, and on behalf of [ ]

signature signature
print name print name
job title job title
date date

Precedent 2—Traditional form of execution and signature clauses for

agreements under hand
AS WITNESS the hands of the parties on the day and year first before
written

SIGNED by [name of person

signing on behalf of body
corporate] [as director][duly (signature of person signing)
authorised] for and on behalf
of [name of body corporate]

Precedent 3—Modern form of execution and signature clauses for an

individual to execute a deed

SIGNED [and DELIVERED Witnessed by:

upon signature] as a DEED by
[name of individual]

signature signature
description
address

44

M02_Boilerplate_Clauses_A.indd 44 04/09/2017 08:04

 Agreeing to enter and signing an agreement (execution and signature block clauses)

Precedent 4—Modern form of execution and signature clauses for a

company to execute a deed
EXECUTED as a Deed by the parties on the date first above written:

SIGNED [and DELIVERED] as a Deed by [name of company] acting

through [one director][two of its directors][a director and the company
secretary]

director’s signature [director][company secretary]’s

signature

If only director is signing then this signature block will need to be adapt-
ed to indicate that the director’s signature is witnessed (and remove the
wording ‘[director][company secretary]’s signature’.

Precedent 5—Traditional form of execution and signature clauses for an

individual to execute a deed
IN WITNESS of which [name of individual] has set his hand to this deed in
the presence of the attesting witness [this day of [ ]] or [the day and year
first above written]

SIGNED [and DELIVERED] as

a DEED by the above-named
(signature of executing party)
[name of individual] in the
presence of:
signature, name, address and description of attesting witness

Precedent 6—Traditional form of execution and signature clauses for a

company to execute a deed (but not using its company seal)
IN WITNESS of which this deed has been duly executed by [name of
company] pursuant to a resolution of its board of directors duly passed
[and has delivered it upon dating it] [this [day] day of [month and year][the
day and year first above written]
Or
IN WITNESS of which this deed has been duly executed by [name of
company] [and has delivered it upon dating it][this [day] day of [month and
year][the day and year first above written]

SIGNED [and DELIVERED] as

a DEED by [name of company]
(signature of directors)
acting through two of its
directors

45

M02_Boilerplate_Clauses_A.indd 45 04/09/2017 08:04

 Agreeing to enter and signing an agreement (execution and signature block clauses)

Or

SIGNED [and DELIVERED] as

a DEED by [name of company]
(signature of director and the
acting through a director and
company secretary)
the company secretary

46

M02_Boilerplate_Clauses_A.indd 46 04/09/2017 08:04

 Amendment or variation

Purpose of the clause

The parties to an agreement are usually free to decide when and how they can
change the agreement’s provisions. The purpose of an amendment clause is
to determine:
• whether, and the extent to which, one or more of the parties to an
agreement can amend an agreement; and
• the procedure the party or parties must follow to vary the provisions of an
agreement.
An agreement can contain provisions that, for example, can:
• specifically permit one or more of the parties to vary some or all of the
provisions of the agreement; or
• forbid any amendment without the consent of the parties.
In the latter case, the parties are free, subsequent to entering into the agreement,
of course, to vary it as they wish, provided all parties give their consent.
An amendment clause specifying whether the parties can or cannot vary the
agreement provisions (and if possible in what circumstances it can occur, the
procedure etc) is desirable to avoid arguments that the agreement has been
varied by the conduct of the contracting parties.
The intention of including such a provision in an agreement is to clearly state
if and how the parties may vary the provisions of the agreements, sending a
strong signal that the subsequent conduct of the parties (be it what they say or
do) will not vary what they have agreed in writing. However, recent court cases
have indicated that the subsequent conduct or an oral agreement is sufficient
to vary or amend an agreement, even if the agreement contains wording such
as that of the precedents set out below (eg Globe Motors v TRW Lucas Varity
[2016] EWCA Civ 396; MWB Business Exchange Centres v Rock Advertising
[2016] EWCA Civ 553). Given the approach of the courts, a party may be less
able to rely on such wording if another party asserts that some conduct or
oral agreement has in fact led to a variation or amendment. A party may ask
what is the value of including such a provision if it can be so easily overridden
by a court. It will still be necessary for the party who argues that there is an
amendment or variation to demonstrate that what has occurred qualifies as
an intention to create legal relations and meets the other criteria for making a

47

M02_Boilerplate_Clauses_A.indd 47 04/09/2017 08:04

 Amendment or variation

binding contract. However, the mere inclusion of such wording is not enough
to prevent changes in the provisions subsequently, as a court will look at the
objective intentions of the parties. Perhaps the true value of this wording is
that it expresses the intention of the parties at the time they entered into their
agreement, as well as their intention on how they expected the relationship to
operate during the life of the agreement. The wording may also be used by the
party who wishes to argue or defeat any claim by the other party that there has
been an amendment or variation.

Drafting issues
• Are amendments or variations to an agreement permitted at all? For an
agreement that is not of long duration and/or provides for the supply of
a fixed quantity of (defined) goods or services then it is not likely that the
parties will need to vary or amend the agreement (and Precedents 1, 2 or
3 should be used).
• Who needs to agree to vary or amend the provisions of an agreement?
• both parties need to agree; or
• one party can impose an amendment or variation on any part of the
agreement; or
• one party can impose an amendment or variation in relation to
specific clauses in the agreement or in relation to particular issues;
eg, a party supplying goods or services over a long period under an
agreement may wish to increase the prices at particular intervals
without obtaining the agreement of the other party.
• one party can impose an amendment or variation, subject to the
other party having a limited period of time to object, otherwise the
amendment or variation takes effect; or
• one party can impose an amendment or variation but it must not be
such as to materially affect the provisions of the agreement or the
outcome of the agreement;
eg, an agreement to provide a manufactured product might have a
provision allowing the manufacturing party to amend the specifications
so long as the amendment does not change the functions of the
finished product, its size, maintenance etc. The manufacturer may
need to buy materials from a third party supplier and these may be
subject to small variations. If the manufacturer makes an electronic
product and has a third party supply the covers for the product, the
third party may from time to time, in each batch of covers, make the
colour very slightly different.
• Which provisions of an agreement it is possible to amend or vary? Is it possible to
amend or vary:
• all the provisions of an agreement?
• only some provisions of the agreement?

48

M02_Boilerplate_Clauses_A.indd 48 04/09/2017 08:04

 Amendment or variation

• Who is authorised to make the amendment?

• no-one specifically is named; or
• a named person, or particular level of responsibility (eg ‘manager’) is
identified.
• How can the parties make the amendments or variations?
• in writing;
• requiring the signature of both parties.
• Is a particular form or procedure to be used? Eg:
• is a special form of document needed, such as by email, letter or
agreement format? or
• do all amendments or variations need to be made by deed?
• Is there wording addressing whether amendments made informally or by accident
have any (legal) effect?
• Will an amendment affect other parts of the contract that are not apparently directly
affected by the amendment? Eg, the parties to a manufacturing agreement
may agree to vary the date when the manufacturer is to manufacture
goods, but fail to address other provisions such as the timing of payments
or when the agreement is to terminate. If these are not also addressed,
their fulfilment may no longer accord with the intentions of one or more
of the parties.
• What records should be kept of the amendments and variations? Eg:
• ideally whenever any amendment or variations are made, the parties
should file them with the agreement;
• administratively,
• are there procedures in place so that amendments and variations
are properly noted and kept with the un-amended agreement?
• is there a log of amendments and variations made with dates?
• for more long-term or important agreements, should a party
prepare/maintain a summary of the changes to, and their effect
on, the agreement?
Eg, an agreement may run for several years. Over that period the parties
may need to make changes to the specification, amounts payable, timing
etc, all of which have been documented by amending agreements. At
the end of the term, anyone directly involved with the agreement or its
subject matter may no longer be employed by the parties. In the event of
a dispute or a decision to terminate, it may be difficult to determine the
current position as to what was agreed etc if the amendments are not kept
together or a summary of what has occurred is not prepared.

49

M02_Boilerplate_Clauses_A.indd 49 04/09/2017 08:04

 Amendment or variation

• If an existing agreement is changed by means of a separate document. If

amending an agreement with another written document (such as a letter
or amending agreement), does it contain provisions:
• so that it states that it complies with the provisions of the original
agreement?
• that clearly state which clauses (or part of a clause) are amended of
the original agreement?
• that deal with the status of clauses which are not amended in the
original agreement (usually that they remain in effect)?
• that state the date from when the amended clauses take effect?
• Will consideration be supplied for making the amendments? Sometimes there
is doubt whether an amendment or variation (even where specifically
permitted under an agreement) will be legally effective if there is an
absence of consideration.
Eg, only one party may be perceived as providing a benefit or suffering a
detriment. Some parties make amendments by deed as a matter of policy,
to avoid any doubts if there is a dispute about the enforceability of any
amendments or variations.
• Does the amended agreement affect a third party? If the agreement is varied
or amended too substantially then the agreement may no longer be the
‘same’ agreement. If a third party is involved (eg someone guaranteeing
the payments of a party under the agreement) then the person providing
the guarantee may no longer be liable if the amendments are too great
(see Triodos Bank NV v Dobbs [2005] EWCA Civ 630, [2005] All ER (D) 364
(May), see also Case analysis below).
• Amending or varying a contract concerning the sale or other disposition of an
interest in land. If a contract concerns the sale or other disposition of an
interest in land then not only must the contract be in writing, but also
the parties (either the parties themselves or someone on their behalf)
have to sign the contract (Law of Property (Miscellaneous) Provisions Act
1989, s 2). The same is true also for any amendments or variations to that
contract (McCausland v Duncan Lawrie Ltd [1996] 4 All ER 995).

Location in the agreement

The Boilerplate section of an agreement is normally the location of an

Amendment or variation clause.

Linkage and use

This clause is not normally linked to or used by other clauses. However, if there
is a specified form of amendment (such as a precedent letter or amending

50

M02_Boilerplate_Clauses_A.indd 50 04/09/2017 08:04

 Amendment or variation

agreement) then this might be included in a schedule to the agreement.

Where a particular type of clause can be amended by an Amendment or variation
clause, that clause may need to be checked to ensure that there is nothing
preventing amendment, for example, it may refer or be linked to other
clauses, which in turn need amendment but are not covered by the Amendment
or variation clause.

Sample precedent material

Precedent 1—No amendment or variation

No amendment or variation to this agreement shall take effect unless it
is in writing, signed by authorised representatives of each of the Parties.

Precedent 2—No amendment or variation

This agreement may not be varied except by an instrument in writing
signed by the authorised representatives of all of the parties to this agree-
ment.

Precedent 3—No amendment or variation

This agreement may not be released, discharged, supplemented, inter-
preted, amended, varied or modified in any manner except by an instru-
ment in writing signed by a duly authorised officer or representative of
each of the parties to this agreement.

Precedent 4—Limited, permitted, amendment

To enable us to take account of actual or expected changes in market
conditions, we may from time to time increase or reduce the interest rate
after giving you 30 days’ previous written notice. We may give effect to
any such increase or reduction by increasing or reducing the length of the
estimated repayment or the size of your monthly payment or both.

Precedent 5—No amendment or variation – alternative wording

Neither us or you can change any of the terms and conditions of this
­contract except as indicated in the following sentence. If we or you wish
to change any of the terms and conditions then both of us need to agree
to the changes and we and you both must sign a document setting out
the changes which are to be made to the contract.

Precedent 6—Specifying which clauses are varied

(For use in a separate agreement whose aim is to vary another agree-
ment.)
This Amending Agreement is supplemental to the Existing Agreement.
Except as expressly amended by this Amending Agreement, the
Existing Agreement shall remain in full force and effect. Terms defined
in the Existing Agreement shall have the same meaning in this Amending
Agreement, unless otherwise provided by this Amending Agreement.

51

M02_Boilerplate_Clauses_A.indd 51 04/09/2017 08:04

 Amendment or variation

The Parties agree to make the following amendments to the Existing

Agreement with effect from [date]:
(a) in Clause 5, line 2, delete the words ‘within 30 days’ and insert ‘within
60 days’;
(b) …

Case analysis

Triodos Bank NV v Dobbs [2005] EWCA Civ 630, [2005] All ER (D) 364
(May)

Facts
1 D entered into a guarantee on two loan agreements (original agree-
ments) between a bank and a company.
2 The original agreement provided:
‘2.4 The Bank may at any time as it thinks fit and without reference
to the Guarantor:
2.4.1 grant time for payment or grant any other indulgence or
agree to any amendment, variation, waiver or release in
respect of an obligation of the Company under the Loan
agreement.’
3 The bank and the company subsequently entered into three further
loan agreements (increasing and extending the amount of loans), the
first two each of which were stated to be replacements for the earlier
agreements.
4 The bank eventually called in the loan and asked D to pay under the
guarantee.
5 D argued that the guarantee only applied to the original agreement
and not to the further loan agreements despite the fact that the guar-
antee was expressly referred to in the three latter loan agreements.

Held
1 The court held that the third loan agreement was not an amendment
or variation of the original loan agreement and was not in the scope of
the original agreement: That the third loan agreement made was ‘so
different from the original agreement [that it] cannot be an ‘amend-
ment or variation’ of the initial contract.’ (para 14). The loan agree-
ment ‘imposes new and different obligations …obligations which
cannot be said to be by way of variation or amendment of any ob-
ligation under or pursuant to the [original] agreement. And there can

52

M02_Boilerplate_Clauses_A.indd 52 04/09/2017 08:04

 Amendment or variation

be no doubt that the obligation of a guarantor in respect of the bor-

rower’s obligations under the [third loan agreement] would be sub-
stantially more onerous than the obligations in respect of the [original
agreement].’ (para 37)
2 The court’s decision is further amplified in the following part of the
judgment:
‘9. As a matter of principle there is no reason why the right of the Bank under
clause 2.4.1 to agree amendments or variations to the loan agreement
without reference to the guarantor should be confined to amendments or
variations which are expressly contemplated by the agreement; the clause
must mean that anything rightly termed a variation or an amendment is
a matter which can be agreed without reference to the guarantor. The
question is then whether what is said to be an amendment or variation
is correctly so called. To my mind an agreement which truly “replaces”
the original loan agreement would not rightly be called an amendment or
variation to the original agreement, since it will be a new agreement. This
will be particularly true in the context of a guarantee which obliges the
guarantor to pay sums falling due “under or pursuant to” a particular loan
agreement. Once that loan agreement has been replaced by a second and
different agreement, sums due under that new and different agreement
cannot be sums due “under or pursuant to” an earlier agreement. For this
purpose it does not matter whether the old agreement is discharged in
the sense of the loan being fully repaid and a new agreement then made
(in the technical sense of there being a novation) or whether there is a
replacement agreement which is, for the future, treated as governing the
parties’ relationships. The new governing agreement is not the agreement
“under or pursuant to” which there falls due the money which the guarantor
has guaranteed to pay.’

Although the case is limited to a loan guarantee, similar situations

might arise in other types of commercial agreements, such as where
a company is providing a parent company guarantee, for example.

53

M02_Boilerplate_Clauses_A.indd 53 04/09/2017 08:04

 Announcements

Purpose of the clause

Contracting parties sometimes wish to control how, and to what extent,

information is released to the outside world about:
• their (existing) agreement;
• the fact that they are negotiating;
• the subject that they are negotiating;
• the subject matter of the agreement;
• the provisions of their agreement;
• what is happening while the agreement is operative;
• if a problem arises while the agreement is operative;
• if an objective is not reached or cannot be reached;
• even whether there is any form of relationship between the parties; or
• the parties terminating the agreement.
Any one of these matters could be sensitive, whether financially, commercially
or in ways that might affect their public image. For example:
• two parties who are in the same market developing rival technologies
(and often engaged in publicly-known litigation about alleged intellectual
property infringement etc) may not wish it to be known that they are in
fact collaborating on a new or existing technological method that will
reduce their costs etc. It may suit their image (and also diffuse interest of
competition authorities and other regulatory authorities) to indicate that
they are locked in fierce competition;
• a company may have entered into a contract with another party, where the
latter has a poor public image (eg has a poor environmental record, pays
its employees badly, or uses overseas manufacturing facilities in a third
world country that have been subject of media interest). The first company
may not wish it to be known that it has entered into an agreement with the
second; such a fact may damage the image the first company has built of
itself or persuade some of its customers/clients to no longer trade with it.
Although a public announcement may not be required by law, it can be
beneficial to the parties involved. Examples include the announcement of
results of a joint venture, a merger, test results or launch of a new product.

54

M02_Boilerplate_Clauses_A.indd 54 04/09/2017 08:04

 Announcements

The timing and method of the announcement may need careful handling so
as not to adversely impact on the parties’ respective businesses. Eg:
• a merger between two companies might lead to job losses. An untimely
announcement by one party, before the other party has consulted with
employees, may cause problems, in terms of both employee relations and
compliance with employment law requirements to consult with one’s
employees before taking decisions on redundancies; or
• the release of test results on a product (such as a drug going through
clinical trials or a new technological product) that is not performing as
expected. A premature announcement by one party, before the other
party has consulted with other licensees and regulatory authorities, may
cause adverse press and media interest, regulatory investigation and
investors (and potential investors) to try to disassociate themselves from
one or more of the parties;
• premature release of information about a new product. An announcement
of details about a new product too early may lead to problems about when to
release or on releasing the product into the market. For example, it might
lead competitors to launch rival products or copies (if the competitors can
make the rival products quickly enough). Another consequence (given
that much production of products is now done by contractors) is that
competitors may ‘buy up’ the contractor’s production facilities and thus
stop the party making the announcement either to get the product made
in time or have to pay a much higher price than expected. Also, too early
an announcement may lead to consumer demand that cannot be satisfied
in a timely fashion (ie too long a lead-time before the product is actually
available) and thus cause negative comment.
In such cases, the parties may wish to agree a strategy for (and agree the text
of) public announcements during their negotiations. The final wording for
each stage of the agreement (where appropriate) can be attached to the
agreement as a schedule.
The use of an Announcements clause can be particularly important for:
• public companies, where the information could be price-sensitive
(ie affect the share price), or the agreement has to be notified to the Stock
Exchange under the Listing Rules; or
• companies subject to close regulatory scrutiny or control; or
• companies whose activities are subject to close media scrutiny or criticism.

Drafting issues

• Are announcements allowed at all? Can press or other public announcements

about the agreement, or any aspect of it, be made?
• When should the parties make the press or other public announcements? At a time:
• as agreed by the parties;

55

M02_Boilerplate_Clauses_A.indd 55 04/09/2017 08:04

 Announcements

• when a particular event, achievement or milestone is achieved (eg if the

parties are developing a product, when the product is ready for sale).
• Which party can make an announcement?
• Is the consent of a party needed? If a party wishes to make an announcement,
must it obtain the permission or consent of the other party?
• Before a party or the parties make an announcement do they need to agree on its
wording?
• Does an announcement that a party or parties wish to make need agreement? Can
similar wording be used on future occasions, or must the parties agree
each disclosure?
• Can employees etc make announcements? Is there a requirement that a party
procures that its employees, agents do not make any announcements etc?
• Is subsequent use of an announcement permitted? If an announcement or
press release is made, can a party subsequently refer to, use or announce
again the matters referred to in the initial announcement or press release
without restriction?
• Is an announcement required to be made? If it is a legal requirement to disclose
the information, eg to the Stock Exchange, is there a risk that the parties
might not be able to agree the terms of the disclosure? If so, should there
be a let out clause to allow disclosures where required by law?
• Extent of restriction on announcements. Where announcements or press
releases are not permitted, what is the extent of the restriction? Is it:
• on any details concerning the provisions of the agreement?
• that negotiations are taking place?
• about the existence of the agreement?
• concerning the subject matter of the agreement?
• identifying a party in any promotional, advertising or other such
materials?
• Is the text of an announcement included with an agreement? Should the form
and content of the announcement or press release be annexed as a
schedule to the agreement?
Eg, the parties may (during negotiations) agree the form of press
release to be made when the agreement is signed. In such cases it can be
convenient to attach the agreed form of press release to the agreement as
a schedule or annex and to add to the clause concerning Announcements
an additional sentence to deal with this (see Precedent 8).

Location in the agreement

The Boilerplate section of an agreement will normally contain an

Announcements clause. Sometimes an Announcements clause will also appear
with confidentiality provisions.

56

M02_Boilerplate_Clauses_A.indd 56 04/09/2017 08:04

 Announcements

Linkage and use

This clause is not normally linked to or used by other clauses. However, since
this clause concerns the possible release of information (some of which
may be confidential), it may have implications for clause(s) dealing with
confidentiality.
In some cases, it may be appropriate to make an Announcements clause subject
to the obligations of confidentiality.
If a party is a public authority for the purposes of the Freedom of Information
Act 2000, then any restriction on making an announcement may not be effective.
The duty of the public authority to release information following a request is
likely to override any contractual wording (unless the requested information is
subject to any permitted exceptions/exemptions under the Act).

Sample precedent material

Precedent 1—Approval of announcements

No public or press announcements shall be made with regard to the sub-
ject matter of this agreement unless the text of such announcement is
first approved and initialled by all the parties.

Precedent 2—Approval of announcements

Neither Party shall make any press or other public announcement con-
cerning any aspect of this agreement, or make any use of the name of
the other Party in connection with or in consequence of this agreement,
without the prior written consent of the other Party.

Precedent 3—Approval of announcements

No announcement of any kind shall be made in respect of the subject
matter of this agreement except as specifically agreed between the
parties or if an announcement is required by law [or The London Stock
Exchange]. Any announcement by either party and so required by law [or
The London Stock Exchange] shall in any event be issued only after prior
consultation with the other.

Precedent 4—Approval of announcements – sale agreement

No announcement regarding the transactions contemplated by this agree-
ment or any matter ancillary thereto and no disclosure of the terms of this
agreement shall (save as required by law) be made by the Purchaser with-
out the prior written approval of the Seller.

Precedent 5—Approval of announcements – new company investment

agreement
No announcement concerning the terms of this agreement shall be made
or caused to be made before or after Completion by any party other than

57

M02_Boilerplate_Clauses_A.indd 57 04/09/2017 08:04

 Announcements

as required by law or by The London Stock Exchange (in which case the
parties shall consult with each other on the form of the announcement)
without the prior written approval of the Investor.

Precedent 6—Approval of announcements – sale of assets of business in

receivership
No announcement to the press, customers or suppliers which either the
Company the Receivers or the Buyer may desire to make concerning this
agreement or the subject matter thereof shall be made except at a time
and in a form agreed by the other parties hereto. The terms of this agree-
ment shall not be disclosed by the Buyer to any person without the prior
consent of the Receivers, save as such disclosure may be compelled
by law.

Precedent 7—Longer form – approval of announcements – eg share

transaction
No party shall issue or make any public announcement or disclose any in-
formation regarding this agreement unless prior to such public announce-
ment or disclosure it:
1 furnishes all the parties with a copy of such announcement or infor-
mation, and
2 obtains the approval of such persons to its terms.
Provided that no party shall be prohibited from issuing or making any
such public announcement or disclosing such information if it is neces-
sary to do so in order to comply with any applicable law or the regulations
of a recognised stock exchange.

Precedent 8—Agreed form of press release

[Without prejudice to the generality of the foregoing, T][t]he Parties agree
to the issue of a press release substantially in the form attached as Annex
A upon and following signature of this agreement by both Parties.

Precedent 9—No announcements – alternative form

Neither you nor us will provide, make available or supply any information
about our Agreement, whether directly or indirectly, to any third party by
any manner (whether orally, in writing or by electronic means) for any pur-
pose (‘Supplying’). Supplying will mean (but is not limited):
• stating that there exists an agreement between you and us;
• providing, supplying or disclosing any details about the provisions of
the Agreement; or
• disclosing the name of any party in connection with the Agreement
If either you or us wishes to make any public or press announcement then
the party wishing to do so will first supply to the other party the text of
the announcement it wishes to make. The party wishing to make the an-

58

M02_Boilerplate_Clauses_A.indd 58 04/09/2017 08:04

 Announcements

nouncement will only be permitted to do so when it has obtained the prior

written consent of the other party.

Precedent 10—Agreed announcements – for development and release of

software
1 The Parties agree to the issue of press releases or announcements on
occurrence of the following events:
(a) the signature of this Agreement by all the Parties;
(b) on release of each version of a Beta version of the Software;
(c) on the Completion of the Software.
2 The form of the press releases or announcements shall be in the
forms set out in Schedule [ ] to this Agreement and shall be made
within the following time periods and by the following means:
(a) for a press release or announcement under Clause 1(a), the
press releases and announcements shall be made within one
(1) working day of the last Party to sign the Agreement and by
means of an announcement on the website of the Supplier, on
the Twitter feed of the Supplier and by email to the publications
and internet sites set out in Schedule 1, Section 1;
(b) for an announcement under Clause 1(b), an announcement shall
be made as soon as a Beta version of the Software is available
to download from [ ] to persons who have entered into a Beta
Test Agreement; and
(c) for press releases and announcements under Cause 1(c),
the press releases and announcements shall be made on the
Release Date and by means of press releases and announce-
ments on the websites of the Supplier and the Company, on
the Twitter feeds of the Supplier and Company, and by the
Supplier by email to the publications and internet sites set out in
Schedule 1, Section 1.

59

M02_Boilerplate_Clauses_A.indd 59 04/09/2017 08:04

 Appointment

Purpose of the clause

An appointments clause is usually the main clause describing the main or key
obligations or purpose of the agreement. For example:

• in a contract for the manufacture of goods, it will be the clause that states
that the manufacturer will be making the goods and the purchaser is
buying them;

• in a contract for the provision of services it will be the clause stating that
a party will be providing the services and that the other party will pay
for them.

Most often, the use of the word ‘appointment’ or an appointment clause is

seen where there is need for the services of an agent, or a professional such as
a consultant.

Although the focus of an Appointment Clause is usually to indicate the

appointment of a person or organisation to carry out a service (as noted
above), it is also used for other (partly) non-services orientated tasks, such as,
for example:

• the appointment of a party to carry out the manufacturing of a product;

or

• the appointment of a party as a licensee.

The word is also used in articles of association and shareholders’ agreements,

eg, where directors or shareholders have the right to appoint directors. Other
appointments arise where a person is appointed to carry out some function,
such as the appointment of a liquidator or trustee. A standard appointment
clause in a contract for services might read as in Precedent 1.

The use of the word ‘appointment’ is not required but is conventional within
certain types of agreement. An agency agreement is simply a special form
of services agreement where the conventional drafting practice is to use the
word ‘appointment’. The essential element is that the agent (or other service
provider) is agreeing to provide services and the client/customer/principal
as the case may be is agreeing to their performance (in a more conventional
services agreement with the words such as ‘in consideration of the Client
paying the Price’ or similar wording)

60

M02_Boilerplate_Clauses_A.indd 60 04/09/2017 08:04

 Appointment

Drafting issues

• Is there wording clearly appointing one person is asking another to do something?

Does the clause state that one party is asking another party to do
something?
• What is being done? Is the thing (service, task, grant of rights) that is to be
provided under the agreement clearly stated and with sufficient precision
(either in the clause, by the use of a definition or in a schedule)?
• Is there consideration? Is consideration clearly given in return for the
appointment? Eg, a price or a method for calculating how and when
payment is to be made;
• Is the appointment accepted? Should there be wording that the party being
appointed is accepting the appointment, ie, are there other provisions in
the agreement that clearly state what the appointed party is to do? If not
add wording to state this (see Precedent 1).
• How long is the appointment? Is the length of time clearly stated or referred to
elsewhere in the agreement, either by use of a definition or a reference to
another clause (which states clearly when the person appointed is to start
performing their obligations and when the agreement is terminated)?
• Do the definitions used agree? If this clause uses and refers to a number of
definitions, are all the definitions defined and make sense in the context
of the agreement and the transaction?

Location in the agreement

This clause is usually the first clause in the Main Commercial Provisions of an
agreement (usually immediately after the definition section).

Linkage and use

This clause is usually linked to:
• a number of definitions (such as Services, Price, Term, Goods, Conditions);
• other operative clauses of the agreement, which often relate to the
definitions stated in the previous bullet point.

Sample precedent material

Precedent 1—Appointment by one party of another to provide services

[Party A] hereby appoints [Party B] to [describe services to be provided]
for the Term in return for the Payments, and [Party B] accepts the ap-
pointment.

61

M02_Boilerplate_Clauses_A.indd 61 04/09/2017 08:04

 Appointment

Precedent 2—Appointment of an agent

[Party A] hereby appoints [Party B] as its sole agent in [define territory]
for the sale of all goods manufactured or dealt with by [Party A], and the
Agent accepts the appointment. Subject to earlier termination under
Clause [no], the appointment shall be for an initial period of five years
from the Commencement Date and thereafter will continue until the ap-
pointment shall be determined by six calendar months’ notice in writing.

Precedent 3—Alternative form for the appointment of agent

From the [date of this Agreement] (or) [Commencement Date] [Party A]
appoints [Party B] as its exclusive agent for the marketing and sale of the
Goods within the Territory for the Period.

Precedent 4—Alternative form for the appointment of agent without

using the word ‘appoint’
From the [date of this Agreement] (or) [Commencement Date] [Party B]
shall be the exclusive agent of [Party A] for the marketing and sale of the
Goods within the Territory for the Period.

Precedent 5—Appointment of service provider

From the [date of this Agreement] (or) [Commencement Date] [Party B]
shall provide the Services to [Party A] in accordance with the Specification
in consideration of the [Party A] paying the Fee to [Party B], subject to the
provisions of this Agreement.

62

M02_Boilerplate_Clauses_A.indd 62 04/09/2017 08:04

 Arbitration, alternative dispute resolution
and the use of experts

Purpose of the clause

Background
The purpose of arbitration ‘is to obtain the fair resolution of disputes by an
impartial tribunal without unnecessary delay or expense’ (Arbitration Act
1996, s 1(a)). The purpose of an arbitration clause in a contract is to enable
the resolution of a dispute between some or all of the contracting parties with
final and binding effect by an impartial third person or panel of persons,
acting in a judicial manner. The arbitrator’s authority is derived from the
agreement of the parties concerned.
The drafting of an arbitration clause assumes that the parties wish to use an
alternative method (arbitration) to resolve their dispute rather than use the
courts. Whether the parties wish to do this instead of resorting to litigation is
clearly a question that the parties will need to address first.
Clients sometimes have a vague impression that arbitration is cheaper, quicker
and more user-friendly than litigation in the courts. Even with the passing of
the Arbitration Act 1996 arbitration is not necessarily a cheaper or quicker
option than litigation. There are advantages of using arbitration:
• the parties can choose their own person to deal with their dispute (an
arbitrator who is experienced in the sector or the field in which the parties
operate);
• the parties, subject to the requirements of the 1996 Act, can decide on
their own procedure and timescale (and consequently, if the parties co-
operate, can make arbitration speedier than using the courts);
• the parties can keep their dispute and any result or award of the arbitration
confidential.
Some disadvantages:
• the cost of hiring an arbitrator (often at a daily rate or a fixed fee, which
is likely to be high for someone who is experienced or with sufficient
authority). This is likely to be even more expensive if there is more than
one arbitrator. For use of the English court system there is normally one

63

M02_Boilerplate_Clauses_A.indd 63 04/09/2017 08:04

 Arbitration, alternative dispute resolution and the use of experts

court fee (with some additional fees for various stages in the litigation),
regardless how long a case takes;

• the costs of ‘running’ the arbitration, which might include the hiring of
arbitration rooms, travel and accommodation expenses for the arbitrator
(and any other persons needed to help or work with the arbitrator, such
as someone to record or make a note of the proceedings);

• the lack of enforceable time limits and procedures (compared with

litigation where the court’s rules normally prescribe periods of times
for doing things or make things possible, such as obtaining evidence).
For example, it is more difficult to make a witness attend an arbitration
(or to produce evidence to an arbitration) than where the parties
are using litigation (see Tajik Aluminium Plant v Hydro Aluminium
AS [2005] EWCA Civ 1218, where the court would not compel a third
party to produce evidence to an arbitration). The agreement of all the
parties is necessary or the agreement of the arbitrator is needed before
an application to a court is made (and only if the witness is in the United
Kingdom and the arbitration is conducted in the UK);

• it is not normally possible for a party to challenge the way an arbitrator

is running the arbitration proceedings before the arbitrator has made an
award (unlike in litigation, where it is possible to appeal against certain
acts or decisions of a judge while a trial is in progress);

• the delays involved in getting busy arbitrators to find free time in their
diaries for hearing dates; and

• the likelihood of appeals being made to the court if a party does not like
the decision of an arbitrator.

Use of an ‘expert’ rather than an arbitrator

Arbitration is not the only alternative to court proceedings. It is possible to
refer a matter to an ‘expert’, which some parties may prefer, particularly if a
technical, rather than a legal, issue needs resolving. In recent years, mediation
and other forms of non-binding alternative dispute resolution (ADR) have
become popular. The precedents in this section include clauses referring
disputes to experts and mediators as well as arbitrators.

Parties sometimes agree to refer differences for determination to an

independent expert chosen for their expertise in relation to the particular
subject matter of the contract. Determination by an expert is not arbitration,
and therefore the procedural rules of the Arbitration Act 1996 do not apply.
The expert decides the question by using their own knowledge and expertise,
whereas an arbitrator acts judicially. Expert determinations are often provided
for in, for example, rent review clauses and other agreements involving
assessment of monetary amounts, and specialised technology agreements.

64

M02_Boilerplate_Clauses_A.indd 64 04/09/2017 08:04

 Arbitration, alternative dispute resolution and the use of experts

Confidentiality and enforceability issues

A factor that has always favoured arbitration is confidentiality. If the dispute
involves highly sensitive information, or the parties simply do not wish their
dispute to be publicly known, arbitration will generally allow a more private
resolution. Court proceedings are a matter of public record, although it is
sometimes possible to keep particularly confidential details out of the public
eye during litigation.
In international arbitrations, an arbitration award may, in some countries, be
easier to enforce than a foreign court judgment, depending on local laws in the
country in which enforcement is sought and how those laws are implemented.

Provisions of the Arbitration Act 1996 that apply despite

contents of an agreement
If the parties choose to use arbitration then certain mandatory provisions
of the Arbitration Act 1996 will apply notwithstanding any agreement to the
contrary (Arbitration Act 1996, s 4(1)). These include:
• ss 9–11 (power of a party to the arbitration to stay relevant legal
proceedings);
• s 24 (removal of an arbitrator by the court on application by a party);
• s 43 (powers of a court to secure attendance of witnesses); and
• ss 67, 68 (power of party to challenge an award on grounds of want of
jurisdiction or serious irregularity).
The full list of mandatory provisions is set out in Schedule 1 to the Arbitration
Act 1996. The other provisions of the Act allow the parties to make their own
arrangements by agreement, but provide rules that apply in the absence of
such agreement (Arbitration Act 1996, s 4(2)).

Arbitral institutions
In certain commercial fields, bodies have been set up to provide an
arbitration framework with specialised rules of procedure, services and staff.
Examples include the Chartered Institute of Arbitrators, the London Court
of International Arbitration and the ICC International Court of Arbitration.
Where parties agree to refer any dispute to such a body, the form of referral
clause drawn up by that body should be used.

Contracts with an international element

In international contracts, a further question arises as to whether the courts
in each party’s ‘home territory’ will enforce the arbitration award. In some

65

M02_Boilerplate_Clauses_A.indd 65 04/09/2017 08:04

 Arbitration, alternative dispute resolution and the use of experts

countries, an arbitration award may not be legally enforceable without a retrial

of the action. Enforcement will be much easier in countries that are parties to
the New York Convention; indeed enforcement of arbitration awards may be
easier in some of these countries than enforcement of a foreign court order.
Where a contract with a party based in a foreign country is contemplated,
advice should be taken from local lawyers in that country as to how their courts
would implement an arbitration award, and whether any particular form of
words should be used in the arbitration clause.

Alternative dispute resolution (ADR)

In recent years, the Centre for Effective Dispute Resolution (CEDR) and other
bodies (such as the Chartered Institute of Arbitrators and the ADR Group)
have been prominent in promoting methods of alternative dispute resolution
such as mediation, informal opinions by a neutral third party, and structured
negotiation. Such methods only work if the parties are all willing to use ADR
in good faith. The subject matter of the dispute must also be amenable to such
methods of resolution. For example, ADR may not be suitable for disputes
that turn on matters of law.
The courts are keenly encouraging the use of ADR. For example, the Civil
Procedure Rules now provide that there is duty on the court through case
management powers to encourage the use of ADR. Certain pre-trial protocols
include provisions relating to the use of ADR. Court guides also have further
steps to encourage the use of ADR, eg, see Appendix 7 of the Commercial
Court Guide.
In appropriate cases, where the parties ignore a recommendation to use ADR,
the courts may make no order as to costs (see McMillan Williams (a firm) v Range
[2004] EWCA Civ 294, [2004] All ER (D) 335 (Mar)). In Halsey v Milton Keynes
General NHS Trust [2004] EWCA Civ 576, the Court of Appeal set out guidance
on the factors that a court should take into account when considering whether
a party’s refusal to agree to ADR is unreasonable, and therefore dis-apply
CPR 44.3(2) (that the costs in a case normally are paid by the unsuccessful
party). The factors to be taken into account include: the nature of the
dispute, the merits of the case, whether other settlement methods have been
attempted, whether the costs of mediation would be disproportionately high,
delay, and whether the mediation had a reasonable prospect of success.

Summary
An agreement to submit to arbitration amounts to a voluntary surrender of a
party’s right to pursue its remedy for breach of contract through the courts.
Therefore the parties need to give careful consideration as to whether to
include a clause to that effect in a contract. The party being advised must be
made fully aware of its future obligation, in the event of a dispute arising, to
submit to the arbitrator’s jurisdiction and accept the award, however much

66

M02_Boilerplate_Clauses_A.indd 66 04/09/2017 08:04

 Arbitration, alternative dispute resolution and the use of experts

the party may feel aggrieved at that future time. This is particularly so where
the right of appeal to the court on a question of law is excluded.
For this reason, arbitration clauses are usually to be found in agreements in
which the parties are more or less on an equal footing, and which confirm
and formalise their desire to co-operate in a project or transaction. Typical
examples might be: shareholders’ agreements, joint ventures, research and
technical aid agreements, partnership deeds and certain contracts for services.
In these types of transaction, the parties will often wish differences to be settled
quickly and inexpensively, and with a minimum of animosity or publicity. An
arbitration clause may not be appropriate where one of the parties has, by the
very nature of the transaction, the upper hand, as in an agency or franchise
agreement, or contract of employment, or financing and loan agreement. Of
course, each case must be treated on its merits.

Drafting issues

• Is an arbitrator or an expert required? Where the issue is purely technical and

raises no legal issues, it may be more appropriate to refer the dispute to
an expert. Usually, the expert will have specialist knowledge of the matter
on which his decision is sought.
For example, a software development agreement may call for an expert who
has a background in the development of software (or particular/specific
technical knowledge of a particular coding application) to determine
whether the software developer has properly coded an application.
The parties will usually agree that the expert’s decision is to be final
and binding on the parties. Failure to comply with the expert’s decision
will then be a breach of contract, but the expert’s decision will not be
enforceable without further court proceedings, unlike an arbitrator’s
decision.
• Use of an expert. Where the parties wish disputes to be settled by an expert,
this must be made quite clear in order to avoid any subsequent confusion
with arbitral proceedings:
‘… such person to act as expert and not as arbitrator.’

In the absence of instructions, the expert will have complete freedom

as to the manner in which they proceed; the parties should therefore
consider whether they wish to place any restriction or specification as to
his appointment or his conduct of the investigation. They may also agree
to be bound by the expert’s decision, as there is no statutory fetter on
this, but it may be wise to stipulate that each party has a chance of at least
being heard:
‘[the expert’s] decision shall be final and binding on all parties but before
making a decision he shall give all parties a full opportunity of making
such representation as they may reasonably require.’

67

M02_Boilerplate_Clauses_A.indd 67 04/09/2017 08:04

 Arbitration, alternative dispute resolution and the use of experts

Other terms may also be appropriate, eg stating that the expert’s costs are
to be borne equally by the parties.
• How long should the arbitration agreement be? The contract drafter is faced
with some difficult choices when drafting an arbitration clause. If the
clause is to deal with every possible aspect it could become longer than
the main commercial provisions of the agreement. Instead, parties tend
to include a relatively short arbitration clause in the commercial contract,
and rely on the legal framework provided by the Arbitration Act 1996.
They may then choose to supplement these provisions with a more
detailed arbitration agreement, if and when a dispute arises.
• Should a single arbitrator be appointed or a panel of two or three? A three-person
arbitration will be more expensive than using a single arbitrator and
may be more time-consuming (particularly if the hearing extends over
several days and the arbitrators’ diaries are full, in which case hearing
dates may end up being several months apart). On the other hand, it may
lead to a better decision, and be less likely to be affected by the personal
views of an individual. A multi-person arbitration panel may include both
persons skilled in the subject matter of the dispute and lawyers with an
understanding of the underlying contract law.
• How should the arbitrator be chosen? Should the parties agree between
themselves who the arbitrator should be or, if they cannot agree after a
certain period of time, should someone be designated to act as appointing
authority at the request of either party to the agreement? In many general
transactions the custom is to appoint the President of the Law Society or
of the Chartered Institute of Arbitrators, but it may be more appropriate
to designate an official of a body relevant to the subject matter of the
agreement with a view to obtaining the appointment of a person with
specialist knowledge of the subject area of the dispute. It should be first
ascertained whether the association in question is willing to act.
It should also be checked whether the appointing body has a panel of
arbitrators that it will invariably recommend and, if so, what criteria
are used for including people on that panel. It is understood that some
organisations may have rather short lists of ‘self-selected’ individuals who
are members of the organisation.
Where a three-person arbitration panel is to be used, it is sometimes
agreed that each party will select one of the arbitrators, and the two
selected arbitrators will select the third arbitrator. Or (as a variation on
this theme) there may be a two-person panel, with referral to an umpire
chosen by the two arbitrators if they are unable to agree.
In the majority of agreements, and where both parties are domiciled in
the UK, the parties will agree to refer disputes to a sole arbitrator, leaving
the choice of arbitrator to be agreed on by themselves, eg:
‘any dispute … shall be referred to the decision of a single arbitrator to be
agreed upon between the parties.’

68

M02_Boilerplate_Clauses_A.indd 68 04/09/2017 08:04

 Arbitration, alternative dispute resolution and the use of experts

In such a case provision has to be made in the event of disagreement as to

the appointment of an arbitrator, eg:
‘or in default of agreement within 14 days to be appointed at the request
of either party by the President for the time being of the Law Society of
England and Wales.’

Where there are more than two parties to the agreement, as, say, in
many partnership agreements, it is more practical to provide for a third-
party appointment as soon as a dispute has arisen, since to obtain the
agreement of all the parties on an appointment might well be difficult and
time-consuming. However, in such a case the precise ‘trigger’ for the third
party reference should be specified, ie by request of one/two parties. Eg:
(dentists’ partnership agreement)
‘… shall be referred to an arbitrator to be nominated on the request
of any partner by the Secretary for the time being of the British Dental
Association.’

• Multi-arbitrator agreements. Where there may be practical difficulties

in agreeing on the appointment of a sole arbitrator, as where one or
more parties are not resident in the United Kingdom, or in the more
complex commercial agreements, it may be advisable to provide for the
appointment of two or more arbitrators, presided over by an umpire.
Usually the umpire is appointed by the arbitrators, and has no part in the
proceedings unless the arbitrators fail to agree, in which case the umpire
will enter the proceedings and make an award as if he were sole arbitrator.
Even if express power to appoint an umpire is not given to the arbitrators,
there is under the Arbitration Act 1996 deemed to be such a power unless
a contrary intention is expressed, but it may be thought advisable to make
the basic rules of procedure clear in the initial agreement. Eg:
‘Any dispute or difference between the parties in connection with this
agreement shall be referred to two arbitrators, one appointed by each
party.’

A longer form, for more complex situations, can be seen in Precedent 11.
Alternatively, future disputes may be referred to a tribunal of three
arbitrators, two to be appointed by the parties and the third to be
appointed by those appointees. In such a case, the award of any two of the
arbitrators is binding on the parties. Eg:
‘Any dispute or difference between the parties in connection with this
agreement shall be referred to arbitration in [London] by a tribunal
of three arbitrators. Each party shall appoint one arbitrator. The third
arbitrator shall be appointed by the arbitrators so appointed or, failing
agreement, by (appointing authority).’

However, it is advisable in ‘tribunal’ provisions to provide for failure of a

party to appoint an arbitrator, and for failure of the three arbitrators to
agree on an award.
• Does the arbitrator need particular expertise or a specific qualification? Should
the arbitrator have some technical or specified expertise?

69

M02_Boilerplate_Clauses_A.indd 69 04/09/2017 08:04

 Arbitration, alternative dispute resolution and the use of experts

• What disputes or issues can be considered by an arbitrator?

• Does the reference to arbitration only cover a dispute? Or
• Can it extend to a question or mere difference between the parties?
• Should the clause cover all or some of the terms or the rights and
liabilities of the parties?
A typical arbitration clause will apply on a very wide basis, eg to:
‘any difference between the parties concerning the interpretation
or validity of this agreement or the rights and liabilities of any of the
parties’ or:
‘any dispute, difference or question which may arise at any time hereafter
between [party] and [party] as to the meaning of the terms of this
agreement or the rights or liabilities of the parties’
or, more simply and more usually:
‘any dispute arising out of or in connection with this agreement.’
Note that the words ‘arising out of’ have a wider application than ‘under’,
and they have been held to include a claim for quantum meruit and a claim
under the Law Reform (Frustrated Contracts) Act 1943 (see Government
of Gibraltar v Kenney [1956] 2 QB 410, [1956] 3 All ER 22; and Mustill and
Boyd Commercial Arbitration (3rd Edn, 2012) pp 117–122).
Where the agreement to go to arbitration is also to cover a dispute arising
from the acts of a person who is not himself a party to the agreement,
eg an agent or valuer, it may be advisable to confirm this, eg:
‘any dispute arising out of or in connection with this agreement including
any dispute as to any decision, opinion, direction or valuation of [agent].’
Where, because of the particular subject matter of the agreement, liability
may arise after its termination (eg a manufacturing or building contract),
a party may wish to ensure that the agreed reference to arbitration covers
such a situation by adding:
‘whether before or after the termination, abandonment or breach of the
contract.’
• Which procedural rules should be adopted (such as the International Chamber of
Commerce Court of Arbitration or the London Court of International Arbitration)?
By far the most common method of designating the arbitration procedure
is to state that the appropriate statutory code shall apply. This is currently
contained in the Arbitration Act 1996.
Strictly speaking, it is unnecessary to apply the Act, as Part I (ss 1–84) of
the Act (containing the rules for arbitral proceedings) applies in all cases
where the ‘seat of the arbitration’ is in England and Wales (Arbitration
Act 1996, s 2(1)). The ‘seat of the arbitration’ is the juridical seat of
the arbitration designated by the parties to the agreement or by the
arbitral institution or tribunal empowered to act; in the absence of such
designation it is determined having regard to the parties’ agreement and
‘all the relevant circumstances’ (Arbitration Act 1996, s 3).

70

M02_Boilerplate_Clauses_A.indd 70 04/09/2017 08:04

 Arbitration, alternative dispute resolution and the use of experts

Express provision in the arbitration clause applying the Arbitration Act

1996 will avoid any doubt over the matter, eg:
‘in accordance with and subject to the provisions of the Arbitration Act
1996.’

It is customary to add:
‘or any re-enactment or modification of such Act for the time being in
force.’

It could be argued that these words are not strictly necessary by virtue
of the Interpretation Act 1978, ss 17 and 23, but it may be felt safer to
insert them. However, wording of this nature is redundant and should be
omitted where (as is often the case) a general interpretation clause in the
agreement provides for modifications to legislation.

To avoid any doubt as to the place of arbitration, the parties may agree to
be specific, eg:
‘The arbitration shall take place in [London].’

Although adopting the rules and procedures of an arbitration body

should assist the smooth running of the arbitration and help to avoid
prevarication by one or more of the parties to the arbitration, will the
detailed procedures of the chosen arbitration body be appropriate to the
type of dispute?

Eg, the International Chamber of Commerce (ICC) is regarded as a major

international ‘heavyweight’ in the arbitration field. It can bring political
influence to bear, eg in persuading a country to accept an arbitration
award. However, it is also very expensive to use, and is not regarded as
particularly flexible – to a certain extent you must follow the ICC way of
doing things, even if the parties would prefer to do things a different way.
It is probably not the best choice for a small- to medium-sized contract,
eg a typical patent licence agreement. Instead, the rules of a body such as
the London Court of International Arbitration (LCIA) may be preferable.
Copies of the rules can usually be obtained from the body concerned.

• Language and law in international arbitrations. For international arbitrations,

which language is the arbitration to be conducted in, and which country’s
laws are to be applied (both substantive contract laws and procedural
laws)?

• Excluding the right of appeal to the court. Section 69(1) of the Arbitration Act
1996 provides that parties to arbitral proceedings may appeal to the court
on a question of law arising out of an award ‘unless otherwise agreed by
the parties’. Parties who wish to exclude this right of appeal and thus avoid
the attendant delay and expense sometimes incorporate the following
wording in the arbitration clause:
‘and the decision of the arbitrator shall be final and binding on all the
parties.’

71

M02_Boilerplate_Clauses_A.indd 71 04/09/2017 08:04

 Arbitration, alternative dispute resolution and the use of experts

It is not safe to assume that the inclusion of such words will be held to
amount to an exclusion agreement for the purposes of the Act. The
agreement to exclude should be clearly stated; words such as the following
are sometimes used:
‘The parties agree to exclude any right of application or appeal to the
English courts concerning any question of law arising in the course of the
arbitration.’

However, it is not possible to exclude the right of a party to apply to the

court challenging an award on the ground of substantive jurisdiction
(ie under the Arbitration Act 1996, s 67) or on the ground of serious
irregularity (ie under s 68), as these are mandatory provisions.
Also, in some cases, where parties are not based in the UK or the arbitration
takes place otherwise than in the UK, it may be open to a party to seek
judicial remedies (such as injunctions).
• Post-termination issues. Where, because of the particular subject matter of
the contract, liability may arise after the termination of the contract (eg in
the case of a manufacturing or building contract), a party may wish to
ensure that the agreed reference to arbitration covers such a situation.

Location in the agreement

A short arbitration or use of experts clause will usually be located either:

• in a separate clause in the Boilerplate section of an agreement; or
• together with the Law and jurisdiction clause in the Boilerplate section of
an agreement.
Longer form arbitration or experts clauses are usually located in a separate
schedule to the agreement, with a short clause in the main part of the
agreement.

Linkage and use

See above.

Consumer issues

A clause which constitutes an arbitration agreement is unfair for the purposes

of the regulations as to unfair terms in consumer contracts (ie the Unfair Terms
in Consumer Contracts Regulations 1999, SI 1999/2083 so far as it relates to a
claim for a pecuniary remedy which does not exceed £5,000 (Arbitration Act
1996, s 91; Unfair Arbitration Agreements (Specified Amount) Order 1999,
SI 1999/2167, Article 3).

72

M02_Boilerplate_Clauses_A.indd 72 04/09/2017 08:04

 Arbitration, alternative dispute resolution and the use of experts

Sample precedent material

Precedent 1—Sole arbitrator – Arbitration Act 1996 – short clause

Any dispute under or arising out of this agreement shall be referred to
a single arbitrator in accordance with the provisions of the Arbitration
Act 1996.

Precedent 2—Sole arbitrator – Arbitration Act 1996 – longer clause

All disputes or differences which shall at any time arise between the par-
ties concerning this agreement or its construction or effect or the rights,
duties or liabilities of the parties under it or any other matter in any way
connected with or arising out of the subject matter of this agreement shall
be referred to a single arbitrator to be agreed upon by the parties or in de-
fault of agreement to be nominated by the President for the time being of
the [Chartered Institute of Arbitrators] in accordance with the Arbitration
Act 1996.

Precedent 3—Sole arbitrator – Arbitration Act 1996 – full clause

All disputes, differences or questions arising out of this agreement or as
to the rights or obligations of the Parties under it or in connection with its
construction shall be referred to arbitration by a single arbitrator to be
agreed between the Parties or, failing agreement, within 14 days by an
arbitrator to be appointed at the request of any party by [the President
for the time being of The Law Society of England and Wales] having due
regard to any representations made to him as to the appropriate qualifi-
cations of such arbitrator. The arbitration shall take place in [London] and
shall be in accordance with the Arbitration Act 1996 or any re-enactment
or modification of such Act for the time being in force.

Precedent 4—Two arbitrators and umpire – Arbitration Act 1996 – short

clause
Any difference between the parties concerning the interpretation or valid-
ity of this agreement or the rights and liabilities of any of the parties shall
in the first instance be referred to the arbitration of two persons (one to
be nominated by each of the parties in dispute) or their mutually agreed
umpire in accordance with the provisions of the Arbitration Act 1996.

Precedent 5—Two arbitrators and umpire under agreed procedure

Any dispute or difference between the parties in connection with this
agreement shall be referred to two arbitrators.
1 The arbitration shall be held in [London].
2 Each party shall appoint one arbitrator. The arbitrators so appointed
shall forthwith appoint an umpire. The umpire shall attend all hear-
ings, including preliminary meetings, but shall act only if the arbitra-
tors appointed by the parties fail to agree.

73

M02_Boilerplate_Clauses_A.indd 73 04/09/2017 08:04

 Arbitration, alternative dispute resolution and the use of experts

3 A party who has appointed an arbitrator shall be entitled to appoint

that arbitrator to act as sole arbitrator in the reference if:
(a) that party serves the other party with a notice to appoint one
arbitrator, and
(b) the other party fails to appoint an arbitrator within 7 clear days
of service.
4 The procedure shall be agreed by the parties or, failing agreement,
determined by the arbitrators or, if necessary, by the umpire.
5 If either party fails to comply with any procedural order made by the
arbitrators or umpire, the arbitrators or umpire shall have power to
proceed in the absence of that party and to deliver the award.

Precedent 6—Reference to arbitral body – short clause

In the event of any difference or dispute arising between the parties as
to the construction of this agreement the difference or dispute shall be
determined by an arbitrator appointed in accordance with the Rules of
Arbitration of the London Chamber of Commerce.

Precedent 7—Dispute resolution – reference through management levels

– final determination by expert
1 Any dispute arising out of or in connection with this agreement will in
the first instance be referred to the parties’ [Project Representatives]
for discussion and resolution at or by the next progress meeting or
at an earlier date if so requested by either party. If the dispute is not
resolved at that meeting, the dispute will be referred to the second
management level who must meet within [3] working days of the ref-
erence to attempt to resolve the dispute. [If the dispute is not resolved
at that meeting, the escalation will continue with the same maximum
time interval up to the third management level.] If the unresolved dis-
pute is having a material effect on the Project, the parties will use their
respective best endeavours to reduce the elapsed time in reaching a
resolution of the dispute.
2 The levels of escalation are:
Customer
Contractor
Second Level
(specify)
(specify)
[Third Level
(specify)
(specify)]
If any of the above is unable to attend a meeting, a substitute may
attend, provided that such substitute has at least the same seniority
and is authorised to settle the unresolved dispute.

74

M02_Boilerplate_Clauses_A.indd 74 04/09/2017 08:04

 Arbitration, alternative dispute resolution and the use of experts

3 Each party will use all reasonable endeavours to reach a negotiated

resolution through the above dispute resolution procedure. The spe-
cific format for such resolution will be left to the reasonable discretion
of the relevant management level, but may include the preparation
and submission of statements of fact or of position.
4 If the dispute is not resolved at the meeting of the [second or third]
management level, then either party may (at such meeting or within
[14] days of its conclusion) request that the dispute be referred to an
expert to be agreed between the parties.
5 If the parties cannot agree on an expert to act within [14] days of the
date of the request to appoint an expert, such independent expert will
be appointed by [the President for the time being of the Chartered
Institute of Arbitrators or the Centre for Dispute Resolution or the
President for the time being of [name of body] on the application of
either party.
6 Any person to whom a reference is made under Clause 4 or 5 will act
as an expert and not as an arbitrator. The parties agree that the deci-
sion of the expert (which will be given in writing, stating reasons) will
be final and binding on the parties.
7 Each party will provide the expert to whom a reference is made under
this Clause [no] with such information as he may reasonably require
for the purposes of his determination. If either party claims any such
information to be confidential to it then, provided in the opinion of
the expert that party has properly claimed the same as confidential,
the expert will not disclose the same to the other party or to any third
party.
8 The costs of the reference to an expert (including the costs of any
technical expert appointed by him) will be borne in the first instance
by the party making the reference. The expert will in his decision de-
termine the liability for such costs, which decision will be final and
binding on the parties.
9 Nothing in this Clause [no] will restrict, at any time while the above
dispute resolution procedures are in progress or before or after they
are invoked, either party’s freedom to commence legal proceedings
to preserve any legal right or remedy or to protect any intellectual
property or trade secret right.

Precedent 8—Dispute resolution – reference to senior representatives

assisted by neutral adviser/mediator
1 The parties will use their best efforts to negotiate in good faith and
settle any dispute that may arise out of or relate to this agreement
or any breach of it. If any such dispute cannot be settled amicably
through ordinary negotiations by the [Project Representatives], the
dispute shall be referred to the senior representatives nominated by
the managing director of each party who will meet in good faith in

75

M02_Boilerplate_Clauses_A.indd 75 04/09/2017 08:04

 Arbitration, alternative dispute resolution and the use of experts

order to try and resolve the dispute. If the dispute or difference is not
resolved as a result of such meeting either party may (at such meet-
ing or within 14 days of its conclusion) propose to the other in writing
that structured negotiations be entered into with the assistance of a
neutral adviser or mediator (‘Neutral Adviser’) before resorting to liti-
gation.

2 If the parties are unable to agree on a Neutral Adviser or if the Neutral

Adviser agreed upon is unable or unwilling to act, any party may,
within [14] days from the date of the proposal to appoint a Neutral
Adviser or within [14] days of notice to any party that he is unable or
unwilling to act, apply to [the Centre for Dispute Resolution (‘CEDR’)]
in London to appoint a Neutral Adviser.

3 The parties will within [14] days of the appointment of the Neutral
Adviser meet with him in order to agree a programme for the ex-
change of any relevant information and the structure to be adopted
for the negotiation to be held in London. If considered appropriate
the parties may at any stage seek assistance from [CEDR] to provide
guidance on a suitable procedure.

4 All negotiations connected with the dispute will be conducted in com-

plete confidence, and the parties undertake not to divulge details of
such negotiations except to their professional advisers who will also
be subject to such confidentiality, and will be without prejudice to the
rights of the parties in any future proceedings.

5 If the parties accept the Neutral Adviser’s recommendations or oth-

erwise reach agreement on the resolution of the dispute, such agree-
ment shall be reduced to writing and, once it is signed by their duly
authorised representatives, shall be final and binding on the parties.

6 Failing agreement, any of the parties may invite the Neutral Adviser
to provide a non-binding but informative opinion in writing as to the
merits of the dispute and the rights and obligations of the parties.
Such opinion will be provided on a without prejudice basis and will
be private and confidential to the parties and may not be used in evi-
dence in any proceedings commenced pursuant to the terms of this
agreement without the prior written consent of all the parties.

7 If the parties fail to reach agreement in the structured negotiations

within [30] days of the Neutral Adviser being appointed, such a failure
shall be without prejudice to the right of any party subsequently to
refer any dispute or difference to litigation but the parties agree that
before resorting to litigation structured negotiations in accordance
with this Clause [no] shall have taken place.

8 Nothing contained in this Clause [no] shall restrict either party’s free-
dom to commence legal proceedings to preserve any legal right or
remedy or protect any proprietary or trade secret right.

76

M02_Boilerplate_Clauses_A.indd 76 04/09/2017 08:04

 Arbitration, alternative dispute resolution and the use of experts

Precedent 9—Long form – dispute resolution by specialist expert or

arbitrator
1 Definition
For the purposes of Clauses 1 to 7:
1.1 ‘Dispute’ means a dispute, issue, difference, question or claim
as between the Fund and the Developer relating to or arising out
of this agreement.
1.2 ‘Party’ means a party to the Dispute.
1.3 ‘Specialist’ means a person qualified to act as an independent
expert or an arbitrator in relation to the Dispute having experi-
ence in the profession in which he practises for the period of at
least [10] years immediately preceding the date of referral.
2 Dispute Notice
Either Party may give to the other notice (‘Dispute Notice’) requiring a
Dispute to be referred to a Specialist and:
2.1 proposing an appropriate Specialist; and
2.2 stating whether the Specialist is to act as an independent expert
or an arbitrator.
3 Counter Notice
The Party served will be deemed to accept the proposals made in
the Dispute Notice unless that Party within [10] Working Days of ser-
vice of the Dispute Notice gives notice rejecting one or more of the
proposals, or unless each Party serves a Dispute Notice on the other
contemporaneously.
4 Type of Specialist
Unless the Parties agree or are deemed to agree the appropriate
Specialist:
4.1 if the Parties do not agree which type of Specialist is appro-
priate to resolve the Dispute, either Party may refer that ques-
tion to the President or next most senior available officer of [the
Royal Institution of Chartered Surveyors] who will (with the right
to take such further advice as he may require) determine that
question and nominate or arrange to have nominated the appro-
priate Specialist;
4.2 if the Parties do agree the appropriate type of Specialist but do
not agree the identity of the Specialist, he will be nominated on
the application of either Party by the President or other most
senior available officer of the organisation generally recognised
as being responsible for the relevant type of Specialist; but if
no such organisation exists then by the President or next most
senior available officer of [the Royal Institution of Chartered
Surveyors].

77

M02_Boilerplate_Clauses_A.indd 77 04/09/2017 08:04

 Arbitration, alternative dispute resolution and the use of experts

5 Expert or arbitrator
Unless the Dispute is of such a nature that it is not capable of be-
ing referred to an arbitrator or both Parties agree (or are deemed to
agree) that a Specialist should act as an expert, the reference will be
made to him as an arbitrator under the Arbitration Act 1996.
6 Experts
Where a Specialist is to act as an independent expert:
6.1 each Party may within [10] Working Days of his appointment
make written representations which will be made to him and
copied to the other Party;
6.2 each Party will be given a further [5] Working Days to give him
written comment on those representations;
6.3 the Specialist will be at liberty to call for such written evidence
from the Parties and to seek such legal or other expert assis-
tance as he may [reasonably] require;
6.4 the Specialist will not take oral representations from a Party
without allowing to both Parties the opportunity to be present
and to give evidence and to cross-examine each other;
6.5 the Specialist will have regard to all representations and evi-
dence when making his decision which will be in writing [but he
will not or and he will] be required to give reasons for his deci-
sion;
6.6 the Specialist will use all reasonable endeavours to publish his
decision within [6] weeks of his appointment.
7 Costs
The liability for paying all costs of referring a Dispute to a Specialist
under this Clause, including costs connected with the appointment of
the Specialist [and or but not] the legal and other professional costs
of any Party in relation to a Dispute, will be decided by the Specialist.

Precedent 10—Appointment of expert

1 Pursuant to Clause [no], Party A may serve notice on Party B (‘Referral
Notice’) that it wishes to refer to an expert (the ‘Expert’) the questions
set out in Clause [no].
2 The Parties shall agree the identity of a single independent, impartial
expert to determine such questions. In the absence of such agree-
ment within 30 days of the Referral Notice, the questions shall be re-
ferred to an expert appointed by the President of the Law Society of
England and Wales.
3 60 days after the giving of a Referral Notice, both Parties shall ex-
change simultaneously statements of case in no more than 10,000

78

M02_Boilerplate_Clauses_A.indd 78 04/09/2017 08:04

 Arbitration, alternative dispute resolution and the use of experts

words, in total, and each side shall simultaneously send a copy of its
statement of case to the Expert.
4 Each Party may, within 30 days of the date of exchange of statement
of case pursuant to paragraph 3 above, serve a reply to the other
side’s statement of case of not more than 10,000 words. A copy of
any such reply shall be simultaneously sent to the Expert.
5 The Expert shall make his decision on the said questions on the basis
of written statements and supporting documentation only and there
shall be no oral hearing. The Expert shall issue his decision in writing
within 30 days of the date of service of the last reply pursuant to para-
graph 4 above or, in the absence of receipt of any replies, within 60
days of the date of exchange pursuant to paragraph 3 above.
6 The Expert’s decision shall be final and binding on the Parties.
7 The Expert’s charges shall be borne equally by the Parties.

Precedent 11—Multi-arbitrator agreements

Any dispute or difference between the Parties in connection with this
agreement shall be referred to two arbitrators.
1 The arbitration shall be held in [London].
2 Each Party shall appoint one arbitrator. The arbitrators so appointed
shall forthwith appoint an umpire. The umpire shall attend all hear-
ings, including preliminary meetings, but shall act only if the arbitra-
tors appointed by the Parties fail to agree.
3 A Party who has appointed an arbitrator shall be entitled to appoint
that arbitrator to act as sole arbitrator in the reference if:
3.1 that Party serves the other Party with a notice to appoint one
arbitrator; and
3.2 the other Party fails to appoint an arbitrator within 7 clear days
of service.
4 The procedure shall be agreed by the Parties or, failing agreement,
determined by the arbitrators or, if necessary, by the umpire.
5 If either Party fails to comply with any procedural order made by the
arbitrators or umpire, the arbitrators or umpire shall have power to
proceed in the absence of that Party and to deliver the award.

Precedent 12—Multi-arbitrator agreement – alternative form

Any dispute or difference between the Parties in connection with this
agreement shall be referred to arbitration in [London].
1 The tribunal shall consist of three arbitrators and shall be constituted
as follows:
1.1 the claimant shall nominate an arbitrator and may by written
notice call on the other Party to nominate an arbitrator within

79

M02_Boilerplate_Clauses_A.indd 79 04/09/2017 08:04

 Arbitration, alternative dispute resolution and the use of experts

30 days of the notice, failing which such arbitrator shall at the

claimant’s request be appointed by [appointing authority];
1.2 the third arbitrator [who shall serve as chairman of the tribunal]
shall be appointed by the 2 arbitrators appointed under Clause
[1.1] above or, failing agreement within 30 days of the appoint-
ment of the second arbitrator, on the nomination of [appointing
authority] at the written request of either or both of the Parties;
1.3 if a vacancy arises because any arbitrator dies, resigns, refuses
to act, or [in the opinion of his fellow arbitrators] becomes inca-
pable of performing his functions, the vacancy shall be filled by
the method by which that arbitrator was originally appointed.
2 The procedure shall be agreed by the Parties or, failing agreement,
determined by the tribunal.
3 If either Party fails to comply with any procedural order of the tribunal,
the tribunal shall have power to proceed in that Party’s absence and
to deliver the award.
4 If necessary any award or procedural decision of the tribunal shall be
made by a majority vote. If no majority vote is formed, the chairman
shall make an award or procedural decision as if he were sole arbitra-
tor.

80

M02_Boilerplate_Clauses_A.indd 80 04/09/2017 08:04

 Assignment and novation

Purpose of the clause

Introduction
These words refer to the assignment of the rights and the transfer of the
obligations of a party under a contract to another party. The term ‘assignment’
also has other meanings, which are not considered here (eg, the assignment
of a patent means the transfer of legal title to the patent, distinguished from a
licence under the patent).

The different elements

There are three different elements:
• an assignment of rights;
• a transfer of obligations; and
• transfer of both rights and obligations.
The last of these three is known as ‘novation’.

Use of the word ‘assignment’ in an agreement

It is not good practice to state in a contract that an agreement is being
‘assigned’, as the precise meaning may not be clear (see Linden Gardens Trust
Ltd v Lenesta Sludge Disposal Ltd [1994] 1 AC 85 at 103, [1993] 3 All ER 417 at
427, HL). It is better to:
• use the word ‘assignment’ only in relation to a transfer of rights; and
• use ‘transfer’ with regard to obligations.
If there is a reluctance to use both words then a compromise is to use a phrase
such as ‘assignment of rights and obligations’, which at least has the merit of
making it clear that both rights and obligations are involved.

Meaning of an assignment of rights

Generally, a party may assign rights under a contract without the consent of
the other contracting party (Caledonia North Sea Ltd v London Bridge Engineering
Ltd [2000] Lloyd’s Rep IR 249). This general principle does not apply to
contracts that:

81

M02_Boilerplate_Clauses_A.indd 81 04/09/2017 08:04

 Assignment and novation

• involve a personal relationship (eg agent or employee), or

• include an express or implied term preventing assignment.

Meaning of a transfer of obligations

Unless a contract states otherwise, a party cannot transfer an obligation
under a contract without the consent of the other contracting party (Robson
v Drummond (1831) 2 B & AD 303; Humble v Hunter (1848) 12 QB 310 at 317).

Meaning of a novation
Where there is both an assignment of rights and a transfer of obligations
(with the consent of the other party), there will be, in effect, a novation of
the contract. Novations normally require the agreement of all three parties:
the transferor, the transferee and the other contracting party (Rasbora Ltd v
JCL Marine Ltd [1977] 1 Lloyd’s Rep 645; The Blankenstein [1985] 1 All ER 475;
The Aktion [1987] 1 Lloyd’s Rep 283). There would seem to be nothing to
prevent the parties to a contract agreeing, as a term of the contract, that rights
and obligations of one party under a contract may in the future be transferred
to a third party.
It is possible to novate:
• only part of an agreement (see Telewest Communications plc v Customs and
Excise Commissioners [2005] EWCA Civ 102, Seakom Ltd v Knowledgepool
Group Ltd [2013] EWHC 4007 (Ch));
• an agreement by acquiescence (ie agreement is or may be inferred from
the conduct of a party) (see Telewest Communications plc v Customs and Excise
Commissioners [2005] EWCA Civ 102), and that ‘the less the significance
of the change to the customer, the more readily can acquiescence be
inferred by conduct’ (from the judgment). This might mean that it is
not necessary to enter into a formal agreement. It is possible to effect a
novation by a supplier notifying a customer that it wishes to transfer its
rights and obligations under the contract to a new supplier, and by the
customer making payment to the new supplier.

Effect of a no-assignment clause

The effect of a no-assignment clause (which forbids assignment of a contractual
clause except with the prior consent of a party (which cannot be unreasonably
withheld)) is that there can be no valid assignment:
• until the party provides its written consent; or
• a court has made a declaration that the party has unnecessarily refused
to provide consent (see Hendry v Chartsearch Ltd (1998) CLC 1382. See

82

M02_Boilerplate_Clauses_A.indd 82 04/09/2017 08:04

 Assignment and novation

also Helstan Securities Ltd v Hertfordshire County Council [1978] 3 All ER 262
and Linden Gardens Trust Ltd v Lenesta Sludge Disposal Ltd [1994] 1 AC 85,
[1993] 3 All ER 417 on the effectiveness of non-assignment clauses).
The court in Hendry distinguished contractual assignments from lease
assignments where if there was an assignment of a lease, such an assignment
may still be valid despite prohibition and allow the lessor to sue the assignee
on other covenants in the lease.
If a contract contains a prohibition of assignment of contractual rights (or
where there is no prohibition but the contract involves rendering personal
services), but there is in fact such an assignment, the assignment will be
ineffective at law. However it might be effective in equity as a declaration of
trust between the assignor and the assignee (Don King Productions Inc v Warren
[1998] 2 All ER 608; affirmed in Don King Productions Inc v Warren [1999] 2 All
ER 218, CA; applied in Swift v Dairywise Farms Ltd [2003] 1 All ER 320), and
it is clear that the parties had the intention to create a trust because to do
so was the sole method of transferring the benefit of a contract (Co-operative
Group Ltd v Birse Developments [2014] EWHC 530 (TCC)). The effectiveness
and extent of an assignment in equity is beyond the scope of this book, and is
not without controversy.

Drafting issues

• Assignment: permitted/prohibited? Is the assignment of rights or the transfer

of obligations permitted or prohibited?
• a common provision in many agreements is a general prohibition on
any assignment or transfer except with the consent of the other party
(see Precedent 1):
eg, where the agreement is of a personal nature and it is intended that
neither party should assign their rights or obligations, except with the
consent of the other party, a clause prohibiting assignment may be
inserted (eg see Don King Productions Inc v Warren [1998] 2 All ER 608,
[1999] 2 All ER 218 or comments of Lord Browne-Wilkinson in Linden
Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 at 105,
[1993] 3 All ER 417 at 429, HL).
• Who can assign/transfer? If permitted, can:
• Both parties assign or transfer? or
• Can only one party assign or transfer?
• What can be assigned/transferred? If permitted:
• Are assignments of rights only permitted? or
• Can there be both an assignment of rights and transfer of obligations?

83

M02_Boilerplate_Clauses_A.indd 83 04/09/2017 08:04

 Assignment and novation

• Can a party or the parties transfer some or all obligations and/or assign some or
all rights?
Eg, an assignment of rights and transfer of obligations is often permitted
where a corporate re-organisation is taking place (sale of part or all of the
business of the assignor) and is usually subject to the condition that the
assignee complies with the provisions of the agreement (see Case analysis
below).
• Can only some of the rights and/or obligations be assigned/transferred? Eg:
• the business relating to a party, or all or some assets;
• the business or assets to which the agreement relates;
• the business or assets within a particular area/technical or business
field.
• Is consent required? Is the consent of the other party required to assign
rights and/or transfer obligations (see Precedent 1);
• Who needs to provide consent? Is the consent of only one of the contracting
parties required?
Eg, where the agreement is more ‘personal’ to one of the parties, but
less so to the other, eg a contract for services or an agency or franchise
agreement, it is common to provide for assignment by one party only, and
to prohibit any type of assignment by the other (see Precedent 2).
• What type of consent needs to be provided? If one party is permitted to assign
its rights or transfer his obligations, what type of consent is required by the
other party?
• the other party has no right to refuse consent: the party proposing the
assignment has the right to assign its rights or transfer its obligations,
but is required to ask for the consent of the other party;
• the other party has an absolute right to refuse to provide consent: for any
assignment of rights or transfer of obligations to take place, the other
party must give specific consent;
• the other party can only refuse consent if ‘reasonable’ to do so.
There is a special rule in property leases that if something may
not be done ‘without the landlord’s consent’, it may be implied
that such consent may not be unreasonably withheld. However, no
such term is normally implied into a commercial contract. If the
contract states something may be done by one party only with the
other party’s consent, and if it is desired that such consent may not
be unreasonably withheld, wording such as in Precedent 3 may be
added.
The agreement might then also provide: ‘This agreement and all
rights under it may be assigned or transferred by [Party A]’. The
potential effect of this provision should be realised by party B, perhaps

84

M02_Boilerplate_Clauses_A.indd 84 04/09/2017 08:04

 Assignment and novation

a franchisee or licensee. Party B may have entered into the agreement

based on the particular reputation and financial standing of Party A,
and may find its rights devalued in the event of an assignment by Party
A to an unknown buyer.
• the other party can only refuse to give consent, if the refusal is given
within a specific period of time (eg, within 30 days of receiving a
notice from the party proposing assignment);
• When must consent be provided? Where a party needs to provide consent:
• Must that party give it within a definite time period? or
• Must that party not unreasonably delay or withhold it?
• Are there any conditions if an assignment is permitted? If assignment of the
parties’ interests is permitted under an agreement:
• Should there be mechanisms in place to control such assignment?
• Does a party need to provide its consent? If there is no control (such
as not requiring the consent of the other party) then a party may find
they face a considerable loss of control over the performance of the
contract.
• What types of control should be in place?
• that the consent of the other party is required (see above); and/
or
• the proposed assignee is required to undertake/covenant to the
party not assigning that the assignee will perform the obligations
of the assignor (see Precedent 5).
• What can be assigned (see under ‘Extent of the assignment’)?
• Sub-contracting: although it is only possible to transfer a party’s obligations
with the consent of another party, they can usually be delegated or sub-
contracted, as long as the contracting party remains responsible for those
obligations to the other contracting party (see also Sub-contracting). It
may be necessary to take a decision on whether one party wishes to allow
sub-contracting and on what terms.
• Does the assignor continue to be liable after assignment? The traditional
position with commercial leases was that, following an assignment, both
the assignor and the assignee were liable under the lease, ie not just the
assignee. In ordinary commercial contracts, this has never been the rule,
but parties may wish to consider including a provision to this effect in the
assignment clause.
• Is partial assignment permitted? Some companies take the view that they
wish to deal with just one contracting party, ie the assignment clause
should not allow partial assignments, which might result in a party owing
some obligations to one company, and some to another, whilst receiving
payments from a third. Hence the wording in Precedent 2, which refers

85

M02_Boilerplate_Clauses_A.indd 85 04/09/2017 08:04

 Assignment and novation

to allowing transfer of ‘all the party’s rights and obligations’ and prohibits
other transfers or assignments. Alternatively, a party may wish to allow more
limited assignments, in which case the wording will need to be adapted.
• Is assignment allowed between companies in a group or to an affiliate? Assignment
clauses sometimes specifically allow assignment to a member of the group
of companies of which the assignor is a part or to an affiliate. In some
cases, it may be appropriate to state that if the assignee or affiliate leaves
the group, the agreement will be assigned back to the original assignor
contracting party. A related topic is wording that states that a reference
to a party includes that party’s successors and assigns (see Successors and
assigns).
• Will any assignment or transfer affect any third party contracts? If a party wishes to
assign a particular business activity it may have an effect on the third party
contracts it has entered into. For example, a software developer develops
specialist business accounting software. It enters into a contract to develop
software for a customer. While it is doing so, it decides it no longer wishes to
be in the business of developing business accounting software and obtains
the consent of the customer to assign its rights and transfer its obligations
to another software developer. In order for the new software developer to
develop the business accounting software it may need licences to utilities
which the original developer licensed from third parties. The software
developer may not be able to assign those third party licences to the new
software developer, and if this issue is not dealt with before assignment, the
new software developer may not be able to obtain licences to the third party
software necessary to continue developing the accounting software for the
customer whether at all or at a price it can afford.
If the customer’s consent to the assignment is necessary then these matters
will need checking before permitting the assignment. If issues such
as the above examples are flagged then the customer and the software
developer may need to enter into a further agreement which addresses
the issues directly and specifically. For example, rather than the software
developer being permitted to assign its rights and transfer its obligations,
it is permitted to sub-contract the work to the new software developer with
regard to the contract between the customer and the software developer.

Location in the agreement

This clause is usually located in the Boilerplate section of an agreement.

Linkage and use

This clause will stand alone, although in some cases its impact can reach quite
far where one of the parties is contemplating assigning its rights or transferring
its obligations, particularly:

86

M02_Boilerplate_Clauses_A.indd 86 04/09/2017 08:04

 Assignment and novation

• whether sub-contracting is permitted (see above and Sub-contracting);

• whether reference to a party in an assignment clause includes its successors
and assigns (see above and Successors and assigns);
• where specific assignment is permitted to an affiliate, the definition of
affiliate may be crucial as to its extent, etc (see above and Affiliates);
• the position of any third party:
• whether it can enforce a term under an agreement where rights
and obligations have been assigned. Generally, the position is that
a benefit provided to a third party cannot be enforced by that third
party against the contracting party (because of privity of contract)
(Scruttons Ltd v Midland Silicones Ltd [1962] AC 446, HL);
• whether the assignee (like the original parties to the contract) can
enforce an obligation which was imposed on a third party in the
original agreement. The general position is that the parties to a
contract cannot enforce against a third party an obligation imposed on
that third party (Port Line Ltd v Ben Lin Steamers Ltd [1958] 2 QB 146);
These issues also involve consideration of the rights of third parties
under the Contracts (Rights of Third Parties) Act 1999 and the use of
novation agreements.
An issue related to assignment is whether to include a clause allowing a party
to terminate the agreement if there is a change of control of the other party—
see further the definitions of control in the section on Affiliates.

Sample precedent material

Precedent 1—Prohibition on assignment

Neither party may assign, delegate, sub-contract, mortgage, charge or
otherwise transfer any or all of its rights and obligations under this agree-
ment without the prior written agreement of the other party.

Precedent 2—Limited assignment allowed

Subject to the following sentence, neither Party may assign, delegate,
sub-contract, mortgage, charge or otherwise transfer any or all of its
rights and obligations under this agreement without the prior written
agreement of the other party. A Party may, however, assign and transfer
all its rights and obligations under this agreement to any person to which
it transfers all of its business, provided that the assignee undertakes in
writing to the other party to be bound by the obligations of the assignor
under this agreement.

Precedent 3—Prohibition of assignment without consent – all parties

The rights and obligations under this agreement are personal to the par-
ties and shall not be assigned or transferred by either of them except with
the previous written consent of the other.

87

M02_Boilerplate_Clauses_A.indd 87 04/09/2017 08:04

 Assignment and novation

Precedent 4—Prohibition of assignment without consent

[Party B] agrees with [Party A] not to assign, charge or otherwise deal with
this agreement in any way without the consent of Party A.

Precedent 5—Consent not to be unreasonably withheld

In the case of an intended assignment by [Party B] such consent shall
not be unreasonably withheld in the following circumstances [set out cir-
cumstances, eg:] and provided that the proposed assignee shall agree
directly with [Party A] to be bound by the terms of this agreement.

Precedent 6—Prohibition of assignment without the ‘agreement’ of the

other party
Neither Party may assign, delegate, sub-contract, mortgage, charge or
otherwise transfer any or all of its rights and obligations under this agree-
ment without the prior written agreement of the other Party.

Precedent 7—Prohibition on assignment, assignment subject to

permission of other party and that assignee required to covenant
Neither of the Parties to this agreement shall be entitled to assign this
agreement or any of its rights and obligations under it except with the
approval in writing of the other party and on terms that the assignee shall
covenant with that other party to perform all the obligations of the as-
signor under this agreement.

Precedent 8—Short form – no assignment without consent

This agreement is personal to the parties and may not be assigned at law
or in equity without the prior written consent of the other party.

Precedent 9—One party free to assign – limited power for other party
1 [Party B] undertakes throughout the term not to assign, charge or oth-
erwise deal with this agreement in any way without the consent of
[Party A]. In the case of an intended assignment by [Party B] such
consent shall not be unreasonably withheld in the following circum-
stances [set out particular circumstances eg: The proposed assignee
shall agree directly with [Party A] to be bound by the terms of this
agreement].
2 [Party A] may assign, charge, transfer or otherwise deal in any or all of
its rights and obligations under this agreement and [Party B] consents
to all such dealings.

Precedent 10—Limited power to assign – both parties

This agreement shall be binding upon the Parties to this agreement and
their respective successors and permitted assignees Provided that nei-
ther of the parties to this agreement shall be entitled to assign this agree-
ment or any of its rights and obligations under this agreement except by
a transfer [of that party’s shares in the Company which is permitted under
the express terms of this agreement and/or which is made in accordance

88

M02_Boilerplate_Clauses_A.indd 88 04/09/2017 08:04

 Assignment and novation

with the articles of association or which is otherwise] approved in writing

by the other party to this agreement and [(in either case)] on terms that the
transferee shall covenant with that other party to perform all the obliga-
tions of the transferor under this agreement.

Precedent 11—Short form – assignees bound by agreement

This agreement shall bind and endure to the benefit of the parties and
their respective permitted assignees, personal representatives and suc-
cessors in title.

Precedent 12—Power to assign on transfer of business

Either party may assign all its rights and obligations under this agreement
to any company to which it transfers all or part of its assets or business [in
the field of [specify]] provided that the assignee undertakes to the other
party to be bound by and perform the obligations of the assignor under
this agreement.

Precedent 13—Prohibition on sub-contracting and consequences where

permitted
1 [Party A] shall not be permitted to sub-contract any of its obligations
under this agreement (or any part of the agreement) unless [Party A]
has received the prior written consent of [Party B] (which shall not be
unreasonably withheld or delayed).
2 Where [Party A] is permitted to sub-contract [as provided for in Clause
1 above] [Party A] shall be liable and continue to be liable for all and
any acts or omissions of any sub-contractor. Accordingly, the mean-
ing of ‘[Party A]’ shall also include a reference to a sub-contractor.
Although a sub-contractor is used or permitted, [Party A] shall be and
continue to be liable for its obligations under this agreement.
3 A sub-contractor shall have no rights under this agreement (or in law)
[to enforce any right or obligation).

Precedent 14—Minimum set of clauses for a novation agreement

1 X hereby novates and transfers to Y all of its rights and obligations
under the Contracts. References to X in the Contracts shall be read
as references to Y.
2 Y undertakes to perform [any remaining] X’s obligations under the
Contracts and to be bound by the terms of the Contracts in every way
as if Y were a party to the Contracts in place of X.
3 Z hereby consents to the said novation and transfer, releases and
discharges X from all claims and demands whatever in respect of the
Contracts, and accepts the liability of Y under the Contracts in place
of the liability of X. Z agrees to be bound by the terms of the Contracts
in every way as if Y were named in the Contracts as a party in place
of X.

89

M02_Boilerplate_Clauses_A.indd 89 04/09/2017 08:04

 Assignment and novation

4 Except as provided in Clause [no], this agreement does not create

any right enforceable by any person who is not a party to it (‘Third
Party’) under the Contracts (Rights of Third Parties) Act 1999, but this
Clause does not affect any right or remedy of a Third Party which ex-
ists or is available apart from that Act.

Case analysis

British Gas Trading Ltd v Eastern Electricity (1996) Times, 29 November

(And see also the Court of Appeal’s judgment (18 December 1996, un-
reported, Transcript QBCMF 96/1647B), in which Leggatt LJ’s judgment
provides a useful analysis of the law in this area.)
In this case, a contract stated that assignment of the benefit and burden
of the contract required the consent of the other contracting party, and
that consent would not be unreasonably withheld. The claimant sought
consent for an assignment it wished to make to a new, separately listed
company, as part of a planned de-merger of its supply and transporta-
tion businesses. Consent was refused and the refusal was challenged
in this case. It was held not to be reasonable to refuse consent on the
grounds that:
• the assignor was planning a corporate re-organisation that would
have resulted in a change of control, and
• that change of control would have entitled the other contracting party
to terminate the contract.
To avoid any risk that a consent obligation would carry with it an im-
plied term that consent should not be unreasonably withheld, the clause
should make clear that consent may be withheld at the discretion of the
party whose consent is sought.
Alternatively, if this is commercially unattractive, a party might consider
using the words ‘without Party A’s agreement’, as it might be easier to
argue that the word ‘agreement’ does not carry with it an implied duty not
to act unreasonably.

Oxford Gene Technology v Affymetrix Inc [2001] IP & T 93, CA,

overturning the High Court decision [2000] IP & T 1006
In this case, the following clause came under consideration:
‘Subject to the following sentence, neither party may assign, delegate, sub-
contract, mortgage, charge or otherwise transfer any or all of its rights and ob-
ligations under this agreement without the prior written agreement of the other
party. A party may, however, assign and transfer all its rights and obligations
under this agreement to any person to which it transfers all of its business, pro-
vided that the assignee undertakes in writing to the other party to be bound by
the obligations of the assignor under this agreement.’

90

M02_Boilerplate_Clauses_A.indd 90 04/09/2017 08:04

 Assignment and novation

The word ‘business’ was given a wide interpretation, and it was held that
transference only of some patent licences, patents, notebooks and a few
items of equipment could amount to a business.
Sometimes clauses of this kind refer to ‘all or part of its business’ or ‘all
of its business’. The dangers in such wording, in the light of the Oxford
Gene Technology case, should be noted, because what might be consid-
ered the ‘business’ can have little to do with the common-sense meaning
of the wording or may not cover all of the business being transferred. In
drafting terms, if the word ‘business’ does not refer to all of the business
of one of the parties, then what might be transferred should be consid-
ered and then separately defined in an agreement, rather than being con-
strued by a court as happened in this case.
The case is worth examining in some detail as it provides an example
where the wording of a fairly standard boilerplate clause was interpreted
in a way that is not straightforward. It is also notable for a number of other
reasons:
1 the court carried out a detailed analysis of several clauses in a com-
mercial agreement, interpreting the clause in light of the wording of
other clauses;
2 the wording of several clauses was closely considered; and
3 the meaning of what is considered to be a ‘business’ was examined.
The claimant was the owner of certain patents, and it granted a licence
under them to the third defendant to develop and exploit them (including
making products, and manufacturing and selling them). The assignment
clause provided:
‘LICENSEE’S [the third defendant, Beckman Coulter Inc] rights under this
agreement and the licences herein granted shall pass to any person, firm or
corporation succeeding to its business in products licensed hereunder as a
result of sale, consolidation, re-organisation or otherwise, provided, such per-
son, firm or corporation shall without delay, undertake directly with LICENSOR
[the claimant, Oxford Gene Technology Ltd] to comply with the provisions of
this agreement and to become in all respects bound thereby in the place and
stead of LICENSEE.’

To simplify somewhat the facts of this long-running and complicated

case, the third defendant purported to sell the business in products in-
cluding the licence to the first and second defendants, Affymetrix Inc and
Affymetrix Ltd. It was the wording of the phrase ‘business in products’
which came under particular scrutiny by the Court of Appeal.
The third defendant undertook some development work, which included
obtaining some further patents, but had in no way, it appears, created any
products based on the patents licensed by the claimant or the new pat-
ents. What was sold by the third defendant to the first and second defend-
ants included the benefit of the licence and some laboratory equipment,
notebooks, and computer software. In the High Court it was held that
the activities undertaken by the third defendant under the licence from

91

M02_Boilerplate_Clauses_A.indd 91 04/09/2017 08:04

 Assignment and novation

the claimant could not be described as a ‘business’, as Jacob J stated

(Oxford Gene Technology v Affymetrix Inc above, at paras 53, 54):
‘I think that the true meaning of “business” in clause 16.2 is simply that con-
veyed by the normal meaning of the words. No one would normally describe a
few patents and some incomplete research work, even if the latter were mod-
estly ongoing, as a “business”. Still less would they describe the mere transfer
of the rights to such, without any associated transfer of any actual activity, as
a “business”. Moreover where does the submission stop? Suppose that the
[third defendant] had done even less research than they had – a few test tubes
and the odd notebook – would that amount to a “business” too?’

Could they have assigned them after only a few months of research? The
incomplete research is no more a ‘business’ than a half-built factory and
probably less.
‘… the business begins broadly when the sales start. I do not think, however,
that the line is that sharp. If a factory existed, and samples were on trial, that
might have been enough to constitute a business in embryonic form. To some
extent the question is one of degree. What I am clear about however, is that
whatever was passed, or supposed to be passed, to the [first and second de-
fendant] did not amount to the transfer of a business.’

This judgment was overturned by the Court of Appeal. In addition to ana-

lysing the contract, a business was held not to start at the point active
commercialisation had started or where products were ready or nearly
ready to be sold, and reliance was placed on a dictum quoted by the first
and second defendants,
‘… anything which occupies the time and attention and labour of man for the
purpose of profit is a business. It is a word of extensive use and indefinite sig-
nification’ (Smith v Anderson (1880) 15 Ch D 247 at 258, per Jessel MR).

The Court of Appeal rejected the submissions put forward by the claim-
ant that the meaning of the phrase ‘business in products’ meant that the
third defendant had products that were available for sale, and had moved
on from mere research and development. The Court of Appeal interpret-
ed the assignment clause by examining one of the recitals to the licence
agreement:
‘[the third defendant] is in the business of designing, developing, manufactur-
ing and selling bioanalytical instrument systems and it is interested in acquiring
rights in and to the Licensed Patent Rights and related Technical Information’
(the “Second Recital”).’

As held by the Court of Appeal, the phrase ‘business in products’ was

used, not to restrict assignment of the licence granted by the claimant
to the third defendant to a third party as provided by the assignment
clause, but ‘to distinguish those assets and activities of [the third defend-
ant] from other assets and activities of [the third defendant]’ (Oxford Gene
Technology v Affymetrix Inc above, at para 37).
The Court of Appeal stated that the phrase ‘business in products licensed
hereunder’ found in the assignment clause needed to be construed in
the context of the whole agreement, and the court recited that the claim-
ant’s aim was to have its patents licensed and that the claimant and the

92

M02_Boilerplate_Clauses_A.indd 92 04/09/2017 08:04

 Assignment and novation

third defendant both realised that a substantial amount of research and

development would need to be done to commercialise the licensed pat-
ents. Having a restriction that limited transfer of the business (including
the licence granted by the claimant to the third defendant) of the third
defendant where the third defendant had developed products was not
something that would have been in the contemplation of either party.
Furthermore, the court held that there was no:
‘limitation as to the type of business in products that are licensed. The prod-
ucts licensed are those referred to in Clause 5.1 (set out below) which grants
the licence. They are all products covered by a claim asserted in good faith
in the Licensed Patent Rights. Thus the licence covers the manufacture, use,
sale and offer for sale of products. There is no requirement that such activity
has to have reached the stage of commercialisation. That is made by Clause 6.
Clause 6 requires an upfront advance and also provides for royalties after com-
mercialisation. Thus the licence covers the period both before commercialisa-
tion and thereafter so that the words “products licensed hereunder” in [the as-
signment clause] include products made other than for commercial use. [The
assignment clause] appears to provide for transfer of the licence upon a suc-
cession of the business of [the third defendant] even before commercialisation.
That conclusion is, I believe supported by the recitals. [The Second Recital]
records that the [third defendant] is in the business of “designing, develop-
ing and manufacturing and selling …”. Thus the parties accepted that there
can be a business in designing and developing.’ (Oxford Gene Technology v
Affymetrix Inc above, at para 44).

Clause 5.1 reads:

‘[The claimant] hereby grants to [the third defendant], for the life of this agree-
ment, a non-exclusive right and licence to practise all methods, and to make,
have made, use and sell all products, covered by a claim asserted in good
faith in the Licensed Patent Rights, throughout all countries of the world to the
full end of the respective terms of any such patents included in the Licensed
Patent Rights.’

93

M02_Boilerplate_Clauses_A.indd 93 04/09/2017 08:04

 Auditing, inspection and records

Purpose of the clause

Introduction
If a party under a contract is liable to make payments to another party, and
those payments need calculating by reference to some variable factor, then
often the contract will include provisions to allow the receiving party to have
the right to audit the records kept by the paying party. The variable factors
may include such things as the number of sales made, number of products
sold or the work carried out by the paying party.
Such clauses are common, for example:
• in intellectual property licence agreements, such as a patent licence where
a royalty is payable, which is dependent on the number of sales of licensed
products or the price received on these sales by the licensee;
• in agency and distribution agreements where the agent or distributor
is responsible for selling the products of the principal, and where the
commission or other payments of the agent or distributor is dependent
on the amount of sales of the products.
Typically, such a clause will refer to:
1 an obligation on a party (such as a licensee or agent) to keep accounting
and other records. In more sophisticated agreements such an obligation
might go on to state the type of information the party will need to keep
and the format in which it must keep it;
2 the right of the other party to inspect those records or to have a third
party to inspect the records (such as an independent accountant); and
3 an obligation on the party required to keep the records for a particular
length of time (and the period may extend beyond the termination of the
parties’ agreement) as well as an obligation to send periodic reports to the
other party.

94

M02_Boilerplate_Clauses_A.indd 94 04/09/2017 08:04

 Auditing, inspection and records

Other uses of ‘inspect’ and ‘records’

In other types of agreements a party may also be under a requirement to keep
records of its activities in carrying out its obligations under an agreement. Eg:
• a party who is designing and manufacturing a product may need to keep
records of the materials used in the manufacture of the product;
• a party providing a service may need to record its activities (how much
time is spent on particular activities, etc);
• a supplier of a good or service may have to allow the other party:
• to visit the premises of the supplier at any stage to determine how the
services or goods are being created, produced or supplied;
• to have access to a range of facilities to permit the carrying out of
the inspection (such as an internet connection, telephones, offices,
computers, photocopiers, car parking, etc);
• to provide access to, and the co-operation of the supplier’s staff;
• to carry out tests, etc;
• to evaluate whether the goods or services are being created, produced
or supplied according to particular standards (eg as specified in the
agreement or meeting some international standard).
For example, a software developer may need to permit its customer access
to its premises to carry out tests on the software being developed (if it is
not possible to do so otherwise).

Drafting issues

(Note: Much of the case law is found in old decisions regarding patent licences,
ie not reflecting modern realities of the commercial world or the increased
importance of other forms of intellectual property, such as the many different
types of copyright.)
• Refusal to allow auditing and/or inspection. If the party who is to allow
inspection refuses, what are the consequences to be? If the consequences
are not clearly specified, then a refusal to do so where there is a clear
obligation to allow auditing of the licensee’s activities under a licence may
entitle the licensor to terminate the licence (Fomento (Sterling Area) Ltd v
Selsdon Fountain Pen Co Ltd [1958] 1 All ER 11, [1958] 1 WLR 45, HL);
• What records are to be examined?
• Can the party providing the records impose a restriction on what
records are to be inspected? or
• Will the party who will carry out the audit be able to demand other
information and/or books that it believes are relevant? It appears that

95

M02_Boilerplate_Clauses_A.indd 95 04/09/2017 08:04

 Auditing, inspection and records

the position is that the auditing party can demand other information
unless the contract specifies otherwise (Fomento (Sterling Area) Ltd
v Selsdon Fountain Pen Co Ltd [1958] 1 All ER 11, [1958] 1 WLR 45,
HL; Peter Pan Manufacturing Corpn v Corsets Silhouette Ltd [1963] 3 All
ER 402, [1964] 1 WLR 96).
• Does the party maintaining the records also need to obtain records
from third parties if its records are based on the records of the third
parties? In some circumstances there may be an obligation on the
party to do so (Columbia Tristar Home Video (International) Inc v Polygram
Film International BV (formerly Manifesto Film Sales BV) [2000] 1 All ER
(Comm) 385 and see Case analysis below).
• Making copies of records. Can the auditing party make copies of the
information and books inspected and disclose these to others?
• Accuracy/relevancy of records. Is there an obligation on the party keeping
records for them to reveal how any calculations or payments made were
arrived at? Is there an obligation that the records must always be up
to date?
• How long can the right to inspect continue? Case law indicates that if a
contractual obligation permits a grantor to inspect accounts then it will
ordinarily continue in force even if the agreement is terminated (Anglo-
American Asphalt Co Ltd v Crowley, Russell & Co Ltd [1945] 2 All ER 324).
In that case the licensee was ordered to allow inspection for six years back
from the date of the writ, although royalty statements and payments had
been accepted by the licensor throughout the life of the agreement.
• Who should pay the cost of auditing? A licensee will wish to discourage over-
zealous auditing at its expense. Some auditing clauses make provision
for the licensor to pay the cost of the audit, or for these to be shared
between licensor and licensee, unless the shortfall is more than a certain
percentage.
• Who can carry out an inspection and/or audit? Who will actually carry out the
auditing and inspection; can anyone from the licensor do so, or should it
be an accountant? The party being inspected may not wish the other party
to see its premises, or allow the other party to see what else it might be
working on if it is particularly (commercially) sensitive or confidential.
If only an accountant should do so, should the accountant be independent
of the licensor, and should they have an appropriate professional
qualification?
• Confidentiality. Is the accountant required to keep all information learned
or utilised during an inspection and/or audit confidential? Will the
accountant (before they gain access) have to enter into a confidentiality
agreement? Will the accountant be under restriction as to what they
can pass on to the party instructing him? Eg, only such information as
is necessary to confirm or deny the accuracy of any financial statement
which is being provided by the party being inspected/audited.

96

M02_Boilerplate_Clauses_A.indd 96 04/09/2017 08:04

 Auditing, inspection and records

• What records are to be kept (and how should they be kept)? Should the books
and records be kept separately from the other accounting records of the
licensee? For what period should they be kept?

Location in the agreement

This clause is often located in the Main Commercial Provisions of an

agreement, either in the Payments clause or perhaps in a separate clause, but
following on from the payment provisions.

Linkage and use

This clause is often part of the Payments clause or closely references it and
makes use of various definitions relating to what is provided, sold or licensed
under an agreement, and the descriptions of various sums (eg, in an agreement
where royalties are payable, then there may be definitions of Gross Receipts,
Net Receipts and so on).

Sample precedent material

Precedent 1—Inspection of books

The authorised representatives of each party shall be entitled at that par-
ty’s expense to inspect and audit the books, accounts and records per-
taining to (subject matter of agreement) at all reasonable times.

Precedent 2—Inspection of books – licensing agreement

The Licensee shall permit the Licensor or its accredited representatives
from time to time to examine the Licensee’s books in so far as these re-
late to sales of the Products.

Precedent 3—Inspection of books – licensing agreement

The Licensee agrees to keep proper records and books of account re-
lating to all dealings with the Products and to make all such entries in
such records and books of account as may be necessary to calculate
the Royalties payable to the Owner, and shall allow the Owner or a firm
of [chartered] accountants on the Owner’s behalf to examine such books
and records in so far as they relate to the sale of the Products and to take
copies and extracts of such books and records. Any such inspection shall
be during normal office hours and not carried out more than twice in any
calendar year and shall be at the Owner’s expense unless such inspec-
tion shall reveal an underpayment to the Owner of more than £…… in
which event the Licensee shall bear the costs of such inspection.

97

M02_Boilerplate_Clauses_A.indd 97 04/09/2017 08:04

 Auditing, inspection and records

Precedent 4—Inspection of books – patent licensing agreement

1 The Licensee shall keep at its normal place of business detailed and
up-to-date records and accounts showing the quantity, description
and value of Licensed Products sold by it, and the amount of sub-
licensing revenues received by it in respect of Licensed Products, on
a country-by-country basis, and being sufficient to ascertain the roy-
alties due under this agreement.
2 The Licensee shall make such records and accounts available, on
reasonable notice, for inspection during business hours by an inde-
pendent chartered accountant nominated by the Owner for the pur-
pose of verifying the accuracy of any statement or report given by the
Licensee to the Owner under this Clause [no]. The accountant shall
be required to keep confidential all information learnt during any such
inspection, and to disclose to the Owner only such details as may be
necessary to report on the accuracy of the Licensee’s statement or
report. The Owner shall be responsible for the accountant’s charges
unless the accountant certifies that there is an inaccuracy of more
than [5%] in any royalty statement, in which case the Licensee shall
pay his charges in respect of that inspection.
[3 The Licensee shall ensure that the Owner has the same rights as
those set out in this Clause [no] in respect of any sub-licensee of the
Licensee which is sub-licensed under the Patents pursuant to this
agreement.]

Precedent 5—Inspection of records – licensing agreement

1 The Licensee shall send to the Owner at the same time as each roy-
alty payment is made in accordance with Clause [no] a statement set-
ting out, in respect of each territory or region in which the Licensed
Products are sold, the types of Licensed Product sold, the quantity of
each type sold, and the total Net Sales Value in respect of each type,
expressed both in local currency and pounds sterling and showing
the conversion rates used, during the period to which the royalty pay-
ment relates.

Case analysis

Columbia Tristar Home Video (International) Inc v Polygram Film

International BV (formerly Manifesto Film Sales BV) [2000] 1 All ER
(Comm) 385

Facts
1 D granted C a ‘sole and exclusive’ licence of video rights to films ac-
quired or controlled by D.
2 C paid an advance and royalties for each film.

98

M02_Boilerplate_Clauses_A.indd 98 04/09/2017 08:04

 Auditing, inspection and records

3 C was aware that D was not the producer of the film and that the pro-
duction costs for licensed films were incurred by third parties.
4 Clause 17 related to the keeping of records:
‘Accounting:
(a) Licensee shall maintain complete books and records with respect to the
videograms and will render to Owner, on a calendar quarter basis (within sixty
(60) days of the end of each quarter commencing with the quarter by which the
first revenues are received by Licensee, a true and correct statement in rea-
sonable detail of Gross Receipts and of Royalties (“statements”) … Any state-
ment not objected to within twenty-four (24) months of receipt by Owner shall
be deemed true and correct and binding upon Owner. (b) Owner shall have the
right for a period of two (2) years from the rendering of each statement, upon
reasonable notice … and for no longer than twenty (20) days, to examine and
to take copies and extracts from Licensee’s books and records as they pertain
to the Videograms, for the purpose of determining the accuracy of the state-
ments … if any such audit reveals a discrepancy of 10% or more of the sums
then shown to be due to Owner, Licensee shall pay the reasonable costs of the
audit …’
‘(d) Owner shall maintain complete books and records with respect to
the Actual Negative Cost of each of the Programs and the P&A expended in
connection with the Theatrical Release of each of the Programs. With regard to
the P&A, Owner shall render to Licensee on a monthly basis (within sixty (60)
days of the end of each month) commencing with the period during which the
theatrical distributor first expends P&A [Prints and Advertising], a true and cor-
rect statement of the P&A expended … Licensee shall have the right upon rea-
sonable notice but no more often than once a year and for no longer than thirty
(30) days to examine Owner’s books and records pertaining to Actual Negative
Costs and the P&A statements for the purpose of determining the accuracy of
statements furnished in connection therewith …
(e) any amounts revealed to be due and owing to either party as a result of an
audit by such party shall be payable on demand by the other party with interest
…’

5 After a number of licensed films were unsuccessful, C exercised its

rights to audit D’s books under Clause 17(d).
6 Three months later C claimed that there was insufficient documentary
evidence upon which to audit as information was stored with third
parties.
7 C believed there was a breach of Clause 17(d) and suspended its
audit and refused to pay further advances until D could provide all the
required information.
8 D sued for the advances not paid by C, and C counterclaimed for the
expenses it had paid.

Held
9 The CA held that D’s obligation to ‘maintain complete books and re-
cords’ extended:
(i) to obtaining documents from third parties; or

99

M02_Boilerplate_Clauses_A.indd 99 04/09/2017 08:04

 Auditing, inspection and records

(ii) providing access to such documents (which may be at the place

they are located – at the premises of the third parties).
10 The court’s analysis of the obligation (and extent of the obligation) to
audit and maintain records is interesting:
‘29. […]cl 17(d) unequivocally imposes the obligation to maintain complete
books and records in respect of ANC [Actual Negative Cost] (the principal ele-
ment of which is the items making up the direct negative cost) on [D] alone and
without qualification. This seems to me no more than a corollary of the logic
which drove D to assert and C to agree […] that the direct negative cost ex-
pressed as “all documented direct out-of-pocket costs and expenses actually
paid by Owner to unrelated third parties …” was a reference to all such costs
paid by the actual producers. Again, although it was no doubt plain that the
P&A expended would be expended throughout by [a subsidiary of C], a similar
obligation to maintain complete records was imposed on Polygram in respect
of P&A.
30. In deciding the question of the extent of the books and records covered
by the obligation, I agree with C that the [at first instance] judge’s emphasis on
the word “maintain” as largely providing the answer was misplaced. Nor does
it seem to me that the answer lay simply in looking to see what documents
Polygram in fact had in its possession. The ambit of the obligation to maintain
complete books and records can best be ascertained by looking first at its im-
mediate context and, second, at the purpose for which the books and records
are to be kept. As to the first, it seems to me plain, that used in an accounting
context in relation to items of cost, it plainly extends to contemporary docu-
ments relating to such items, such as invoices, receipts and other vouching
documents. As to the second, the purpose of cl 17(d) is to protect the inter-
ests and serve the purposes of C rather than D and, in particular, to support
Columbia’s right of audit of such books and records for the purpose of deter-
mining the accuracy of statements furnished to and paid by C in connection
with the ANC. In such a context, C, as the auditing party, would need to see
invoices and documents vouching the actual payments made to third parties
in respect of the production costs itemised in exhibit “A”. At the same time,
there was nothing inherent in the obligation to require Polygram personally to
keep such documents in its possession in order to sustain C’s right to examine
them, provided that C was afforded access to them when requested for the
purposes of such examination.
31. I would construe the obligation of D to “maintain” complete books and
records in the sense of “maintain by itself or through others” or “maintain or
cause to be maintained”, such books and records unless there are strong con-
trary reasons for not doing so. I now turn to see whether a different conclusion
is dictated by the commercial background to the agreement […].
32. I do not consider that the fact that the parties knew that D was not itself
to be the producer of any of the films is persuasive given that, despite that
knowledge, an agreement was entered into which described and treated it as
if it were. It is clear that the parties anticipated [who the principal producers
were][…]. That being so, so far as cl 17(d) was concerned, an obligation on
D to maintain complete records of the production costs would cause no dif-
ficulty. So far as the agreement also contemplated that its terms would extend
to films produced by unassociated third parties, it could equally have been
that the parties contemplated that D on entering into any third party agreement
and/or as a condition of authorising a third party production to start, could and
would require that the records relating to production costs be preserved by the
producer for copying and/or access and inspection by D if required during a
period sufficient to cover D’s obligation vis-à-vis C under cl 17(d). If that is so,

100

M02_Boilerplate_Clauses_A.indd 100 04/09/2017 08:04

 Auditing, inspection and records

the fact that the documents would be substantial in number would be neither
here nor there. The question of bulk might well be influential in whether or not
C decided to take advantage of its right of audit in respect of ANC (particularly
bearing in mind the rarity of production costs being lower than the budgeted
costs on the basis of which the advances were paid); however, it is not in my
view an indication of whether C wished to reserve to itself a right of audit if it
subsequently wished to question individual items of production costs.’

101

M02_Boilerplate_Clauses_A.indd 101 04/09/2017 08:04

 Best endeavours, reasonable endeavours
and all reasonable endeavours

Purpose of the clause

It is possible for a party (or parties) to be under an obligation which is absolute
or qualified.

Absolute obligations

Examples of absolute obligations in a contract are:

[Party A] shall complete the Project and deliver a final report no later than [date]
or
[Party A] shall pay the Price to [Party B] on the Date
or
[Party A] shall deliver the Goods to the address of [Party B] by the Delivery Date.
Failure to comply with any of these obligations is likely to be a breach of
contract, even if there is a good excuse for the failure, for example, if Party
A had a very heavy workload at the relevant time, or its bank fails to transfer
the payment because there is a problem with the bank’s computer, or Party
A’s courier loses the consignment of goods (particularly if the obligation
stated above is coupled with a definition or other provision making time of
the essence). A party will not normally wish to be under this type of absolute
obligation, given the consequences if it fails to perform the obligation.
If performance is impossible, the contract may be frustrated, but otherwise
Party A is bound to complete the Project by the due date.

Qualified obligations

Examples of a qualified obligation include:

[Party A] shall use its best endeavours to complete the Project by [date]
or
[Party A] shall use reasonable endeavours to complete the Project by [date].

102

M03_Boilerplate_Clauses_B.indd 102 04/09/2017 08:07

 Best endeavours, reasonable endeavours and all reasonable endeavours

In these cases, the amount of effort that Party A needs to use to fulfil the
obligation is qualified by use of the phrases ‘best endeavours’ or ‘reasonable
endeavours’. Failure to complete by the stated date, in the above two examples,
will only be a breach of contract if it is possible to show that Party A has not
used the amount of effort needed to meet a best endeavours or reasonable
endeavours obligation.

If Party A fails to complete the Project by a particular date, it will normally

wish to argue that it has used reasonable or best endeavours (depending on
the obligation it is under) and the other party will wish to argue that Party
A has not used the required amount of effort. If the parties cannot resolve this
point, it will be for a court to decide whether the state of Party A’s workload,
and the steps the party took to try to ensure that the Project was completed,
are sufficient to pass the test of ‘best endeavours’ or ‘reasonable endeavours’.
When approaching this question, the court will consider the resources of the
party giving the undertaking, but there is a degree of objectivity in the test – it
is not simply a subjective matter for Party A to say that it was too busy.

In the event of a dispute, the use of a qualified obligation leaves the decision to
someone (whether the parties or a judge) to determine if a party has fulfilled
an obligation using the requisite amount of effort. The reasons for including a
qualified obligation rather than an absolute obligation are varied. For the party
under the obligation, the desire to avoid being bound by a definite obligation
is obvious: avoiding a possible breach if it cannot fulfil the obligation for a
reason outside of its control or where it is just more difficult to complete the
task which is the subject matter of the obligation. Many suppliers of goods and
services are now dependent on third parties in order to fulfil their obligations
to purchasers of the goods and services.

For example, a seller of goods, may be dependent on other parties, such as

agency staff to pack the goods and on couriers to deliver the goods to the
purchaser, all of which can stop the supplier being able to fulfil an obligation.
The party who has the benefit of the obligation will prefer an absolute
obligation, as it will promote greater certainty as to what it will be getting and
when it will be getting it, and gives it rights to terminate if the supplier fails to
meet the obligation.

The above points reflect the (usual) opposing views of the parties to a
transaction. However, the parties sometimes cannot agree on the exact level
of an absolute obligation; and because they cannot agree, the parties decide
that a reasonable or best endeavours obligation (or some other wording) will
suffice as a way of making a deal. However, other than stating that a party will
use reasonable endeavours, the parties will often not go on to evaluate what
amount of effort is necessary to meet the obligation or think through some of
the issues that might occur in trying to meet the obligation. For example, if a
supplier of goods is to have an obligation to deliver the goods of the purchaser,
and the purchaser wants them to be delivered within 24 hours of order, then it
would be possible to define the obligation on the supplying party in a number
of ways:

103

M03_Boilerplate_Clauses_B.indd 103 04/09/2017 08:07

 Best endeavours, reasonable endeavours and all reasonable endeavours

• as an absolute obligation: eg ‘Party A shall deliver each order of the Goods

within 24 hours of the Order’;
• as a modified absolute obligation: eg ‘Party A shall deliver each order
of the Goods within 24 hours of the Order, subject to the provisions of
this Clause [ ]’, with the clause containing a number of specific situations
when Party A will not be in breach;
• a best endeavours obligation: eg ‘Party A shall uses its best endeavours to
deliver each order of the Goods within 24 hours of the Order’.
As the following commentary will show, the courts view ‘best endeavours’
undertakings as onerous commitments. By contrast, if Party A had merely
undertaken to complete ‘subject to its other commitments’ it would be much
easier for Party A to avoid a breach of the contract term.

Obligations under a ‘best endeavours’ clause

The level of commitment expected under a best endeavours obligation is

high, but it is not possible to define the meaning of the term with precision.
In the leading case in this area (IBM United Kingdom Ltd v Rockware Glass Ltd
[1980] FSR 335, CA, see also Case analysis below), the Court of Appeal stated
that an undertaking by a party to use its best endeavours obliged the party
to take all possible steps that a prudent and determined man, acting in his
own interests, and wishing to obtain or achieve the defined obligation, would
take, ie not only the steps that the party would need to fulfil its contractual
obligations.
In other cases, the courts have described best endeavours obligations variously,
but all indicate a high level of commitment and effort (see Case analysis below).

‘Best endeavours’ versus ‘reasonable endeavours’

It is a common understanding among most English commercial lawyers

that an undertaking to use reasonable endeavours is less onerous than an
undertaking to use best endeavours (and the cases that have come before the
courts support this understanding).
The real problem with requiring a party to use ‘reasonable endeavours’ or ‘best
endeavours’ to fulfil an obligation is that it is difficult in practice to describe
what actions would be regarded as meeting one or other of the different levels.
Since it is not possible to define objectively the standard a party is to reach
to fulfil these obligations, it is only possible to describe how the courts have
approached each individual situation that has come to their attention:
• reasonable endeavours – balancing contractual obligation against other commercial
interests: In one case it was held that a reasonable endeavours obligation
was considerably less onerous than a best endeavours obligation and the
test for a reasonable endeavours obligation was a balancing act between

104

M03_Boilerplate_Clauses_B.indd 104 04/09/2017 08:07

 Best endeavours, reasonable endeavours and all reasonable endeavours

the contractual obligations on one side and the other relevant commercial
interests on the other side (UBH (Mechanical Services) Ltd v Standard Life
Assurance Co (1986) Times, 13 November and see Case analysis below);
• reasonable obligations – party under the obligation not normally required to go
against own financial interests: An obligation to use reasonable endeavours
was not breached by failing to do something where it would have been
financially disadvantageous to do so (Phillips Petroleum Co (UK) Ltd v
ENRON (Europe) Ltd [1997] CLC 329, CA and see Case analysis below);
• best endeavours obligation – the party under the obligation may be required to
go against its own financial interests: in Jet2.com Ltd v Blackpool Airport Ltd
[2012] EWCA Civ 417 a party was required to act against its own financial
interests if the nature of the deal it has entered into called for it to do so,
although the requirement does not call for the party to act against its own
financial interests where there was no expectation of achieving the subject
matter of the best endeavours obligation (see below and Case analysis);
• reasonable and best endeavours: a party under such obligations must carry on
trying to achieve or complete the subject matter of the obligation until it
is no longer possible to do so (until all reasonable efforts are exhausted
or there is no prospect of success), ie the party under the obligation must
not give up at the first attempt.
For example, if a party seeks planning permission and it is refused then
the party needs to make an appeal or take other action to obtain planning
permission if there is a reasonable chance of success in having the refusal
overturned on appeal or if another approach might obtain the necessary
permission (IBM United Kingdom Ltd v Rockware Glass Ltd [1980] FSR 335,
CA; Sainsbury’s Supermarkets Ltd v Bristol Rovers (1883) Ltd [2016] EWCA Civ
160). In the latter case an obligation to ‘use all reasonable endeavours to
procure the grant of [planning permission] as soon as reasonably possible
…’ meant, as interpreted by the court, that the party under the obligation
could only stop trying to obtain the planning permission when there were
no other reasonable steps it could take. It seems the courts are prepared
to allow a party to take some account of its own interests when the party is
using its ‘reasonable endeavours’, but it is not always easy to predict how
far a court will allow self-interest to predominate in an individual case.

All reasonable endeavours

Another common ‘endeavours’ obligation is that of ‘all reasonable

endeavours’. There is more limited case law regarding this type of obligation
(and where it lies on the spectrum between reasonable and best endeavours)
At one time this was thought to mean an obligation somewhere between
a best endeavours and a reasonable endeavours obligation (such as in
UBH (Mechanical Services) Ltd v Standard Life Assurance Co (1986) Times,
13 November, although not part of the decision). The more recent view

105

M03_Boilerplate_Clauses_B.indd 105 04/09/2017 08:07

 Best endeavours, reasonable endeavours and all reasonable endeavours

appears to be that an ‘all reasonable endeavours’ obligation is the same as a

‘best endeavours’ obligation (see Rhodia International Holdings Ltd v Huntsman
International LLC [2007] EWHC 292 (Comm), [2007] 2 All ER (Comm) 577,
followed in Hiscox Syndicates Ltd v The Pinnacle Ltd [2008] EWHC 145 (Ch),
[2008] 05 EG 166 (CS)). Most recently in Jet2.com Ltd v Blackpool Airport Ltd
[2012] EWCA Civ 417 ‘all reasonable endeavours’ was equated (or rather,
assumed to equate) with a ‘best endeavours clause’.

Other expressions

In some agreements expressions other than ‘best endeavours’ or ‘reasonable

endeavours’ are found, such as:
• ‘good faith efforts’;
• ‘commercially reasonable efforts’;
• ‘to be diligent in undertaking’;
• ‘to use due diligence’;
• ‘entire endeavour’ (see City and General (Investment) Ltd v Razama Ltd
[2009] EWCA Civ 1568, and Case analysis in Consent), etc.
These expressions, like ‘best endeavours’ or ‘reasonable endeavours’, have
no set meaning. They are, however, even less certain in meaning than ‘best
endeavours’ or ‘reasonable endeavours’, as they have received little or no
judicial scrutiny of note. Depending on the precise wording of the clause, they
might have no (binding) meaning at all, such as ‘good faith efforts’. The use
of the phrase ‘good faith’ in a clause specifying an obligation is particularly
problematic, given that the courts have repeatedly indicated that a concept
of ‘good faith’, except in very specific or very well-defined instances, is not
binding (see Good faith).

Drafting issues
• Avoid using ‘best endeavours’, ‘reasonable endeavours’ or ‘all reasonable efforts’
expressions. The best option is either:
• the parties should define more specifically what they are expected to
do under the contract; or
• if it is not possible to indicate specific reasonable obligations, then
refer to a recognised standard or to the standard of a third party.
Otherwise, the parties may find that the court’s view of what is expected of
them under an ‘endeavours’ undertaking is different to their own view or
that of their legal advisers.
• If it is not possible to be more specific: Sometimes, though, it is difficult to be
specific. Where an agreement will include a best or reasonable endeavours

106

M03_Boilerplate_Clauses_B.indd 106 04/09/2017 08:07

 Best endeavours, reasonable endeavours and all reasonable endeavours

obligation wording such as that in Precedent 1 may be used. An alternative

approach is in Precedent 2. Whilst this is a far lengthier clause, or series of
clauses, than the first example, it avoids many of the uncertainties of the
first (as discussed above).
• If the customer or client is insistent on having an absolute obligation but the
provider/supplier is resistant, then a compromise is perhaps to make the
core obligation an absolute obligation but in case of certain eventualities
occurring then the provider/supplier is under a best or reasonable
endeavours obligation to fulfil the core obligation.
For example, a consultant is hired to prepare a report for a client. The
consultant is to report on whether another third party supplier (Software
Developer) has developed software for the client in accordance with a
specification agreed between the client and the Software Developer. The
core obligation would be the provision of the report by the consultant by
a specific date subject to certain eventualities. Some of the eventualities
might be that the client has to provide its employees to meet with the
consultant, and the Software Developer might need to provide a report
of its activities up to a certain date (Software Developer Report). The
work the consultant is to perform is set out in a specification (Report
Specification). It would be necessary that the meetings are specified to take
place on particular dates (Employee Meeting Dates) and the provision of
the Software Developer Report is also required by a certain date (Supplier
Date). In these circumstances then a (simple) clause which combines
both an absolute obligation and a qualified obligation might read:
‘1. Party A shall deliver the Report by the Date, subject to the provisions
of Clause 2.
2. If any of the following occur then, in place of the obligation under
Clause 1, Party A shall use reasonable endeavours to deliver the Report by
the Date:
2.1 If the Client wishes to change or changes the Report Specification; or
2.2 If the Client fails to provide or make available its employees to Party
A by the Employee Meeting Dates; or
2.3 The Software Developer fails to deliver the Software Developer Report
by the Supplier Date.’
While this clause might have the advantage of more clarity, one
disadvantage is the extra effort on the parties’ representatives specifying
the detail of when an absolute obligation becomes a qualified obligation.
The parties may not be able to agree on the exact circumstances when the
consultant should be relieved of its absolute obligation. As a commercial
decision, the consultant might prefer to have an absolute obligation and
take a chance that all the information it needs will be provided in time for
it to prepare its report. If it is not, and the consultant cannot deliver the
report by the required date, take a risk that the client will not terminate.
Or the client may wish to have a reasonable endeavours obligation and it
will take a chance that the supplier will not provide the report by the date.

107

M03_Boilerplate_Clauses_B.indd 107 04/09/2017 08:07

 Best endeavours, reasonable endeavours and all reasonable endeavours

Location in the agreement

A best endeavours or reasonable endeavours obligation could appear in any

type of clause in an agreement, but generally appears as follows.
• Main commercial obligations, in the main operative clause of the agreement,
which centrally sets out the core obligation of one or both of the parties
(eg ‘The Manufacturer shall use its best endeavours to produce 100 units
of the Products by the Delivery Date’); and/or
• Other main and secondary commercial obligations, in any clause which requires
one or more of the parties to carry out some task, obtain something,
achieve some result or respond to some situation that has arisen or prevent
some situation arising.

Sample precedent material

Precedent 1—Best endeavours obligations

Party A shall use [its best endeavours or reasonable endeavours] to com-
plete the Project and deliver a final report to Party B no later than [date].

Precedent 2—Alternative approach avoiding best or reasonable

endeavours distinction and clarifying nature of obligation and how breach
may be determined
1.1 Party A shall use due diligence in:
(a) applying for and prosecuting patent applications which claim
the [Lead Compound] in all commercially significant territories
of the World;
(b) developing the [Lead Compound] into pharmaceutical
product(s) for use in the Field;
(c) seeking all necessary regulatory approvals for such pharmaceu-
tical product(s) in all commercially significant territories; and
(d) marketing and selling such pharmaceutical product(s) in all
commercially significant territories.
1.2 For the purposes of Clause 1.1, ‘due diligence’ means exerting such
effort and employing such resources as would normally be exerted or
employed by a reasonable third-party pharmaceutical company for
a product of similar market potential at a similar stage of its prod-
uct life, when utilising sound and reasonable scientific, business and
medical practice and judgment in order to develop the product in a
timely manner and maximise the economic return to the Parties from
its commercialisation.
1.3 If Party B considers at any time during the period of this agreement
that Party A has without legitimate reason failed to use due diligence

108

M03_Boilerplate_Clauses_B.indd 108 04/09/2017 08:07

 Best endeavours, reasonable endeavours and all reasonable endeavours

to develop and commercially exploit Licensed Product(s) from a

[Lead Compound], Party B shall be entitled to refer to an independent
expert the following questions:
(a) whether Party A has acted diligently; and if not
(b) what specific action Party A should have taken (‘Specific
Action’) in order to have acted diligently.
1.4 The independent expert shall be appointed in accordance with the
provisions of Schedule [no] and his decision shall be final and binding
on the Parties.
1.5 If the expert determines that Party A has failed to comply with its
obligations under Clause 1.1 and if Party A fails to take the Specific
Action within [ ] months of the expert giving his decision in accord-
ance with Schedule [no], Party B shall be entitled, by giving, at any
time within [ ] months after the end of that … month period, not less
than [ ] months’ notice to Party A to terminate this agreement.

Precedent 3—Party to use best endeavours to obtain necessary approval

The terms of this schedule are subject to the approval of the [ ] being
obtained which the Parties shall use their respective best endeavours to
obtain.

Precedent 4—Party to use best endeavours to operate franchise

[Party A] shall use its best endeavours to sell the Products and to offer
for sale a minimum range and stock of the Products as specified in the
Manual and to plan its re-ordering of such Products adequately in ad-
vance and [to procure the greatest volume of turnover for the Business
consistent with good service to the public or to achieve a minimum turno-
ver of …].

Precedent 5—Parties to use best endeavours to resolve dispute speedily

If the unresolved dispute is having a material effect on the Project, the
Parties will use their respective best endeavours to reduce the elapsed
time in reaching a resolution of the dispute.

Precedent 6—Parties to use best endeavours to secure advantageous

loan
[Party A] shall use its best endeavours to secure the Loan on the most
favourable terms available.

Precedent 7—Parties to use reasonable endeavours to resolve dispute

Each Party will use all reasonable endeavours to reach a negotiated reso-
lution through the [Dispute Resolution Procedure].

Precedent 8—Party to use reasonable endeavours to agree lease renewal

[Party A] shall take over and conduct negotiations with [the Tenant] to-
wards agreeing terms for the lease renewal and shall use all reasonable
endeavours to conclude such agreement at the earliest opportunity.

109

M03_Boilerplate_Clauses_B.indd 109 04/09/2017 08:07

 Best endeavours, reasonable endeavours and all reasonable endeavours

Precedent 9—Party to use reasonable endeavours to retain transferring

employees on sale of business
The Vendor shall use reasonable endeavours to retain the services of each
of the Transferring Employees to the intent that their respective contracts
of employment shall be continued until the Transfer Date and then (save
insofar as such contracts relate to any occupational pension scheme) be
transferred to the Purchaser by virtue of the Regulations.

Precedent 10—Party to use reasonable endeavours to resolve dispute

Each party will use all reasonable endeavours to reach a negotiated reso-
lution through the above dispute resolution procedure. The specific for-
mat for such resolution will be left to the reasonable discretion of the rele-
vant management level, but may include the preparation and submission
of statements of fact or of position.

Precedent 11—Party to use reasonable endeavours for delivery – but not

time of essence
[The Licensor] will use all reasonable endeavours to achieve delivery or
installation by any specified or requested date, but each such date is to
be treated as an estimate only and time shall not be of the essence.

Precedent 12—Use of best endeavours and reasonable endeavours in

confidentiality clause – shareholders’ agreement
1 Each of the parties to this agreement shall at all times use its best en-
deavours to keep confidential (and to procure that its respective em-
ployees and agents shall keep confidential) any confidential information
which it or they may acquire in relation to the Company and its subsidi-
aries or in relation to the clients, business or affairs of any other party
to this agreement or of the Company or of any of the Company’s sub-
sidiaries and shall not use or disclose such information except with the
consent of every other party to this agreement and/or of the Company or
its relevant subsidiary (as appropriate) or in accordance with the order of
a court of competent jurisdiction or, in the case of information relating to
the Company or any of its subsidiaries, for the advancement of the busi-
ness of the Company or the relevant subsidiary.
2 The parties to this agreement shall procure that the Company and its
subsidiaries shall use all reasonable endeavours to ensure that the
officers, employees and agents of each of them observe a similar ob-
ligation of confidence in favour of the parties to this agreement.
3 The obligations of each of the Parties contained in Clause [1] shall
continue without limit in point of time but shall cease to apply to any
information coming into the public domain otherwise than by breach
by any such party of its said obligations Provided that nothing con-
tained in this Clause [ ] shall prevent any Party from disclosing any
such information to the extent required in or in connection with legal
proceedings arising out of this agreement or any matter relating to or
in connection with the Company.

110

M03_Boilerplate_Clauses_B.indd 110 04/09/2017 08:07

 Best endeavours, reasonable endeavours and all reasonable endeavours

4 For the purposes of this Clause [no] the expression ‘Party’ shall in-
clude the subsidiary companies of any party and any other company
controlled by that party and the employees or agents of that party
and of such subsidiary or controlled companies.

Case analysis

Best endeavours
IBM United Kingdom Ltd v Rockware Glass Ltd [1980] FSR 335, CA
In the leading case in this area, the Court of Appeal held that an under-
taking to use one’s best endeavours obliged a party to take all the steps
in a person’s power which he was capable of to bring about the desired
result, ‘being steps which a prudent, determined and reasonable owner,
acting in his own interests and desiring to achieve that result would take’.
One of the Court of Appeal judges, Buckley LJ, said the obligation was
not to be measured by reference to somebody who is under a contractual
obligation, but to someone who is acting in his own interest.
The case concerned an agreement for the sale of land under which one
party had the obligation to use its best endeavours to obtain planning
permission. Planning permission was refused and that party failed to ap-
peal against that refusal. The Court considered that if the appeal offered a
reasonable chance of success, the party was obliged to appeal.

Sheffield District Rly Co v Great Central Rly Co (1911) 27 TLR 451

‘We think “best endeavours” means what the words say; they do not mean
second-best endeavours… They do not mean that the limits of reason must be
overstepped with regard to the cost of the service; but short of these qualifica-
tions the words mean that the … Company must, broadly speaking, leave no
stone unturned…’

Terrell v Mabie Todd & Co [1952] 2 TLR 574

‘… contractual obligations to use due diligence and their best endeavours to
promote sales under such contracts would not require the directors to carry on
the manufacture and attempted sale to the certain ruin of the Company or to
the utter disregard of the shareholders but before that extreme position could
be reached …’

Pips (Leisure Productions) Ltd v Walton (1982) 43 P & CR 415

‘Best endeavours are something less than efforts which go beyond the bounds
of reason but are considerably more than casual and intermittent activities.
They must at least be the doing of all that reasonable persons reasonably
could do in the circumstances.’

Rackham v Peek Foods Ltd [1990] BCLC 895 and Dawson International
plc v Coates Paton plc [1990] BCLC 560
These cases concerned undertakings given by directors of a company
(eg, to use best endeavours to obtain shareholders’ approval to a sale of

111

M03_Boilerplate_Clauses_B.indd 111 04/09/2017 08:07

 Best endeavours, reasonable endeavours and all reasonable endeavours

shares). It has been held that ‘best endeavours’ undertakings given by a

director do not override the director’s duty to act in the best interests of
the company.

Ault and Wiborg Paints Ltd v Sure Services Ltd (1983) Times, 2 July
It was held that an implied term in a contract that a company would use
its best endeavours to promote another’s products was to be construed
in the context of the circumstances of the contract. Such a term was not
inconsistent with the company being at liberty to promote, and promot-
ing, similar products made by competitors of the other contracting party,
but required the company to treat the other contracting party’s products
at least as well as it treated the competitors’ products.

Beta Investment SA v Transmedia Europe Inc [2003] EWHC 3066 (Ch),

[2003] All ER (D) 133 (May)
It was held in this case that the wording that the parties were to use ‘their
best endeavours to negotiate and agree’ a final settlement within 90 days
did not mean that the parties had to enter into a particular form, or any
form, of actual agreement. This case is considered further in Case analy-
sis of Subject to contract (and other denials of a legally-binding contract).

Days Medical Aids Ltd v Pihsiang Machinery Manufacturing Co Ltd

[2004] EWHC 44 (Comm), [2004] 1 All ER (Comm) 991
In a distributorship agreement a clause that required the claimant to
‘promote sales to the best of its ability in the UK and all countries in the
schedule’ was found to be a best endeavours clause. Such an obligation
had to be considered in the context that the claimant was an established,
well-capitalised and skilled distributor of medical aids but that the market
in the United Kingdom and other countries needed development. An ob-
ligation that ‘the claimant will endeavour to increase sales year on year’
was also a best endeavours clause. The judge, after being referred to the
passages quoted above from IBM United Kingdom Ltd v Rockware Glass
Ltd and Sheffield District Rly Co v Great Central Rly Co, stated:
‘Increased sales, provided they earned or commercially could reasonably be
expected in the future to earn a reasonable return, were in the interests of both
[the claimant and the defendant]. I agree with [counsel for the defendants] that
where appropriate the obligation could require the claimant to invest and to
take the risk or failure but only where there was a reasonable prospect of com-
mercial success.’

These views expressed by the judge are obiter, as the case concerned is-
sues of restraint of trade and whether the distributorship agreement was
in breach of community law. Nevertheless, they are an interesting appli-
cation of some leading cases to a distributorship agreement.

112

M03_Boilerplate_Clauses_B.indd 112 04/09/2017 08:07

 Best endeavours, reasonable endeavours and all reasonable endeavours

Reasonable endeavours
UBH (Mechanical Services) Ltd v Standard Life Assurance Co (1986)
Times, 13 November
Rougier J held that an obligation to use reasonable endeavours ‘must be
[a] less stringent’ obligation than to use best endeavours. Where a lessee
undertook to his landlord to use reasonable endeavours, the lessee could
take into account other commercial considerations as well as his obliga-
tion to the landlord. This involved ‘a balancing act whereby [the defend-
ants] were obliged to put in one scale the weight of the contractual obli-
gation to [the plaintiffs], and in the other all relevant commercial consid-
erations’. He was also persuaded that an obligation to use ‘all reasonable
endeavours’ ‘probably’ lay between best and reasonable endeavours, but
his observations on this matter were obiter dicta. This is the only case
where it appears the court has ventured a view on the different ‘levels’ of
endeavours.

Phillips Petroleum Co (UK) Ltd v ENRON (Europe) Ltd [1997] CLC 329,
CA
In this case, on ‘reasonable endeavours’, an obligation to use reasonable
endeavours was not breached by failing to do something where it would
have been financially disadvantageous to do so.

In this case, the key clause in a gas sales agreement read as follows:
‘Article 2.2: The buyer and seller shall use reasonable endeavours to agree …
If the seller and the buyer are unable to agree prior to 25 April 1996 … then the
Commissioning Date shall be 25 September 1996 and the Run-In test shall be
conducted from 25 to 28 September 1996.’

The defendant refused to agree a Commissioning Date because of a fall in

the market price of gas. The defendant would have to pay a higher price
under the agreement than the market price for the gas to be supplied un-
der the agreement. The defendant argued that it could take into account
its own financial situation, not only operational and technical practicality
(as the plaintiff contended). The court noted that there was a failure to set
any reasonable criteria in this case.

From the judgment of Kennedy LJ at p 342:

‘When the critical words in art 2.2 are read in their contractual setting, and
with regard to the ensuring fall-back provisions, I find it impossible to say that
they impose on the buyer a contractual obligation to disregard the financial
effect on him and indeed everything else other than technical or operational
practicality, when deciding how to discharge his obligation to use reasonable
endeavours to agree to a commissioning date prior to 25 September 1996. If
the obligation was to be strait-jacketed in that way, that is something which to
my mind would have been expressly stated … this is not a situation in which
it would be appropriate for the court to imply a term, not least because it is
unnecessary to do so for the purposes of business efficiency. The fall-back
provision expressly states what is to happen if no early commissioning date is
agreed.’

113

M03_Boilerplate_Clauses_B.indd 113 04/09/2017 08:07

 Best endeavours, reasonable endeavours and all reasonable endeavours

Potter LJ said (at p 343):

‘Even if I were satisfied (which I am not) on the basis of the facts agreed for
the purposes of the issue that, by acting solely in its financial interests, the
buyer has not made reasonable endeavours to agree a commissioning date to
25 September, the requirement of “reasonableness” would nonetheless pre-
sent acute difficulties to any court asked to decide from what date the buyer
was in fact in breach and ought to be held liable in damages. For that purpose
it might well be necessary to investigate at length, and form judgments upon,
the availability of key personnel, designers or other specialists, the state and
progress of the works, the stage at which the works might legitimately be re-
garded as ready from a practical and technical point of view including testing,
the commitment of resources towards completion and finalisation of the facil-
ity, the completion of onsale arrangements and a variety of other considera-
tions arguably reasonable to be taken into account before proposing and/or
agreeing a commissioning date.’

The key point from this case is that if the parties are to ‘use reasonable
endeavours to agree’ then there should be:
• objective criteria as to what has to be done to meet the standard of
reasonable endeavours; and
• what factors a party can take into account.

Patel v Brent London Borough Council [2004] EWHC 763 (appealed in

[2005] EWCA Civ 644, appeal allowed, but issue relating to ‘reasonable
endeavours’ not specifically overturned)
In this case, the defendant was under an obligation to use reasonable
endeavours to complete certain works by a certain date. The works were
not completed by that date. It was held that it was necessary to imply,
to give business efficacy to the agreement, that the defendant remained
under an obligation to continue using its reasonable endeavours to com-
plete the works in a reasonable time after the completion date.

Stephen v Scottish Boat Owners Mutual Insurance Association (The

Talisman) [1989] 1 Lloyd’s Rep 535, 1989 SC (HL) 24, 1989 SLT 283
The case involved the insurance of a fishing boat. The insurer would not
be liable unless the boat owner used all reasonable endeavours to save
the boat from loss or damage. The boat was lost and the insurer said that
the owner did not use all reasonable endeavours to save the boat. The
court held that the test of what is ‘reasonable endeavours’ is objective,
ie the efforts of the boat owner needed to be measured against the efforts
that an ordinary competent boat skipper would undertake.

Yewbelle Ltd v London Green Developments Ltd (Knightsbridge Green

Ltd Pt 20 defendant) [2006] EWHC 3166 (Ch), [2006] All ER (D) 122 (Dec)
The case involved a party having an all reasonable endeavours obligation
to obtain planning permission. In carrying out the obligation the person
under the obligation did not have to sacrifice its own commercial inter-
ests, but the obligation required the person to meet that level of obligation
until the point is reached at which all reasonable efforts are exhausted.

114

M03_Boilerplate_Clauses_B.indd 114 04/09/2017 08:07

 Best endeavours, reasonable endeavours and all reasonable endeavours

Jet2.com Ltd v Blackpool Airport Ltd [2012] EWCA Civ 417

In an agreement where the defendant airport was to provide facilities for
the low-cost airline claimant the following clause came in for considera-
tion:
‘1. Jet2.com and BAL will co-operate together and use their best endeavours
to promote Jet2.com’s low cost services from BA and BAL will use all reason-
able endeavours to provide a cost base that will facilitate Jet2.com’s low cost
pricing.’

The requirement on a party under an endeavours type clause not to act

against its own commercial interests was considered. The court in this
case found that having regard to a party’s own financial interests depends
on the nature, and the provisions, of the contract the party entered into.
As regards the nature of the deal in this case, the defendant would need
to allow the landing of the aeroplanes of the claimant outside normal
hours, and which would involve a loss to the defendant.
It was essential to allow the claimant to land its aircraft outside normal
hours in order for the claimant to be able to operate its type of business.
Therefore meeting the all reasonable endeavours obligation would require
the defendant to operate at a loss given the nature of the deal between
the parties:
‘[32] It was a central plank of BAL’s argument before the judge that the ob-
ligation to use best endeavours did not require it to act contrary to its own
commercial interests, which, in the context of this case, amounts to saying
that BAL was not obliged to accept aircraft movements outside normal hours
if that would cause it financial loss. Some support for that conclusion can be
found in the cases, notably Terrell v Mabie Todd and Co Ltd and Yewbelle
Ltd v London Green Developments Ltd, but I think the judge [at first instance]
was right in saying that whether, and if so to what extent, a person who has
undertaken to use his best endeavours can have regard to his own financial
interests will depend very much on the nature and terms of the contract in
question… I approach with some caution the submission that BAL was entitled
to refuse to accept aircraft movements outside normal opening hours if that
caused it to incur a loss, because on the judge’s findings the ability to sched-
ule aircraft movements outside those hours was essential to Jet2’s business
and was therefore fundamental to the agreement. In those circumstances one
would not expect the parties to have contemplated that BAL should be able to
restrict Jet2’s aircraft movements to normal opening hours simply because it
incurred a loss each time it was required to accept a movement outside those
hours, or because keeping the airport open outside normal hours proved to be
more expensive than it had expected. On the other hand, I can see force in the
argument that if, for example, it were to become clear that Jet2 could never ex-
pect to operate low cost services from Blackpool profitably, BAL would not be
obliged to incur further losses in seeking to promote a failing business.’

115

M03_Boilerplate_Clauses_B.indd 115 04/09/2017 08:07

 Breach

Purpose of the clause

A breach of contract is the breaking of an obligation which a contract imposes

or the breaking of a term or condition in a contract.
The word ‘breach’ is a technical, legal term, not used in everyday speech.
A few contracts use the more modern word ‘break’, as in:
‘if X breaks this contract, Y may terminate it’.

However, this has not become common practice.

Technically, there is – or some lawyers consider there is – a difference between
breach of a contract’s terms and conditions and a failure to perform those
terms and conditions. For this reason, some precedents for termination
clauses refer to both breach and failure to perform. In the authors’ personal
view, it is unlikely that a court would normally interpret a reference to breach
as excluding non-performance, unless a distinction is made elsewhere in the
contract between these two terms.

Meaning of ‘material’ or ‘substantial’ breach

In some agreements a party is entitled to give notice to terminate (or to

terminate) if the other party is in ‘material’ or ‘substantial’ breach of its
obligations, eg:
‘if the other party shall commit any [substantial][material] breach of any of its
obligations under this agreement and shall fail to remedy such breach (if capable
of remedy) within 30 days after being given notice by the first party so to do’.

The aim of such a clause is not to allow a party to terminate an agreement

where the other party has only committed a minor or trivial breach of the
agreement (see DB Rare Books Ltd v Antiqbooks (a limited partnership) [1995]
2 BCLC 306, CA, and Superior Overseas Development Corpn and Phillips Petroleum
(UK) Co v British Gas Corpn [1982] 1 Lloyd’s Rep 262 for discussion of these
terms). In many cases it is likely that there will be no difference in the meaning
between ‘material’ and ‘substantial’, subject to the context (see Fitzroy House
Epworth Street (No 1) Ltd v Financial Times Ltd [2006] EWCA Civ 329, [2006]
2 All ER (D) 463 (Mar)).
The use of the terms ‘substantial’ or ‘material’ does not precisely define
exactly what in a particular breach will be sufficient to amount to substantial

116

M03_Boilerplate_Clauses_B.indd 116 04/09/2017 08:07

 Breach

or material. What is substantial or material for one party may not be for the
other party. For example, a party may have an obligation to make payments
on certain dates but makes one payment one day late. For the party making
the payment, this may amount to a small breach, but to the other it may have
serious consequences. The other party may need to pay its suppliers or to
repay loans on terms that are draconian. If it does not have sufficient reserves
then any delay in receiving payment, even by a small amount of time, could be
serious or very expensive.

Not quantifying the level or seriousness of the breach

An agreement may not specify the seriousness of a breach that would entitle
a party to terminate the contract, but simply state that a party is entitled to
terminate if there is a breach, such as:
Each party shall be entitled to terminate this agreement immediately by notice
in writing to the other party [(but not after 90 days of the event in question first
coming to the attention of the party entitled to give the notice)] if any of the
events set out below occurs. The events are:
(a) if the other party commits any breach of any of its obligations under this
agreement and fails to remedy that breach (if capable of remedy) within 30 days
after being given notice by the first party to do so or…
The problem with this wording is that the view of the courts has changed as to
whether this form of wording is sufficient to permit the party not in breach to
terminate the contract where the other party commits any breach. There are
decisions where such wording would only entitle a party to terminate where
the breach was sufficient to amount to a repudiatory breach (Antaios Compania
SA v Salen AB [1988] AC 191; Rice (t/a the Garden Guardian) v Great Yarmouth
Borough Council [2000] All ER (D) 902; Dominion Corporate Services Ltd v
Debenhams Properties Ltd [2010] EWHC 1993 (Ch)). Other cases take a different
view: that the courts should interpret the words of the contract actually used,
and if the contract states that a party can terminate if another party breaches
the contract, then that is exactly what the wording means. The courts should
not be ‘reading in’ a meaning that this wording only allows the party to
terminate if the breach of the other party meets the standard of a repudiatory
breach (Leofelis SA v Lonsdale Sports Ltd [2008] EWCA Civ 640; ENE Kos 1 Ltd v
Petrolio Brasiliero SA (No 2) [2012] UKSC 17; Newland Shipping and Forwarding
Ltd v Toba Trading FZC [2014] EWHC 661 (Comm)). The contrasting views
of the courts may be simply based on the facts of each individual case; but this
does not permit the contract drafter to know with certainty that using only the
word ‘breach’ will be sufficient to allow a party not in breach to terminate the
contract where another party is in breach.
One solution is to make any breach of an obligation sufficient to terminate
through the use of clear wording. This may not always be commercially
attractive or always possible (if the parties are not of equal bargaining
strength). For example, to take the wording quoted above:
(a) if the other party commits any breach whatsoever (however trivial) of any of
its obligations under this agreement and fails to remedy that breach (if capable of
remedy) within 30 days after being given notice by the first party to do so or…

117

M03_Boilerplate_Clauses_B.indd 117 04/09/2017 08:07

 Breach

This is an exaggerated type of wording, but however such a clear statement is

worded, it is unlikely to be acceptable, although it would clearly indicate to a
court the meaning of the wording used.

Advantage of quantifying a breach by use of wording such as

‘material’ or ‘substantial’

The advantage of using words such as ‘substantial’ and ‘material’ permits the
parties to set a (rough) standard as to the level of breach that entitles a party
to terminate, although, in the event of dispute, a court will need to interpret
the precise meaning against the circumstances of the case (see Dalkia Utilities
Services plc v Celtech International Ltd [2006] EWHC 63 (Comm) and Case
analysis below). The courts will objectively judge whether a breach is material
by reference to the facts (ie not the subjective views of the parties) (see Fitzroy
House Epworth Street (No 1) Ltd v Financial Times Ltd [2006] EWCA Civ 329,
[2006] 2 All ER (D) 463 (Mar); Compass Group UK and Ireland Ltd (t/a Medirest)
v Mid Essex Hospital Services NHS Trust [2012] EWHC 781 (QB)).
When considering what involves ‘materiality’ the following facts will be taken
into account: ‘…the actual breaches, the consequence of the breaches to
[the innocent party]; [the guilty party’s] explanation for the breaches; the
breaches in the context of [the a]greement; the consequences of holding [the
a]greement determined and the consequences of holding [the a]greement
continues’ (from Phoenix Media Ltd v Cobweb Information (unreported, 16 May
2000) 2004 WL 147 6680, quoted in the Compass Group etc case).
One way of addressing this for a particular obligation might be by defining
what level of failure by a party to meet an obligation would be a ‘material’
breach. For example, if a customer makes regular orders of goods and pays
for those orders against invoices then, as regards the payments the customer
needs to make, the meaning of ‘material breach’ could be defined as meaning
that the party has failed to pay a certain number of invoices or that the amount
owing is above a certain amount. A termination clause might include wording
such as:
Either party to this agreement shall be entitled to terminate this agreement
immediately by notice in writing to the other party [(but not after 90 days of the
event in question first coming to the attention of the party entitled to give the
notice)] if any of the events set out below shall occur. The events are:
(a) if the other party shall commit any material breach of any of its obligations
under this agreement and shall fail to remedy such breach (if capable of remedy)
within 30 days after being given notice by the first party so to do or…
[… other events ]; and
(x) If Party B shall fail to make any payment for Goods on any Payment Date
(“Outstanding Payment”), then this failure shall amount to a material breach for
the purposes of Clause (a), if:
(i) [3] or more Outstanding Payments together have not been paid at any one
time by Party B to Party A; or

118

M03_Boilerplate_Clauses_B.indd 118 04/09/2017 08:07

 Breach

(ii) the amount of Outstanding Payments owed by Party B to Party A exceeds

£[5,000] regardless of the number of Outstanding Payments that Party B has.
Rather than trying to define the meaning of ‘material’ or ‘substantial’, other
solutions could involve (before the contract is entered into) arranging for
staged payment terms or making each stage of the performance of the contract
conditional on the other party paying for the previous stage, together with
good internal administration so that these provisions are strictly adhered to.
The word ‘substantial’ has come in for consideration by the courts on many
occasions (such as in cases involving payment of rent under a lease), and
amounts for non-payment of less than 15% are generally not substantial.
However, it is not clear the extent to which such decisions are applicable to
commercial agreements.

Drafting issues
Some preliminary questions need consideration as to the effect of a breach:
• which obligations or terms or conditions are considered sufficiently important that
breach of them would be:
• sufficient to terminate an agreement?
• not sufficient to terminate but the breaching party should be allowed
to ‘perform’ again?
eg a termination provision allowing for notice to be given to the party
in breach specifying that the breach can be remedied within a set
number of days.
• not sufficient to terminate but the party in breach will face a sanction
so it will, eg:
• be liable to pay liquidated damages;
• be set a time limit which will be made of the essence (ie a failure
to meet the time limit will entitle the party not in breach to
terminate the contract);
• be liable (in the case of non-payment) to pay interest;
• have to allow a third party to perform some or all of its obligations
and to pay the third party.
• which failures to perform obligations or the terms and conditions will amount to
breach?
• will any of the obligations or terms or conditions, which are not
performed or not performed ‘properly’, be a breach?
• will the party obliged to perform an obligation or term or condition
only be in breach if it does not meet a standard, eg:
• where services are involved, if the party does not use reasonable
care and skill (the standard set by the Supply of Goods and
Services 1982);

119

M03_Boilerplate_Clauses_B.indd 119 04/09/2017 08:07

 Breach

• where goods are involved, if the goods made or supplied are not of
satisfactory quality (the standard set by the Sale of Goods Act 1979);
• does not use reasonable or best efforts or endeavours;
• does not meet some specified specification; or
• where the failure to meet the standard is ‘material’ or ‘substantial’?
• will the party be in breach but excused from any liability because there are
limitations and exclusions of liability in the agreement to cover the breach?

Location in the agreement

There is not usually a stand-alone clause stating or setting out the circumstances
when there is a breach. Provisions dealing with breach are usually found in:
• the Main Commercial Provisions, such as the core operative provisions,
which may state (either directly or by reference) the standard that a
party needs to achieve and the importance of a failure to perform or
performance of them below a required or expected standard; and/or
• in the Secondary Commercial Provisions, such as:
• the Termination clause, which will set out either:
• the general terms of what constitutes a breach (eg a material
breach of the agreement); or
• specific instances that constitute a breach (eg a failure by a party
to meet a standard set in a specification or failure to obtain
regulatory approval);
• the Warranty clauses, which will specify, in some cases, the standard
that a party is stating that they are meeting, and the consequences of
failing to meet them.

Linkage and use

The subject of breach typically arises in termination clauses and liquidated

damages clauses. Precedents to allow termination of the contract in the event
of a breach of its terms appear in Termination for breach.

Case analysis

Dalkia Utilities Services plc v Celtech International Ltd [2006] EWHC 63

(Comm)
1 The parties entered into a contract for the claimant to build and main-
tain a power plant for the defendant.

120

M03_Boilerplate_Clauses_B.indd 120 04/09/2017 08:07

 Breach

2 The defendant failed to pay three instalments. The defendant claimed

that it had no money to pay and that unless the agreement between
the parties was renegotiated it would become insolvent. The claimant
refused to do so.

3 The claimant sued for sums it claimed were payable on termination of

the agreement.

4 The agreement included a variety of clauses concerning termination

including:
‘14.2. In the event of one of the parties (the “DEFAULTING PARTY”) being in
material breach of any of its obligations hereunder or under the LEASE being a
breach which is capable of being remedied, and failing to remedy such breach
within one hundred and twenty calendar days after receiving written notice of
the failure from the other party (the “NON DEFAULTING PARTY”) requiring it
to be remedied, or being a breach which is incapable of being remedied and
which has continued for one hundred and twenty calendar days after written
notice of such breach has been given to the DEFAULTING PARTY, then the
NON DEFAULTING PARTY shall have the right to terminate this Agreement
forthwith by notice in writing to the DEFAULTING PARTY.’

and
‘14.4. In the event of the CLIENT being in material breach of its obligations
to pay the CHARGES the COMPANY shall have the right to terminate this
Agreement immediately.’

5 If the claimant terminated the agreement under Clause 14.4 then

the defendant would need to pay the claimant a sum of money
(‘Termination Sum’).

6 It was assumed that a material breach was not the same as a repu-
diation (ie a party does not have an intention to perform the contract).
For the judge material had to be sufficiently serious so that there was
a justification for bringing the parties’ long term contract to an end
(which the judge characterised as ‘involving something of a partner-
ship endeavour between the parties’).

7 The judge held that the failure to pay was a material breach of the
defendant’s obligations to pay in the circumstances of the case.

8 The judge set out the factual circumstances which made the breach
serious enough to be ‘material’:

(a) three instalments were not paid, with the third instalment being
on just due for payment (and therefore a less serious breach
and of less significance than the other two);

(b) the failure to pay the third instalment was the third payment not
made (and all coming one after the other);

(c) there was nothing to suggest that the position as regards pay-
ment would get any better;

121

M03_Boilerplate_Clauses_B.indd 121 04/09/2017 08:07

 Breach

(d) that the continued failure to pay was serious and the amounts
involved were not minimal or trivial;

(e) the amount of the instalments were small (over the lifespan of
the agreement) but represented 25% of the instalments due in
the year they were due to be paid and 8.5% of the total charges
unpaid for the remainder of the initial period of the contract;

(f) that the defendant did not have the money to pay and was fac-
ing insolvency and needed a six months moratorium before it
could start paying again. The defendant’s position was that un-
less the contract was renegotiated the defendant would not be
able to continue paying in full. In effect the claimant would need
to have the power plant running for six months without pay-
ment (although the defendant would still owe the instalments for
those six months);

(g) that unless the claimant terminated the agreement it would have
to keep the power plant going for the defendant to be able to
keep on payment of the Termination Sum;

(h) that on termination the defendant would need to pay a large

sum (in effect the capital value of the plant) (because of a con-
tractual provision allowing for this payment by the defendant to
the claimant and which the judge held indicated the importance
attached to prompt payment) and which if the defendant was
unable to find finance would lead to a serious consequence (but
the judge held was not draconian).

9 The principles the judge outlined to determine whether a breach was

material were (and the consequences) (from paragraph 102 of the
judgment, reformatted to ease reading):

(a) ‘… In assessing the materiality of any breach it is relevant to

consider not only of what the breach consists but also the cir-
cumstances in which the breach arises, including any explana-
tion given or apparent as to why it has occurred.’

(b) ‘The reason why payment was not forthcoming in the present
case was not because of some mishap, mistake or misunder-
standing.’

(c) ‘It seems to me that a clause of this kind [ie allowing termination
for breach of a material obligation], in this context, is designed
to protect a client where the default is minimal or inconsequen-
tial or (even if it is not) is accidental or inadvertent, but otherwise
to enable a supplier such as [the claimant] to bring the period
over which it is effectively extending credit to an end where
there is a failure to keep up the payment schedule established
by the contract.’

122

M03_Boilerplate_Clauses_B.indd 122 04/09/2017 08:07

 Breach

(d) ‘(…in relation to the question of material breach the primary fo-
cus must, as it seems to me, be on the character of the breach
rather than the consequences to the “guilty” party if the “inno-
cent” party avails himself of his contractual remedy).’

123

M03_Boilerplate_Clauses_B.indd 123 04/09/2017 08:07

 Capacity (and authority)

Purpose of the clause

Different meanings of ‘capacity’

In the context of entering a contract:
• capacity concerns whether a person or an organisation can enter a
contract at all; and
• authority concerns whether a person or organisation has the permission
to enter into a contract (often on behalf of someone else).

Capacity

The question of ‘capacity’ can arise in the following circumstances:

1 Usually an individual has the capacity to enter into most types of
contract. There are categories of persons who cannot enter into a
contract at all or only in limited or specific circumstances (such as
minors, persons of unsound mind, drunks or bankrupts) (see Sale
of Goods Act 1979, s 3(2)). Except for bankrupts, the other types of
persons who do not have capacity are not often encountered in a
commercial context.
2 To determine whether a legal entity has the capacity to enter into a
contract, it is usually necessary to look at the relevant statute. For the
principal corporate structures in England and Wales, there are statutory
provisions allowing them to enter into contracts as follows:
(i) companies incorporated under or governed by the Companies Act
2006 (particularly ss 39, 40 and 43); or
(ii) bodies corporate (Corporate Bodies’ Contracts Act 1960, s 1). This
will cover organisational structures such as those incorporated under
Royal Charter or organisations created by or under statute (such as a
local authority, the Information Commissioner etc);
(iii) limited liability partnerships (Companies Act 2006, s 43, as
implemented by the Limited Liability Partnerships (Application of
the Companies Act) Regulations 2009, SI 2009/1804, reg 4).

124

M04_Boilerplate_Clauses_C.indd 124 07/09/2017 12:57

 Capacity (and authority)

Authority

The question may arise whether a person who purports to sign a contract on
behalf of a contracting party (eg a person or a company) has the authority (ie,
permission) to do so.
This section considers, from a practical point of view, whether a person/
organisation has authority to enter into a contract on behalf of a contracting
party. This point has direct implications for the ‘boilerplate’ language of the
contract.
Generally, under English law persons/organisations can sign or enter into
contracts on behalf of others, without having to comply with any specific
formality or obtain a particular qualification. (The main types of statutory
provisions affecting companies and other organisations are referred to above.)

How it is possible to signify the authority of a person

Use in attestation/execution clauses

In the attestation/execution clause, it is common (although by no means
universal) to find words such as, where an organisation is involved, it is
signing or agreeing to the contract ‘through their authorised signatories’ or
‘through the duly authorised representatives of the parties’ (see Precedents 1
and 2).

Use of warranties
Within the agreement itself, there will be wording where one or more parties
warrant that:
• they have the capacity (or are free) to enter into the agreement; and
• the person signing on behalf of a party is authorised to do so by that party
(see Precedent 3).

Use of boilerplate to indicate authority

Also, in addition to a person/organisation having authority to enter into
the agreement itself, boilerplate clauses are used to indicate that only an
authorised representative of a party can:
• sign notices;
• approve an action to be carried out under an agreement;
• vary or amend an agreement;
or agree to any of these matters. The wording of these clauses will normally
state that the authorised representative is:
• a named person; or

125

M04_Boilerplate_Clauses_C.indd 125 07/09/2017 12:57

 Capacity (and authority)

• an officer (such as a director and/or company secretary); or

• anyone who holds a particular position or role (such as the ‘finance
manager’).

Drafting issues

Where a party to an agreement states that someone is authorised to sign or do

things on behalf of it, the following will need consideration:

• Senior person binding a company. In the absence of specific authority, it is

possible that the position that the employee holds and the duties they
undertake will mean that authority will be implied (and which the other
party to a contract can rely on). There is much 19th century and early
20th century case law on this point. Generally, there is no presumption
that an employee has authority to contract on behalf of its employer, and
whether it is implied will depend on the position of the employee (see
eg Walker v Great Western Rly Co (1867) LR 2 Exch 228). Authority is likely
to be implied where the person entering into contracts is incidental to the
employee’s duties for which they are employed (eg Richardson v Cartwright
(1844) 1 Car & Kir 328; Graves v Masters (1883) Cab & El 73; Smith v Hull
Glass Co (1852) 11 CB 897).

Accordingly, the more senior the person in a company who signs, the
more difficult it will be for the company to disown the contract on the
basis that the person who signed it was not authorised to do so.

Also senior employees are likely to have ‘apparent authority’ to sign

contracts on their company’s behalf. Even medium-ranking employees
may have apparent authority, particularly if the contract is within their
area of work responsibilities (eg, a research manager placing a contract
for test tubes).

• Authority of a director or company secretary. It is even more difficult for a

company to disown a contract signed by a director or the company secretary
(Companies Act 2006, s 40(1)) The Companies Act 2006 provides that
directors are free to bind (or authorise others to do so) irrespective of
what the company’s constitution states (as long the person with whom the
company is entering a contract is doing so in good faith).

• Use of internal rules. Internal company rules about who has authority to
make commitments will not bind people outside the company who are
not aware of those rules.

If a very junior employee places an order with a supplier and the employer
‘honours’ the order, it may be difficult for the company to deny that the
employee has apparent authority when placing similar orders in the
future, even if the order exceeded that person’s delegated authority.

126

M04_Boilerplate_Clauses_C.indd 126 07/09/2017 12:57

 Capacity (and authority)

• Company providing notice as to who can bind the company. A company could
give notice to a customer or supplier that only certain individuals are
authorised to enter into contracts on behalf of the company. However,
this would need careful management, and would need to be periodically
restated, eg on changes of personnel within the customer’s or supplier’s
organisation. A customer or supplier who knew that an employee of the
other party was not authorised to enter into contracts at all, or the type of
contract that the customer or supplier normally enters into with the other
party, would have actual knowledge of the lack of authority and would not
normally be able to bind the other party.

• Where a person does not have authority to sign a contract. If a person does
not have actual or apparent authority to sign a contract on behalf of his
employer, nothing stated in the contract changes the position.
The inclusion of words in the contract such as:
‘the undersigned is authorised to sign this contract on behalf of
XYZ Limited’

may give a right of action against the person signing if they are not
authorised to sign, but will not make the contract binding on the company.
Nevertheless, such words are sometimes considered useful to focus the
mind of the signatory on the issue, and to prompt the signatory to check
whether they do, in fact, have such authority. However, if a company holds
out or represents that an employee or another person can enter into a
contract on its behalf it may be later stopped from denying that it did not
authorise it to do so (see eg United Bank of Kuwait Ltd v Hammoud, City
Trust Ltd v Levy [1988] 3 All ER 418, [1988] 1 WLR 1051, CA).

• Obtaining a board resolution approving execution. The most certain way to

ensure that the person signing has authority is to require the person’s
employer to provide a certified copy of a board of directors’ resolution
approving the execution of the contract and giving the individual signing
delegated authority to sign it.

This is sometimes required for major contracts (and other company

transactions). However, it is unrealistic for most contracts, particularly if
the company is large, or all effective decisions are made by a controlling
group company (which is based in another country), or it is difficult or
impossible to organise a directors meeting in a timely manner.

• Authority of directors. Although the Companies Act 2006 gives directors wide
powers to run and bind their company, a party who wishes to enter into a
contract with a company and does not obtain or seek a board resolution
may need to consider whether there are any fetters on the directors’
authority, such as:

• previous board resolutions;

• shareholders’ agreements;

127

M04_Boilerplate_Clauses_C.indd 127 07/09/2017 12:57

 Capacity (and authority)

• if the company is part of a group of companies;

• third party financing.
These may restrict the power of the directors, although the other party
may have no knowledge or may not be able to determine whether any
of these are in place. However, even if there are such restrictions, given
the wording of the Companies Act 2006 (in particular s 40), then the
restrictions may not affect a party to a transaction with the company, as
long as that party has acted in good faith.
• Other methods of ensuring that a person signing is authorised to do so on behalf
of another. In addition to the points above, if a party wishes to check that a
person is authorised to sign on behalf of another party:
• have a director sign the contract (after making a search at the Registrar
of Companies that person named as a director is in fact so);
• have business insurance to cover any loss;
• obtain a parent company guarantee;
• carry out due diligence on the other party and the person signing.
Some of these are only likely to be worthwhile if the contract is of sufficient
value or importance to merit the work necessary to go down any of the
routes suggested here.
• Is the contract to be signed as a deed? If the parties are companies incorporated
or regulated by the Companies Act 2006 and wish to enter into the contract
by deed and the parties are not to rely on the provisions of Companies Act
2006, s 44 then the person signing on behalf of the company will himself
need to be appointed by deed (Companies Act 2006, s 47; Steiglitz v Egginton
(1815) Holt NP 141; Berkeley v Hardy (1826) 5 B & C 355). Otherwise, the
deed will need signing by a director (in the presence of a witness), two
directors, or a director and the company secretary, and expressed to be
executed by the company (ie in accordance with Companies Act 2006,
s 44).

Location in the agreement

Matters concerning Capacity (or Authority) can be located in various sections of

an agreement:
• where indicating whether a person is authorised to sign on behalf of a
party:
• in the Attestation/Execution Clause of the agreement;
• and where the party is asserting as a fact that the person signing can
do so, in Warranty clauses;

128

M04_Boilerplate_Clauses_C.indd 128 07/09/2017 12:57

 Capacity (and authority)

• where indicating whether a person or job role has the authority to sign
other types of document, other than the agreement itself, a Capacity clause
might be located in the Boilerplate section of an agreement where a
general statement is sometimes included stating who is authorised to deal
with certain types of documents.

Linkage and use

See Location in the agreement above.

Sample precedent material

Precedent 1—Modern form of attestation/execution clause

AGREED by the parties through their authorised signatories
For and on behalf of [name of company]

Precedent 2—Traditional form of attestation/execution clause

AS WITNESS the hands of the duly authorised representatives of the par-
ties to this agreement on the day and year before written.

Precedent 3—Warranty as to authorisation

The Company warrants that its duly authorised representative is [name]
and that [name] has the necessary authority to enter into this agreement
on the Company’s behalf.

Precedent 4—Authority to vary or supplement agreement

This agreement shall not be amended, modified, varied or supplemented
except in writing signed by a duly authorised representative of each of the
parties.

Precedent 5—Authority to sign notices

In the case of a corporation the notice may be signed by or on its behalf
by a director or the secretary or by its duly appointed attorney or duly
authorised representative.

Precedent 6—Authority provided by resolution of the directors

Pursuant to a resolution of the board of directors of the Company dated
[date], [any director] or [[name of director], a director] of the Company has
the necessary authority to enter into this agreement on the Company’s
behalf.

Precedent 7—Authority to give approval

All approvals required pursuant to this agreement shall have no force or
effect unless evidenced in writing and signed by a duly authorised repre-
sentative of the Company.

129

M04_Boilerplate_Clauses_C.indd 129 07/09/2017 12:57

 Capacity (and authority)

Precedent 8—Appointment of authorised representative

[Party A] appoints [name] of [address] as its authorised representative for
the purposes of this agreement and all statements of accounts and all
money due under this agreement should be paid to the said represent-
ative who is hereby authorised to collect and receive such money and
[Party A] confirms that the receipt of the said representative shall be a
good and sufficient discharge in respect thereof.

Precedent 9—Signature mandate by unincorporated society

We confirm that the signatures set opposite their names in the table below
are those of all the members of the [committee], the secretary and other
officials authorised to sign, that such signatures are the genuine signa-
tures of such persons and that such signatures operate as the specimen
signatures of each of such persons.

130

M04_Boilerplate_Clauses_C.indd 130 07/09/2017 12:57

 Charges

Purpose of the clause

Background
The word ‘charge’ can have a number of meanings in a commercial contract,
including:
• fees or payments a party is to make under the contract, or the costs and
expenses incurred by it (see Costs and expenses); or
• legal and equitable charges (eg mortgages), as discussed in this section.
In addition, Retention of Title clauses often give rise to (legal) charges.
The following paragraphs do not consider the drafting of legal or equitable
charges, or the question of registration of charges. They instead focus on
issues relating to the wording of boilerplate clauses that deal with the subject
of charges.
The area of law of the creation, enforcement and use of legal or equitable
charges is beyond the scope of this book. Readers should consult specialist
books (such as Goode on Commercial Law (5th Edn, 2017, Penguin Books), at
Chapter 22, which sets out a summary of the available types of charges and
other forms of security available), and/or obtain specialist advice.

Use of a Charges clause – to prevent charge over payments

or assets
Boilerplate language on charges is generally designed to prohibit a party from
executing a charge in favour of a third party, eg:
• a charge over payments due under the contract; or
• a charge over any assets that are the subject of the contract,
eg in a patent licence agreement, the licensed patents (a typical
boilerplate clause prohibiting charges, in this example part of a
patent licence agreement, might read as in Precedent 1).

131

M04_Boilerplate_Clauses_C.indd 131 07/09/2017 12:57

 Charges

Drafting issues

• Extent of a ‘charge’. In some cases, the meaning of a charge may need to be

defined, for example:
• an ordinary bank overdraft, which is routinely used by many businesses,
may require the business to grant a floating charge over the assets
of the business (for a discussion of the meaning and difficulties with
such a charge see Goode on Commercial Law, Chapter 25). A normal
prohibition on charges clause may prevent a business obtaining the
overdraft;
• if there is likelihood of the creation of a charge that will not come
within a conventional meaning of a charge, then a definition can be
used (see Precedent 8). For particular types of agreement, the type of
financial structure used by a party may be complex or innovative, and
this could include unusual or uncommon charges;
• Prohibiting the entering of a charge. The main purposes of prohibiting
charges are likely to be:
• availability of assets: to ensure that the assets needed for the operation
of the contract remain available for the contract, and
• stopping an ‘undesirable’ third party acquiring an interest in a contract: to
prevent a situation arising where a third party, eg a bank, acquires
an interest in the contract (eg a right to receive payments), which
might interfere with the smooth running of the contract or which
the other (non-charging) party would find undesirable for some
other reason.
• Foreign parties. Certain types of charges may be only available in particular
countries or have different names. Therefore, a contract drafted using
English law terminology involving non-UK parties may not encompass the
type of charging mechanism available to the non-UK party and therefore
not work as intended (see Goode on Commercial Law at pp 736–737 for a
discussion on why the floating charge referred to above was not adopted
in the United States and other countries). For a contract with a non-UK
party specialist advice is likely to be required so that appropriate language
is used.

Location in the agreement

The Boilerplate section of an agreement is likely to contain a Charges clause.

For routine agreements, the prohibition on entering into a charge is likely
to be one of a series of things or situations one or more of the parties to the
agreements is not permitted to do, such as eg not to assign, mortgage, delegate
or charge, etc. Such prohibitions are often put into one clause (often in an
Assignments clause).

132

M04_Boilerplate_Clauses_C.indd 132 07/09/2017 12:57

 Charges

Linkage and use

The use of a Charges clause needs handling with care (whether as a stand-alone
clause or part of an Assignments clause). Eg, inserting such a provision into an
agreement could prevent a party obtaining a bank loan or overdraft to fund its
normal day-to-day operations, where the bank takes a charge over the fixed/
floating assets of the party. Where a party is likely to be involved in obtaining
funds, for example so that party can perform some of its obligations under an
agreement, then a default ‘no charges’ clause will clearly be inappropriate as
such. For example, a party who wishes to carry out research in order to create
a product may need to raise funds to pay for the staff, assets and facilities whilst
it is carrying out the research work. The party may need to license intellectual
property to buy equipment etc. A commercial funder will often require that
it has a charge over the intellectual property and/or assets to protect its
investment. In such a case, wording will be needed to permit charges to be
obtained/registered, and should normally be considered with the assistance
of specialist advice.

Sample precedent material

Precedent 1—Prohibiting charging in a patent licence agreement

Neither Party shall assign, mortgage, charge, pledge, grant any lien or
security interest over, or otherwise transfer or encumber, without the prior
written consent of the other Party:
(a) any rights or obligations under this agreement, nor
(b) any of the Patents or rights under the Patents.

Precedent 2—No charging clause

Neither Party shall assign, mortgage, charge, pledge, grant any lien or
security interest over, or otherwise transfer or encumber, any rights or
obligations under this agreement without the prior written consent of the
other Party.

Precedent 3—No charging clause – patent licensing agreement

Neither Party shall assign, mortgage, charge or otherwise transfer any
rights or obligations under this agreement, nor any of the Patents or rights
under the Patents, without the prior written consent of the other Party.

Precedent 4—No charging clause – patent assignment

The Assignee agrees with the Patentee throughout the Term not to sell,
assign, mortgage, charge or otherwise transfer any right, title or interest
in or to the Patent.

133

M04_Boilerplate_Clauses_C.indd 133 07/09/2017 12:57

 Charges

Precedent 5—Warranty – properties free from charge

Each of the Properties and their title deeds are free from any mortgage,
charge, rent charge, lien, encumbrance or other third party right whether
in the nature of security or otherwise.

Precedent 6—No charging clause – agency agreement

This agreement is personal to [CD], which may not without the written
reasonable consent of [AB] assign, mortgage, charge (otherwise than
by floating charge) or dispose of any of its rights under this agreement,
or sub-contract or otherwise delegate any of its obligations under this
agreement (such consent not to be unreasonably withheld or delayed).

Precedent 7—No charging clause – joint venture agreement

The Company shall not create or issue any debenture, mortgage, charge
or other security over any assets of the Company (except for the purpose
of securing sums borrowed by the Company from its bankers in the ordi-
nary and usual course of business).

Precedent 8—Definition of charge

The expression charge shall be deemed to include any debenture, mort-
gage, charge, lien or encumbrance whether created by deed or docu-
ment or by conduct or operation of law.

134

M04_Boilerplate_Clauses_C.indd 134 07/09/2017 12:57

 Commencement date

Purpose of the clause

Background
The date when the parties sign an agreement may be different to when:
• an agreement comes into effect; or
• some or all of the obligations under the agreement commence.

Default position—agreement commences on signature date

Unless the parties explicitly provide otherwise:

• an agreement takes effect immediately upon all the parties signing it; or
• when the parties execute an agreement as a deed, the agreement takes
effect upon delivery of the deed.
Where the commencement date is different to the date on which the parties
sign the agreement (or if a deed, it is delivered), there should be explicit
wording in the agreement to make this clear.

Drafting issues

• Different commencement date and date of the agreement. Does the agreement
come into effect or some obligations commence on a different date than
when the agreement was signed?
• Suggested best practice. If so, is there:
• a definition of ‘Commencement Date’ stating a date (see Precedent
1)?
• a clause (or wording in another clause) that indicates that the
agreement takes effect or obligations commence on the date specified
in the definition of Commencement Date (see Precedent 2)?
• Is there a need for different commencement dates? Do all parts of the agreement
or all obligations commence on the same day?

135

M04_Boilerplate_Clauses_C.indd 135 07/09/2017 12:57

 Commencement date

• if so, is one definition of a Commencement Date still appropriate?

• have all the parts of the agreement been clearly identified as to when
they commence?
• have the consequences been spelt out if one part does not commence
on the correct date?
• if there is more than one commencement date, have all the
obligations or rights been clearly referenced to the correct dates? For
example, if some obligations start from the date of the agreement, but
the main obligations start at a later date, is there a clear indication
that any rights to terminate start from one date rather than the
other? (eg see BP Exploration Operating Co Ltd v Dolphin Drilling Ltd
[2009] EWHC 3119 (Comm), and Case analysis below). Are any
payments or deadlines calculated by reference to the commencement
date? If so, is there a reference to the right commencement date?
• Confusing the commencement date and the date of the agreement. If using an
existing precedent or a draft agreement provided by another party, is
there any confusion between the commencement date and the date of
the agreement? Eg:
• if a party inserts the intended commencement date in the first line
of the agreement rather than the date on which the agreement was
signed. This is bad practice and may amount to forgery (Forgery and
Counterfeiting Act 1981, s 9(1)(g));
If it is felt necessary to state the commencement date in the heading
of the agreement, it can be done with wording such as that in
Precedent 3;
• using the American practice of beginning contracts with the
words ‘This agreement dated as of (commencement date)’ is not
recommended, as the phrase ‘as of’ may be ambiguous;
• Is the commencement date before the date of the agreement? Where the work or
tasks to be carried out under the agreement start before the agreement
is signed by the parties, this should be clearly stated, normally in a clause
with the Main Commercial Provisions. Otherwise, there may be a danger
of confusion, as stated above (see Precedent 4). For example, the parties
may have agreed to enter a contract orally and also agreed when they
would start performing their obligations, but leave the signing of their
written agreement to a later date.

Location in the agreement

Where the phrase ‘commencement date’ is used in several places in an

agreement (or there are references to that date in several places) then there
can be a definition of ‘commencement date’, which can appear:

136

M04_Boilerplate_Clauses_C.indd 136 07/09/2017 12:57

 Commencement date

• in a Main Commercial Provision clause indicating when the agreement is

to take effect or its obligations are to commence; or
• in the clause dealing with termination issues, and will be used to specify
the length of the agreement, or for the purpose of specifying when one or
more of the parties can terminate the agreement.

Linkage and usage

The definition of Commencement Date is normally linked to the:

• Main Commercial Provisions to indicate:
• when the core obligations are to commence:
eg ‘The Supplier shall supply the Services on the Commencement
Date’;
eg ‘The Manufacturer shall begin to manufacture the Products from
the Commencement Date’;
• when payment shall be made:
eg ‘The Customer shall make the Payment within 30 days of the
Commencement Date’.
• Secondary Commercial Provisions such as:
• the length of the agreement:
eg ‘The agreement shall commence on the Commencement Date
and shall continue for a period of 12 months from and including the
Commencement Date’;
• when the agreement is to terminate;
• if the agreement is to automatically renew, and/or whether notice
must be given to prevent automatic renewal.

Sample precedent material

Precedent 1—Definition
Commencement Date     shall mean [date]

Precedent 2—Clause indicating date agreement will come into effect

This agreement will come into effect on the Commencement Date.

Precedent 3—Stating commencement date at head of the agreement

This agreement is made on [date signed] and takes effect from [desired
commencement date] (the ‘Commencement Date’).

137

M04_Boilerplate_Clauses_C.indd 137 07/09/2017 12:57

 Commencement date

Precedent 4—Commencement date is before the date of the agreement

(using a separate definition of commencement date)
The agreement shall be deemed to have commenced upon the
Commencement Date.

Precedent 5—Commencement clause – fixed term

This agreement shall commence on [date] (the ‘Commencement Date’)
and continue for a period of [12] months unless terminated sooner by
either party under Clause [no].

Precedent 6—Commencement date same as the date the agreement is

signed
Commencement Date shall mean the date set out at the head of this
agreement.

Precedent 7—Commencement date – between two periods

Commencement Date shall mean a date between no earlier than 1 June
2017 and no later than 31 December 2017.
(This definition will need linking to a substantive clause indicating the
circumstances when the actual Commencement Date will be fixed (the
occurrence of some event, the completion of some work, the agreement
of the parties), and the notification of the date to the other party or par-
ties.)

Case analysis

BP Exploration Operating Co Ltd v Dolphin Drilling Ltd [2009] EWHC 3119

(Comm)
1 This contract involved the hiring of a drilling rig by the claimants from
the defendants.
2 The defendants first needed to do some preparatory work and deliver
the drilling rig to the location where it was to be used.
3 The use of the drilling rig to drill would take place from the
‘Commencement Date’. The definition of ‘Commencement Date was
defined as:
‘The Commencement Date shall be no earlier than 1 January 2010
and no later than 31 March 2010.’
4 The termination clause included the following words:
‘22.1 The COMPANY shall have the right by giving notice to termi-
nate all or any part of the WORK or the CONTRACT at such time or
times as the COMPANY may consider necessary for any or all of
the following reasons:

138

M04_Boilerplate_Clauses_C.indd 138 07/09/2017 12:57

 Commencement date

(a) to suit the convenience of the COMPANY;

…’
5 The defendant argued, in the context of the number of clauses deal-
ing with termination, and several clauses dealing with payments in the
event of termination, the clause needed to be read as allowing only
for termination after the Commencement Date. If the claimant was
entitled to terminate whenever it wished then the defendant would
be entitled to a much smaller sum than if the termination could only
take place after the Commencement Date. An additional point was
that there was a severe economic downturn and the defendant would
not be able to hire out the rig at anything approaching the rate agreed
with the claimant.
6 Unsurprisingly the judge found that the wording of 22.1(a) quoted
above was clear enough and did not lead to ‘commercial absurdity’.
The case does not raise any new points of law or new interpretation
of existing law, but does highlight the importance of carefully check-
ing each part of the agreement against others so that the commercial
objectives of a party are still met (or at least the party is aware of the
consequences if they are not).

139

M04_Boilerplate_Clauses_C.indd 139 07/09/2017 12:57

 Completion

Purpose of the clause

In the sale of real property or the sale of a business or the business assets,
completion is a well-understood stage in the process of sale (at least for lawyers
experienced in those type of transactions):
• sale of real property. On completion, the formal conveyance document for
the property is executed and delivered, and a number of other events
occur, eg the hand-over of keys, manuals for the operations of equipment,
guarantees provided by third parties;
• sale of a business or business assets. The completion events here may include
the execution of formal assignments of goodwill and intellectual property,
and the delivery of papers, eg accounting and company secretarial records,
as well as a number of other matters.
In effect, the formal stage in the transfer of ownership of these things occurs
upon completion.

Drafting issues

• Meaning of completion. There is potential for confusion if a phrase such as

‘on completion of this agreement’ is used loosely in a contract, particularly
in contracts involving the performance of work. Depending on how the
phrase is used, it is possible to understand the word to mean:
• the formal coming into effect of the contract (the start of the contract);
or
• the completion of work that a party or parties perform under the
contract (the end of the contract).
• Suggested best practice. An agreement should only include the ‘completion’
where the meaning is unambiguous, eg:
• the contract provides for specific events to take place ‘on completion’;
and
• the date or circumstances in which completion is to take place are
defined.

140

M04_Boilerplate_Clauses_C.indd 140 07/09/2017 12:57

 Completion

• US practice. In contracts drafted by US lawyers, the expression ‘closing’ is

used in a similar sense to ‘completion’.

Location in the agreement

For a clause drafted as suggested, best practice is to place it:

• in the Definitions section of the agreement, stating when the date for
completing matters will take place (see Precedents 1, 2, 3, 4 and 5);
• usually in the Main Commercial Provisions, a clause indicating what the
completion activities are.

Linkage and use

Completion clauses are traditionally found in specialised areas of legal

practice such as:
• conveyancing (commercial and domestic);
• sale of a business (eg, sale of all the shares of a business, or the sale of its
assets);
• shareholder investments and fundraising (eg, in shareholders’ agreements
and other related documentation);
• intra-group re-organisations where assets etc are transferred or sold from
one company to a company in the same group of companies.
The activities that are set for completion are sometimes fairly lengthy and the
clause in an agreement dealing with completion often refers to a schedule,
which sets out in greater detail what is to happen or what is to be transferred.
With other types of agreements there may not be a ‘completion’ clause drafted
in the sense suggested above, but there are often:
• a range of activities, which need to take place at certain times. This will
often be drafted in a way such as that a party will be required to carry out
the ‘Services’, for example:
• and the definition of ‘Services’ will refer to a schedule setting out a
range of tasks and the dates when they need to be carried out by, or
alternatively
• in accordance with the ‘Specification’, and the definition of the
Specification will set out the range of tasks and the dates when such
tasks need to be carried out.
• a Consequences of Termination clause spells out what needs to be done at the
time an agreement terminates.
Completion clauses also have some features in common with Further Assurance
clauses.

141

M04_Boilerplate_Clauses_C.indd 141 07/09/2017 12:57

 Completion

Sample precedent material

Precedent 1—Completion – definition

Completion means completion of this agreement in accordance with
Clause [no].

Precedent 2—Completion – alternative definition

Completion means the performance by the Parties of their respective
obligations under Clause [no].

Precedent 3—Completion – alternative definition

Completion shall mean the performance by the Parties of the matters set
out in Clause [no].

Precedent 4—Completion – definition in eg sale conditions

Completion means actual completion of the sale and purchase pursuant
to these Conditions.

Precedent 5—Completion – definition in eg timeshare agreement

Completion means the act of fully vesting in a Purchaser his interest as
purchased under the [Timeshare Purchase Contract].

Precedent 6—Completion date

‘The Completion Date’ means the date of actual completion of the matters
provided for in Clause [no] and Completion shall be construed accord-
ingly.

Precedent 7—Place of completion

Completion shall take place immediately on the signing of this deed at
[address] (‘Completion’).

Precedent 8—Place of completion – alternative form

Completion of the sale and purchase and payment of the balance of
the Purchase Price [and of the value added tax] shall take place on the
Completion Date at the offices of the Seller’s Solicitors or where they may
direct.

Precedent 9—Place of completion – alternative form

Completion of the sale and purchase hereby agreed shall take place on
[date] at the offices of the Vendor’s Solicitors or at such other place as the
Vendor’s Solicitors and the Purchaser’s Solicitors may agree.

Precedent 10—Place of completion – in eg sale of shares

Completion of the sale and purchase and payment of the balance of
the Purchase Price [and the [balance of the] VAT] is to take place on the
Completion Date at the offices of the Seller’s Solicitors or where they may
direct [and the Seller must provide the Buyer with a receipted VAT invoice
addressed to the Buyer for the amount of the VAT paid by him].

142

M04_Boilerplate_Clauses_C.indd 142 07/09/2017 12:57

 Completion

Precedent 11—Banker’s draft to be delivered on completion

At Completion the Purchaser shall deliver to the Vendor’s Solicitors (who
are irrevocably authorised to receive the same) a banker’s draft in favour
of the Vendor for £[ ].

Precedent 12—Documents to be delivered on completion – sale of

business
At Completion the Vendor shall deliver or cause to be delivered to the
Purchaser:
1 duly executed assignments of the Goodwill and such of the Industrial
Property Rights as are capable of assignment in the agreed terms;
2 a duly executed assurance or transfer in the agreed terms neces-
sary to vest title in the Property in, or transfer the Property to, the
Purchaser together with all deeds and documents relating to the title
of the Vendor to the Property.

Precedent 13—Completion money

‘The Completion Money’ means the Purchase Price (or any outstand-
ing balance of it) as adjusted by all sums due between the parties at
Completion.

Precedent 14—Completion and sale of business agreement

1 Provided that this agreement has not been terminated pursuant to
Clause [no], completion of the sale and purchase hereby agreed shall
take place on [date] at the offices of the Vendor’s Solicitors or at such
other place as the Vendor’s Solicitors and the Purchaser’s Solicitors
may agree.
2 At completion the Vendor shall deliver or cause to be delivered to the
Purchaser:
(a) duly executed assignments of the Goodwill and such of the
Industrial Property Rights as are capable of assignment in the
agreed terms;
(b) (etc).

Precedent 15—Completion activities

1 Completion of this Agreement shall take place on the Completion
Date [at the Completion Time] at [address] [or such other place, date
and time as the Parties may agree].
2 At Completion Party A shall deliver or cause to be delivered to the
Purchaser:
(a) duly executed assignments of the Goodwill and such of the
Industrial Property Rights as are capable of assignment in the
agreed terms;
(b) (etc).

143

M04_Boilerplate_Clauses_C.indd 143 07/09/2017 12:57

 Completion

3 If Party A does not comply with any of the requirements of Clause 2

above on the Completion Date and at the Completion Time then Party
B may at its discretion (without prejudice rights):
(a) set another Completion Date and Completion Time, and give
notice in writing to Party A of the new Completion Date and
Completion Time; or
(b) continue with Completion to the extent possible (but without
prejudice to its rights); or
(c) terminate this Agreement in accordance with the provisions of
Clause [no].

144

M04_Boilerplate_Clauses_C.indd 144 07/09/2017 12:57

 Conditions precedent and subsequent

Purpose of the clause

Background
In an agreement, the word ‘condition’ can have a number of meanings:
1 a contractual provision, breach of which entitles the other party to
terminate the contract (ie a condition distinguished from a warranty);
2 in a more general sense, any type of contractual provision;
3 a condition precedent (or pre-condition); or
4 a condition subsequent.
This section considers the last two of these meanings.

Meaning of condition precedent

Sometimes, contracts are made on the basis that certain events must take place
before the contract, or a part or parts of an existing contract, will come into
effect; for example:
• a building contract might be made conditional upon a party obtaining
planning consent for the building works; or
• a manufacturing contract may be dependent on a buyer first raising funds
before it can place an order with the manufacturer; or
• a research and development agreement may contain an option to
negotiate, the provisions of a licence to the results of the research and
development, with the option only being triggered if the research and
development produces the expected results.
If planning consent is not obtained or the funds are not raised or the research
and development is not successful, the contract either will not come into
effect or, depending on how the condition is drafted, may be cancelled or
performance suspended.
Although the phrase ‘condition precedent’ is often used to indicate that
certain events must occur before a contract or part of a contract will come into
effect, this is not always the case. The phrase is also used (or interpreted by the

145

M04_Boilerplate_Clauses_C.indd 145 07/09/2017 12:57

 Conditions precedent and subsequent

courts) as meaning (during the existence of an agreement) that unless some

action is taken or notice is given by one party, an obligation will not arise or
duty to act will not occur for the other party. Eg:
• where one party had not allowed the other party to control the negotiations
and settlement of any insurance claims, then the other party was not
liable to pay any claim that the other party did not control (see Eagle
Star Insurance Co Ltd v JN Cresswell [2004] EWCA Civ 602, [2004] 2 All ER
(Comm) 244 and see Case analysis);
• a clause required a building contractor to notify an architect where
the contract required an extension of time. Another clause stated that
if the contractor failed to comply with the first clause then it would
not be entitled to an extension of time. The failure to notify was a
condition precedent and failure to do so meant the contractor did not
get the extension time. This meant that the contractor would be liable
to pay liquidated damages (because under a third clause he was not
able to meet a completion date) (City Inn Ltd v Shepherd Construction Ltd
[2003] BLR 468, 2003 SLT 885).

Meaning of condition subsequent

It is possible to make a contract on the basis that if a future event takes place
or does not take place during the life of the contract, the contract may be
terminated. This is sometimes known as a condition subsequent.

Form

To create a condition precedent or subsequent it is not necessary to use any

particular form of words. Nor is any special interpretation given when such
words are used. They are interpreted like any other contractual provision.
The use of the phrases ‘condition precedent’ and ‘condition subsequent’ are
simply convenient labels for any contractual provision of these general types.
It is not necessary to use the words ‘condition precedent’ for the courts to
interpret a clause as a condition precedent (see Eagle Star Insurance Co Ltd
v JN Cresswell [2004] EWCA Civ 602, [2004] 2 All ER (Comm) 244) and Case
analysis below).
For example, words such as ‘provided that’, ‘provided always that’ or ‘if’
(WW Gear Construction Ltd v McGee Ltd [2010] EWHC 1460 (TCC); Burford
UK Properties Ltd v Forte Hotels (UK) Ltd [2003] EWCA Civ 1800) could all be
a condition precedent. Where a clause does not indicate that it is a condition
precedent then the contract drafter should draft the clause so that it is clear:
• that it is necessary to perform one obligation before another obligation
can become effective or needs performance; or

146

M04_Boilerplate_Clauses_C.indd 146 07/09/2017 12:57

 Conditions precedent and subsequent

• that the second obligation becomes effective or requires performance

only in return for the first obligation (that is until the first obligation is
performed there is no entitlement to the second) (Astrazeneca UK Ltd
v Albermarle International Corpn [2011] EWHC 1574 (Comm) and Case
analysis below).

Drafting issues

When drafting a condition precedent or subsequent the following points are

likely to need consideration:
• Until fulfilment of the condition is there a binding contract? If the parties sign an
agreement which contains a condition precedent:
• have the parties entered into a binding agreement where all or some
of the provisions will start operation once the condition is fulfilled (in
traditional legal language, called a ‘contingent’ condition); or
• is there no binding agreement at all until the condition is met (in
traditional legal language called a ‘promissory’ condition)?
See the analysis in UR Power GmbH v Kuok Oils and Grains Pte Ltd
[2009] EWHC 1940 (Comm).
• Is the condition so vague that it is void for uncertainty?
In Lee-Parker v Izett (No 2) [1972] 2 All ER 800, [1972] 1 WLR 775,
it was held that a condition providing: ‘This sale is subject to the
purchaser obtaining a satisfactory mortgage’ was void for uncertainty.
As a result, the contract was void.
• What clauses does the condition apply to? Does the clause state clearly whether
it is the entire agreement or only certain clauses, which do not come into
effect (or, in the case of conditions subsequent, cease to have effect) if the
condition is not met?
• Is there is a time limit on the condition being met? This will often be
desirable; if the contract is binding on the parties, but operation of
other provisions is merely suspended until the condition is met, then
one or both parties may not know when it is possible to terminate the
agreement or what consequences flow if a party does so, unless the
contract contains clear wording.
• What is to happen if the condition is not met? If a condition is not met:
• does the agreement come to an end automatically? or
• is performance of the agreement or obligations under the agreement
suspended, and only resume when the condition is met (ie the
agreement continues in existence)? or
• can a party waive the compliance with the condition? or

147

M04_Boilerplate_Clauses_C.indd 147 07/09/2017 12:57

 Conditions precedent and subsequent

• will the party who is to comply with or perform the condition (as of
right or with the agreement of the other party) get an extension of
time for it to be met?
• Is it clear whether either party has any obligation to try to ensure that the condition
is met? If so, how extensive is that obligation?
Such an obligation may be implied (Kyprianou v Cyprus Textiles Ltd
[1958] 2 Lloyd’s Rep 60), but the extent of any implied term may be
very limited. In C Czarninkow Ltd v Rolimpex [1979] AC 351, [1978]
2 All ER 1043, HL, it was held that a clause requiring a seller to ‘obtain’
an export licence did not imply an obligation to maintain it in force.
Should the amount of effort that a party needs to use be specified (such
as using a ‘best endeavours’ or ‘reasonable endeavours’ obligation or
be more specific as to what the party needs to do)?
• What is a party liable for if it fails to meet a condition? If a party is obliged to try
to ensure that the condition is met, is that party to be liable for failure to
meet the condition?
Eg, should that party be required to reimburse the other party’s costs
in negotiating the contract?
• Is whether a condition has been met subject to the approval of another party?
A party may be responsible for obtaining permission to carry out some
activity (eg, obtaining ethics committee approval in order to carry out a
clinical trial), but once it has been obtained, should the other party have
the right to decide whether what has been obtained is satisfactory?

Location in the agreement

Conditions precedent and subsequent are normally found:

• where the agreement as a whole is to come into operation based on the condition
precedent, at the beginning of the agreement with other Main Commercial
Provisions;
• where the agreement is to come to an end based on a condition subsequent, in or
next to the provisions relating to termination of an agreement with other
Secondary Commercial Provisions;
• where a party is required to carry out some action or give notice, in various places
in the agreement.

Linkage and use

A Condition precedent, although a freestanding clause, will often refer, or be

linked, to several other clauses where some work is to be carried out. Where
a party is required to obtain some consent or approval before the agreement
otherwise commences there may be nothing to be done until the consent or

148

M04_Boilerplate_Clauses_C.indd 148 07/09/2017 12:57

 Conditions precedent and subsequent

approval is obtained. However, if some work is to be carried out or has been

carried out then some of the provisions of the agreement may operate or
come into effect. If the latter is the case, it may be necessary to specify which
clauses come into effect and the consequences if, for example, the condition
precedent is not met.
Conditions precedent and subsequent are mainly used where:
• finance: a party may need to obtain finance, receive funds, letters of
credit, etc;
• regulatory: a party may need to obtain planning permission, licences or
consents (eg, obtaining export licences, registration with the Information
Commissioner, obtaining permission to carry out clinical trials, applying
for or prosecuting registration of patents or trademarks, etc);
• work to be carried out: an agreement may provide discrete stages for work to
be carried out. Eg, a party may need to carry out work on a specification or
design or work out technical aspects. The agreement can specify that this
work should be carried out and, if successful, the rest of the agreement
will come into effect. For example, a software development agreement
may have an initial stage where the developer and the client discuss and
agree the specification for the software that the developer will develop.
Unless there is agreement on the specification then the second stage (the
development of the software) will not take place;
• payment: an agreement may provide that unless certain information is
provided by a party requiring payment, then it will not receive payment;
• extending or changing the work to be done: the agreement may provide for the
possibility that a party may request more time to complete its obligations
or change what work it will carry out. Is such a change dependent on the
consent of the other party? If that is the case then obtaining the consent
may be a condition precedent for the party requesting the extra time etc;
• another agreement needs to be signed: it may be provided that an agreement
will only be entered into once another agreement has been executed. Eg,
in a sale of business assets, the asset purchase agreement will need to be
entered into first, before a second agreement dealing with the assignment
and licensing of any intellectual property. The second agreement may be
drafted with a condition precedent that the asset purchase agreement
must first have been executed.
Although it is not clear from the decided cases, it would appear that there are
two practical points to consider in addition to the Drafting issues set out above:
• that if the phrase ‘condition precedent’ is not used, there may need to be
an examination of whether the clause amounts to a ‘condition precedent’
(such as described above under ‘Form’); and
• for a clause to be considered a ‘condition precedent’ when it is not so
named, there should be clear consequences spelt out for failure to meet
the requirements of the clause.

149

M04_Boilerplate_Clauses_C.indd 149 07/09/2017 12:57

 Conditions precedent and subsequent

Sometimes the phrase ‘condition precedent’ will be used in Entire agreement

clauses.

Sample precedent material

Precedent 1—Condition precedent – planning consent

This agreement shall not come into effect until Party A has obtained
Planning Consent for the Property. If Party A fails to obtain Planning
Consent for the Property on or before [date], this agreement shall not
come into effect and neither party shall have any obligations to the other
under this agreement.

Precedent 2—Condition precedent – obligations in agreement

The Planning Obligations contained in the second schedule to this agree-
ment shall not come into effect until the Owner has begun development
of the Land in reliance upon [specify the planning permission].

Precedent 3—Condition precedent – deed of adherence

It shall be a condition precedent to the coming into effect of [this agree-
ment or Clause [no] below] that Party A shall have executed and delivered
to Party B no later than [date] a [Deed of Adherence] in the form attached
to this agreement. If such condition is not met by that date, this agree-
ment shall not come into effect.

Precedent 4—Condition precedent – patent grant

The obligations on Party A under Clause [no] of this agreement shall not
come into effect until the day after the date on which Party A receives
formal notification from the Patent Office that the Patent has been
granted.

Precedent 5—Condition subsequent – minimum performance in agency

agreement
This agreement shall terminate in the event that the Minimum Performance
is not achieved at any time.

Precedent 6—Condition subsequent – company formation agreement

This agreement shall terminate if, at any time, as a result of a transfer of
shares made in accordance with this agreement by either party, that party
holds no shares in the capital of the Company.

Precedent 7—Condition subsequent – property management agreement

If the Secretary of State withholds his consent under Clause [no] [consent
to continuation of agreement] above this agreement shall terminate at the
end of the relevant year or if later [6] months after the Secretary of State
notifies the Council of his decision to withhold consent.

150

M04_Boilerplate_Clauses_C.indd 150 07/09/2017 12:57

 Conditions precedent and subsequent

Precedent 8—Condition subsequent – contract for services

In the event that the Production is abandoned before the official opening
night in the West End of London the engagement of the Designer under
this agreement shall terminate.

Case analysis

Eagle Star Insurance Co Ltd v JN Cresswell [2004] EWCA Civ 602, [2004]
2 All ER (Comm) 244)
In a reinsurance contract the underwriters required that they controlled all
negotiations of claims (see in particular sub-clause (b)):
‘CLAIMS CO-OPERATION CLAUSE
The company agree
(a) To notify all claims or occurrences likely to involve the Underwriters within
7 days from the time that such claims or occurrences become known
to them.
(b) The Underwriters hereon shall control the negotiations and settlements of
any claims under this Policy. In this event the Underwriters hereon will not
be liable to pay any claim not controlled as set out above.
Omission however by the Company to notify any claim or occurrence which
at the outset did not appear to be serious but which at a later date threatened
to involve the Company shall not prejudice their right of recovery hereunder.’
It was held by the Court of Appeal that this clause amounted to a condi-
tion precedent:
‘19. …The question then arises whether it is a condition precedent to reinsur-
ers’ liability that the opportunity to control negotiations or settlements should
be afforded to them.
20. The answer to this question is Yes, because the clause says in terms that in
the event of there being negotiations or settlements reinsurers will not be liable
to pay any claim not controlled by them. The judge [at first instance] was able
to avoid this conclusion by (inter alia) pointing out the clause did not use the
term “condition precedent” as such […]. As to that, it is not essential that the
very words “condition precedent” be used to achieve the result that reinsurers
will not be liable unless a certain event happens. Other words can be used, if
they are clear. Other words have been used which, in my view, are clear.’
‘41. …The first sentence of para (b) [of the CLAIMS CO-OPERATION CLAUSE]
does not use the language of condition precedent. Neither does the second
sentence, at any rate in the sense that there is no express reference to “condi-
tion precedent” in it. However, it does provide that in the circumstances there
contemplated the reinsurers “will not be liable to pay any claim”. Those are
strong words, if not the language of condition precedent, at any rate the lan-
guage of exclusion.’

Astrazeneca UK Ltd v Albemarle International Corpn [2011] EWHC 1574

(Comm) (further details under Options and Rights of First Refusal)
A supply agreement contained a clause giving the defendant a right of
first refusal:

151

M04_Boilerplate_Clauses_C.indd 151 07/09/2017 12:57

 Conditions precedent and subsequent

‘H-Switch to Propofol
In the event that at any time BUYER reformulates or otherwise changes its
Diprivan brand to substitute propofol for the PRODUCT, BUYER will so notify
SELLER and will give SELLER the first opportunity and right of first refusal to
supply propofol to BUYER under mutually acceptable terms and conditions.’

It also contained a clause concerning delivery:

‘2. DELIVERY – Goods shall be delivered on the date or during the period
specified in the purchase order and seller shall give reasonable notice of the
proposed time and date of actual delivery. The seller shall give notice of any
likely delay in delivery as soon as practicable.
All goods must be delivered at the delivery point specified in the purchase
order. Buyer may refuse delivery of goods not so delivered or may, at its option,
arrange for delivery to the delivery point at the expense and risk of the seller.’

The clauses were held not to be conditions precedent:

‘249. The first thing to note in relation to this contention is that there is nothing
in clauses D […] or Condition 2 which expressly makes performance of one
obligation contingent upon performance of the other. Whilst it is clear that, for
performance of a provision in a contract to be a condition precedent to the
performance of another provision, it is not necessary for the relevant provision
to use the express words “condition precedent” or something similar, none-
theless the court has to consider whether on the proper construction of the
contract that is the effect of the provisions: see DRC Distribution Ltd v Ulva Ltd
[2007] EWHC 1716 (QB) paragraph 39.
250. …in the absence of an express term, performance of one obligation will
only be a condition precedent to another obligation where either the first obli-
gation must for practical reasons clearly be performed before the second obli-
gation can arise or the second obligation is the direct quid pro quo of the first,
in the sense that only performance of the first earns entitlement to the second.
251. In the present case, there is absolutely nothing in clause H to suggest
that performance of [the Claimant]’s obligations under it was contingent on
performance by [the Defendant] or to suggest that [the Defendant] would not
be entitled to exercise the rights clause H gave it, unless it had complied fully
with its delivery obligations in respect of DIP. It would have been very easy for
[the Claimant] to insist upon some express provision to that effect, but in the
absence of such a provision, in my judgment, there is nothing to link perfor-
mance of the one obligation with performance of the other.
252. Mr Odgers seeks to overcome this in two ways. First, it is contended that
the wording of clause H: “[the Claimant] reformulates or otherwise changes its
Diprivan brand to substitute propofol for the PRODUCT” contemplates that
the product (DIP) is being provided by [the Defendant] under the supply agree-
ment. In my judgment, this point is hopeless. Clause H is dealing with which
ingredient [the Claimant] wants to use in its drug, Diprivan, and has nothing
whatsoever to do with [the Defendant]’s delivery obligations under the supply
agreement.
253. Second, it is contended that [the Defendant]’s willingness to supply DIP
to [the Claimant] in accordance with its obligations must have been taken
for granted when agreeing to give [the Defendant] the opportunity to supply
propofol, and that the parties cannot have contemplated that if [the Defendant]
was wrongfully refusing to supply DIP, [the Claimant] should still be obliged
to use it to supply propofol. In my judgment that is no more than an asser-
tion which reflects [the Claimant]’s internal attitude at the time – namely, why

152

M04_Boilerplate_Clauses_C.indd 152 07/09/2017 12:57

 Conditions precedent and subsequent

should it contract for propofol with a party which was refusing to supply the
quantities of DIP which [the Claimant] wanted to build up before supply of
propofol commenced in earnest.
254. However, there is simply nothing in the contract to suggest, either
expressly or by implication, that any entitlement under clause H was contin-
gent upon supplying whatever DIP [the Claimant] asked for. The reality is that,
whilst [the Claimant] undoubtedly became disenchanted with [the Defendant]
towards the end of January 2008, because [the Defendant] would not supply
the DIP it wanted, there was no contractual term or linkage which justified
translating that disenchantment into a refusal to accept an offer from [the
Defendant] which otherwise matched the offer from the third party.’

153

M04_Boilerplate_Clauses_C.indd 153 07/09/2017 12:57

 Confidentiality

Purpose of the clause

The use of a confidentiality clause allows one or both parties to an agreement

to keep matters connected with their agreement confidential. If the parties
fail to include a provision in an agreement or otherwise indicate that the
information the parties disclose to another is confidential then they will have
to rely:
• on an equitable obligation of confidence arising; or
• on a contractual term being implied into their contract by a court in the
event of a dispute reaching the court.

The Trade Secrets Directive

From 5 July 2016 a further form of protection is available to contracting parties,

specifically that provided by the Trade Secrets Directive (2016/943), which
is independent or in addition to the protection offered by the two methods
stated above or any agreed contractual provisions. National governments
have up to two years to implement the Directive into domestic law (which
for the UK is likely to occur before the UK leaves the EU). Although detailed
consideration of the Directive is outside the scope of this book, a few points
concerning its provisions are included here, as for the first time in the UK a
statutory and general form of protection is provided to one type of confidential
information, ie commercial confidential information. The Directive covers
information that:
1 is secret; and
2 has commercial value because it is secret; and
3 is subject to reasonable steps by the person who is in lawful control of it to
keep it secret.
A principal aim of the Directive is to enable ‘trade secret holders’ to have
access to procedures and remedies to ‘prevent, or obtain redress for, the
unlawful acquisition, use or disclosure’ of the trade secrets of the ‘trade secret
holder’. For the Directive:

154

M04_Boilerplate_Clauses_C.indd 154 07/09/2017 12:57

 Confidentiality

1 unlawful acquisition means the acquisition of a trade secret without the

consent of a trade secret holder when carried out by ‘unauthorised access
to, appropriation of, or copying of any documents, objects, materials,
substances or electronic files’ as well as conduct which is not in accordance
with ‘honest commercial practices’; and
2 unlawful use and disclosure means disclosure or use when carried out
without the consent of the trade secrets holder, by a person who has
acquired the trade secret unlawfully; or in breach of a confidentiality
agreement; or in breach of a contractual provision which limits the use of
the trade secret.
The Directive also provides some exceptions to the protection offered by the
Directive to commercial confidential information, including where a person
has obtained the trade secret by:
• means of independent discovery or creation; or
• means of observation, study, disassembly or testing of a product which has
been made available to the public and is in the lawful possession of the
person who acquired the information (and that person is not under an
obligation not to acquire the trade secret).
Some of the provisions overlap with the existing law of confidence in the UK as
developed by the courts, principally from the case of Coco v AN Clark (Engineers)
Ltd [1969] RPC 41. At the time of writing there was no information available
about how the UK government will implement the Directive into UK law, but
its initial view was that the UK equitable and contractual law of confidence
was consistent with the Directive (according to the document submitted by
Department of Business, Innovations and Skills in 2013 to a parliamentary
committee, when the Directive was still in a draft form).
Both the UK law of confidence and the Directive are concerned with
information that is secret, and they both aim to deal with unauthorised use and
disclosure. A key difference is that the Directive only deals with confidential
information that is of commercial value. Other matters that the Directive
covers, but which are not generally part of the UK law of confidence, include:
• unauthorised acquisition,
• the Directive’s operation is not dependent on there being an obligation
of confidentiality between the holder of the confidential information and
the person who is not in lawful possession of it; and
• the Directive includes specific exceptions (some of which are noted above).
Although exceptions are not part of the general UK law of confidence,
such exceptions (and others) are normally included in confidentiality
agreements.
For analysis of the Directive (and comparison of the provisions of the
Directive and the UK law of confidence) see Anderson and Warner Drafting
Confidentiality Agreements (3rd Edn, Law Society, 2015).

155

M04_Boilerplate_Clauses_C.indd 155 07/09/2017 12:57

 Confidentiality

Contractual provisions

Equitable or implied contractual confidentiality obligations are not likely to

provide the kind of protection a party will want, let alone provide sufficient
control over the uses that one party can make of the confidential information.
Best practice is that the parties include, at a minimum, some wording
indicating that the information that the parties disclose is confidential.
Because, in the absence of such wording and a court not finding an equitable
obligation arising or an implied term of confidence, the party in receipt of the
information may be able to use that information to its competitive advantage,
or to the competitive disadvantage of the disclosing party.
How detailed such a clause should be will depend on the subject matter of the
agreement and the relationship of the parties. In many cases a short general
clause, as in Precedent 1, will often be sufficient.
The wording in Precedent 1 has some deficiencies, but is suitable where a very
brief clause is required, where the information that may be disclosed is not
thought to be particularly significant, and that the fact that parties are in a
contractual relationship is not something that the parties wish to keep secret.
In particular, Clause 1.1 does not address the question of when information is
to be regarded as confidential information; effectively, this is left for the court
to determine.
Where, however, as part of the agreement sensitive or valuable information
is supplied by one party to the other (eg in a software licence, or a company
takeover or merger), then the contract drafter will wish to use more detailed
provisions. Sometimes it may be appropriate for them to enter into a separate
confidentiality agreement, particularly if, prior to the parties signing a
substantive agreement, they enter into negotiations that will call for the
supply of confidential information by one party to another (for a basic form of
precedent see Precedent 15).
For a more detailed consideration of confidentiality obligations, see Anderson
and Warner Drafting Confidentiality Agreements (3rd Edn, Law Society, 2015).

Drafting issues
Typically, a confidentiality clause might cover some or all of the following
issues.
• What information is covered by the confidentiality obligation? This can include:
• information learnt about the other party’s business and commercial
affairs;
• technical information, eg manufacturing know-how, provided by one
party to the other;
• information developed under the contract by either party (eg business
information or technical information developed as a result of

156

M04_Boilerplate_Clauses_C.indd 156 07/09/2017 12:57

 Confidentiality

performing the contract or an invention that is not yet subject to a

patent application); or
• specific information, which can be identified as confidential
information and can be listed in a schedule to the agreement.
• Which party(ies) are under an obligation of confidentiality? Depending on the
situation or the nature of the contract, the obligation could be:
• on Party B to keep confidential information developed and/or
disclosed by Party A, and vice versa; or
• on Party B to keep confidential information developed by it, and
only to disclose it to Party A (eg if Party B has been commissioned
to carry out work on Party A’s behalf). Party A is free to disclose the
information as it chooses; or
• on both parties to keep confidential information developed and/or
disclosed by either of them.
• In what circumstances will information be considered confidential information?
The main options when addressing this issue are:
• to state that all information disclosed by one party to the other,
whether in writing, electronically, verbally or otherwise, is to be kept
in confidence unless otherwise agreed; or
• to state that only information disclosed in writing and clearly marked
as confidential is caught by the confidentiality provisions; or
• to state that written information must be marked confidential, and
orally disclosed information must be stated to be confidential at the
time of disclosure; or
• to state that information disclosed orally must be reduced to, or
confirmed in, writing within a certain time and will be confidential
when so put in writing.
The last option gives greater certainty as to which information is
‘caught’ by the confidentiality obligations, but may be unduly restrictive
or bureaucratic for some parties. For example, parties involved in
negotiations may not wish to be hampered by remembering to document
everything of significance that is said and that is confidential. There are
resource implications for some businesses in order to comply with such an
obligation. If the representative of an organisation/company is not to do
the documenting then there needs to be a second person involved in all
the negotiations whose role will be to document what is said. Technology
can play a part (such as recording any negotiations, but the recording will
still need to be listened to in order to extract the confidential information).
• What can the confidential information be used for? The default provision
should normally be that the confidential information may only be used
for defined purposes, set out in the agreement. In the absence of contract
wording one or more parties will need to rely, in the event of a dispute,

157

M04_Boilerplate_Clauses_C.indd 157 07/09/2017 12:57

 Confidentiality

on a court holding that the party who receives confidential information

is under an equitable obligation of confidence or that there is an implied
(contractual) term. Although in either of these cases the purpose to
which the recipient can use the confidential information of the disclosing
party is likely to be limited to the subject matter of the contract (eg from
Saltman Engineering Co Ltd v Campbell Engineering Co Ltd [1963] 3 All
ER 413). However, the scope of use will be subject to the view of a judge
(if a dispute gets that far) and is unlikely to accord with the views of a least
one party.
A restriction on use is sometimes forgotten in confidentiality provisions,
yet it can be very important (see EPI Environmental Technologies Inc v
Symphony Plastic Technologies [2004] EWHC 2945 (Ch) (see Case analysis
below), affirmed by the Court of Appeal in [2006] EWCA Civ 3). In
appropriate circumstances, the parties should set out the specific things
that the receiver of confidential information can and cannot do with the
confidential information of the disclosing party. For example:
• a definition of a permitted purpose, generally the subject matter
of the agreement (eg in a manufacturing agreement), the use of
confidential technical information provided by a party is for use only
in producing the product;
• a general definition of a permitted purpose, plus more specific things
that the recipient cannot do with the confidential information:
• not to replicate the confidential information (ie independently
to attempt to recreate, or succeed in recreating, the confidential
information, not just make a straight copy of it);
• not to investigate aspects of the confidential information that are
not provided to the recipient (or provided in a form which the
recipient cannot access without ‘going behind’ what it is provided
to the recipient and which is not something it would normally
need to do to use the confidential information for its intended
purpose);
• not to create new intellectual property using or based on the
confidential information (and if the recipient does so to transfer
ownership to the discloser); and
• not to obtain any commercial benefit for the recipient (or any
commercial dis-benefit to the discloser).
For example, a software developer creates a software utility to process
data. The software utility processes the data more quickly than any
other similar utility in the market. The software developer has used
several routines etc that are in the public domain, and by combining
them together with the developer’s own routines in a particular way has
been able to process data quicker. If the software developer provides
the utility program (as a normal executable program) to a recipient
together without a confidentiality agreement then the recipient may

158

M04_Boilerplate_Clauses_C.indd 158 07/09/2017 12:57

 Confidentiality

disassemble the utility program to determine how the routines are

combined so that they do so themselves. With a properly drafted
confidentiality agreement, that part of the utility program which is
confidential (ie the method by which the developer has combined the
routines) might be protected.
• Is the existence of the agreement also confidential? Eg:
• is the existence of the contract to be kept confidential (and/or that
the parties are in any form of relationship with each other)? Or
• are press releases and other public statements about the contract
permitted? Do such announcements require the prior agreement of
(some or all of) the parties?
• Are there (stated) exceptions to the obligations of confidentiality? Such a clause
will typically state some exceptions to the confidentiality provisions. These
exceptions usually cover situations such as:
• where the confidential information comes into the public domain
other than through the fault of the party who received the confidential
information; or
• where the confidential information was already known to the party
who received it prior to the parties agreeing to the obligations of
confidentiality; or
• where a third party has provided the confidential information to a
party and that third party is not under an obligation of confidentiality
to the disclosing party in respect of that confidential information.
• Does the confidential information need specific security measures in relation to it?
This might involve:
• the confidential information being held in a particular place by the
recipient (such as in a locked cupboard/room, to which only certain
people have a key, or on one particular computer, which is accessible
to only certain persons and which is disconnected from the internet);
or
• the recipient not being permitted to make copies of the confidential
information; or
• only particular representatives of a party having access to the
confidential information, and those particular representatives
not being permitted to disclose the confidential information to
anyone else (sometimes including to other persons within their own
company).
• Can the recipient disclose the confidential information to employees, agents
and representatives of the recipient? Are there circumstances in which the
information may be disclosed to employees of a contracting party? This
may involve obligations to keep the confidential information in a secure
place when it is not in use, to take all reasonably practicable measures

159

M04_Boilerplate_Clauses_C.indd 159 07/09/2017 12:57

 Confidentiality

to prevent the information falling into the hands of unauthorised third

parties, and to limit access to the information to those of the recipient’s
employees who need to know or use it (and who sign a written undertaking
to maintain it in confidence).
• The duration of the confidentiality obligations. The confidentiality provisions
may be stated to survive termination of the agreement, either for a
defined period of time or indefinitely. A party who discloses confidential
information may wish the obligation of confidentiality to be for an
unlimited period, as it may believe that such an obligation will give it
the greatest protection. However, the party under the obligation is likely
to have reservations about being under an unlimited obligation. For
example, that party may wish to file away documentation or ‘close’ a
file for a matter that is no longer active or is concluded. Being under an
obligation of unlimited duration may mean that the party under it needs
to take account of such an obligation in its dealings with others (such as
insurers, or where the party is involved in merger, take-over activity, etc),
ie the party may be required to disclose that it is subject to obligations of
confidentiality.
An unlimited or lengthy period of obligation may not be relevant to
all the information that a party may disclose. For example, the parties
may be negotiating the terms of an agreement for the launch of a new
product. In the period up to the launch, details of the new product may
be confidential, but after the launch details of the product will be in the
public domain. The party who has received the confidential information
relating to the new product may be uncertain as to what part of it remains
confidential and what part does not. A definite time period may be more
appropriate. Also, the agreement between the parties may need to separate
out confidential information that is no longer to be subject to obligations
of confidentiality when a certain event occurs or for a specific time period,
while another category of confidential information may be subject to
longer or indefinite obligations of confidentiality. An example would be
the information that relates to an invention. That part of the invention
which will be put into a patent application will remain confidential until
the patent application is published by a patent office, and the remaining
information may remain confidential indefinitely (and it may be useful
to a licensee of the patent application or patent in making use of the
invention).
• Where a party is a ‘public authority’ for the purposes of the Freedom of Information
Act 2000. See Freedom of Information for a discussion about this.

Location in the agreement

A simple Confidentiality clause will normally be among the Secondary

Commercial Provisions in an agreement.

160

M04_Boilerplate_Clauses_C.indd 160 07/09/2017 12:57

 Confidentiality

Linkage and use

There are a wide range of issues that may need to be addressed in a

confidentiality clause (what is set out above is only a summary of the main issues
that need consideration). Some of these will be specific to the contract, and
cannot be regarded as general ‘boilerplate’. Eg, in a research contract, there
may be a provision allowing the researchers to publish scientific papers about
the project, subject to certain safeguards to protect intellectual property. The
precedents in this title focus mainly on confidentiality provisions of a general
nature in commercial contracts, where the contract is not primarily concerned
with the generation of confidential information, but it is nevertheless thought
appropriate to include confidentiality obligations in relation to information
learnt from the other contracting party.
A confidentiality clause will need to be considered with the following:
• if the information that a party is to provide consists of a mixture of non-
confidential information and confidential information, then it may be
necessary to identify each set of information as such to avoid arguments
over which is which (see eg EPI Environmental Technologies Inc v Symphony
Plastic Technologies [2004] EWHC 2945 (Ch), [2004] All ER (D) 374
(Dec)). If this has to be done then extra provisions may be necessary,
such as:
• schedule(s) listing non-confidential material and a separate schedule
identifying specific confidential information (perhaps by general
description but without containing the confidential information
itself);
• an acknowledgment as to specific information being confidential or
non-confidential.
• if confidential information is disclosed in written or electronic documents,
then when the agreement is terminated, a Consequences of Termination
clause may be needed so that such documents (and any copies) are
returned and/or destroyed;
• confidential information is likely to be protected by one or more forms of
intellectual property, most usually copyright and sometimes the database
right. Any intellectual property provisions should normally be drafted
to include statements about the ownership of confidential information
disclosed under an agreement;
• the action that can be taken if there is a breach may require that Termination
provisions contain particular wording for such breaches;
• whether any Warranties are required to be provided, for example:
• that a party has the right to disclose the confidential information
(with suitable limitations);
• that such disclosure will not breach any third-party intellectual
property rights; and/or

161

M04_Boilerplate_Clauses_C.indd 161 07/09/2017 12:57

 Confidentiality

• a statement that a party is not providing any warranties regarding

confidential information disclosed, and in particular is not warranting
that the confidential information is of any standard of quality or fit for
any purpose, etc.
• Law and jurisdiction. If an agreement involves only English parties,
where the provision (and use) of confidential information is particularly
important, a non-exclusive jurisdiction clause may be appropriate if
the confidential information is sent out, or used outside, of the English
jurisdiction by the recipient. A non-exclusive jurisdiction clause would
enable the discloser of the confidential information to apply for remedies
(such as an injunction) in foreign courts.
• Affiliates. Where there is an affiliates definition, negotiation may take place
as to whether a recipient of any confidential information can disclose it to
any of its affiliates (and also whether the affiliate may use it). The discloser
may have concerns about the use of the confidential information by an
affiliate and the ability to control the actions of the affiliate (which may
not be bound by the contractual agreement between the discloser and
recipient of the confidential information).

Sample precedent material

Precedent 1—Simple confidentiality clause

1 Confidentiality
1.1 Each Party shall keep confidential:
(a) the terms of this agreement; and
(b) any and all confidential information that it may acquire in rela-
tion to the business or affairs of the other Party.
Neither Party shall use the other Party’s confidential information for
any purpose other than to perform its obligations under this agree-
ment. Each Party shall ensure that its officers and employees comply
with the provisions of this Clause 1.
1.2 The obligations on a Party set out in Clause 1.1 shall not apply to any
information which:
(a) is publicly available or becomes publicly available through no
act or omission of that Party; or
(b) a Party is required to disclose by order of a court of competent
jurisdiction.
1.3 The provisions of this Clause 1 shall survive any termination of this
agreement for a period of [5] years from termination.

162

M04_Boilerplate_Clauses_C.indd 162 07/09/2017 12:57

 Confidentiality

Precedent 2—Very short form – general confidentiality

Neither Party will disclose to any third party details of this agreement
without the prior consent of the other.

Precedent 3—Short form – general confidentiality

The Parties to this agreement will at all times keep confidential informa-
tion acquired in consequence of this agreement, except for information
which they may be entitled or bound to disclose under compulsion of law
or where requested by regulatory agencies or to their professional advis-
ers where reasonably necessary for the performance of their professional
services.

Precedent 4—Short form – consultancy agreement

The Consultant shall not disclose to any person, firm or company, except
to [a partner in the Firm], any information of a confidential nature obtained
by him in the course of carrying out [describe work].

Precedent 5—Longer form – general confidentiality

1 Each party shall at all times use its best endeavours to keep confi-
dential (and to procure that its employees and agents shall keep con-
fidential) any confidential information which it or they may acquire in
relation to the business and affairs of the other party to this agree-
ment and shall not use or disclose such information except with the
consent of that other party or in accordance with the order of a court
of competent jurisdiction.
2 The obligations of each of the parties contained in sub-clause [1] shall
continue without limit in point of time but shall cease to apply to any
information coming into the public domain otherwise than by breach
by any such party of its obligations contained in this agreement pro-
vided that nothing contained in sub-clause [1] shall prevent any party
from disclosing any such information to the extent required in or in
connection with legal proceedings arising out of this agreement.

Precedent 6—Definitions of information and confidential information

‘Information’ shall include [all] information or material provided directly
or indirectly by the Disclosing Party to the Receiving Party [including but
not limited to] [information which is of commercial worth or usefulness
to the Disclosing Party][marketing, business, information or technical
information] in oral or documentary form or by way of models, [biological
or chemical materials] or other tangible form or by demonstrations and
whether before, on or after the date of this agreement.
‘Confidential Information’ shall mean:
(a) in respect of Information provided in documentary form or by way
of a model or in other tangible form, Information which at the time of
provision is marked or otherwise designated to show expressly or by
necessary implication that it is imparted in confidence; and

163

M04_Boilerplate_Clauses_C.indd 163 07/09/2017 12:57

 Confidentiality

(b) in respect of Information that is imparted orally, any information that

the Disclosing Party or its representatives informed the Receiving
Party at the time of disclosure was imparted in confidence[ and which
is reduced to writing, marked ‘Confidential’ and sent to the Receiving
Party within 30 days of the original disclosure]; and
(c) any copy of any of the foregoing; and
(d) the fact that discussions are taking place between us.

Precedent 7—Longer form confidentiality clause – shareholders’

agreement
Each of the Shareholders covenants and undertakes with the other
Shareholders that he shall in all respects keep the secrets of the Company
and shall not during the period of this agreement or at any time thereafter
(except with the consent of the proper officers of the Company or under
the authority of the board or the court) divulge or make known to anyone
whomsoever or use for the benefit of himself or any other person, persons
or corporation any of the secrets of the Company or any information of
a confidential nature relating to any of the customers of the Company or
to the businesses (including prospective businesses) from time to time
carried on by the Company other than information or knowledge which
comes into the public domain otherwise than by reason of his default.

Precedent 8—Longer form confidentiality clause – business sale

agreement
In consideration of [the Vendors’ undertakings contained in clause [no]]
the Purchaser undertakes to keep confidential all information [of a secret
or confidential nature] (except for that which is already in the public
domain) in relation to the Vendor or [the Business] which is disclosed to
it or its advisors by the Vendor or its advisers and will not without the
Vendor’s consent divulge such information save to its professional advis-
ers and employees for the sole purpose of evaluating [the Business] with
a view to entering into a binding contract to purchase it, and in particu-
lar the Purchaser undertakes that it will not use the information thus dis-
closed to solicit or entice away any employees, customers or suppliers of
[the Business]. The Purchaser will ensure that its employees and profes-
sional advisors are made fully aware of these obligations of confidence to
the Vendor.

Precedent 9—Longer form confidentiality clause – software distribution

agreement
1 The parties have imparted and may from time to time impart to each
other certain confidential information relating to [the Software] or its
marketing or support including specifications documentation and
source codes.
2 Each party agrees that it shall use such confidential information
solely for the purposes of this agreement and that it shall not disclose

164

M04_Boilerplate_Clauses_C.indd 164 07/09/2017 12:57

 Confidentiality

directly or indirectly to any third party such information other than as

required to carry out the purposes of this agreement.
3 Where disclosure to a third party by either party is essential, the dis-
closing party, with the agreement of the other party will, prior to any
such disclosure, obtain from such third party duly binding agree-
ments to maintain in confidence the information to be disclosed to
the same extent at least as the parties are so bound under the terms
of this agreement.

Precedent 10—Longer form confidentiality clause – eg technology

licence
1 Except where the attainment of the purposes of this agreement
require a disclosure, neither party shall disclose to any third party any
information obtained from the other party in any document or cor-
respondence marked ‘Confidential’ or any trade or business informa-
tion obtained in confidence from the other party during a visit to that
other’s trade premises, offices, laboratories or trial grounds in con-
nection with this agreement.
2 The obligations in this clause relating to non-disclosure shall remain
in force and shall survive this agreement unless the party seeking
relief from the obligations can show that the information was public
knowledge and known to that party at the time that party obtained it
or has become public knowledge without the fault of that party since
that party obtained it.

Precedent 11—Full form confidentiality clause – shareholders’ agreement

1 Each of the parties to this agreement shall at all times use its best
endeavours to keep confidential (and to procure that its respec-
tive employees and agents shall keep confidential) any confidential
information which it or they may acquire in relation to the Company
and its subsidiaries or in relation to the clients, business or affairs of
any other party to this agreement or of the Company or of any of the
Company’s subsidiaries and shall not use or disclose such informa-
tion except with the consent of every other party to this agreement
and/or of the Company or its relevant subsidiary (as appropriate) or
in accordance with the order of a court of competent jurisdiction or,
in the case of information relating to the Company or any of its sub-
sidiaries, for the advancement of the business of the Company or the
relevant subsidiary.
2 The parties to this agreement shall procure that the Company and
its subsidiaries shall use all reasonable endeavours to ensure that
the officers, employees and agents of each of them observe a similar
obligation of confidence in favour of the parties to this agreement.
3 The obligations of each of the parties contained in Clause [1] shall
continue without limit in point of time but shall cease to apply to any
information coming into the public domain otherwise than by breach

165

M04_Boilerplate_Clauses_C.indd 165 07/09/2017 12:57

 Confidentiality

by any such party of its said obligations provided that nothing con-
tained in this Clause [no] shall prevent any party from disclosing any
such information to the extent required in or in connection with legal
proceedings arising out of this agreement or any matter relating to or
in connection with the Company.
4 For the purposes of this Clause [no] the expression ‘party’ shall
include the subsidiary companies of any party and any other com-
pany controlled by that party and the employees or agents of that
party and of such subsidiary or controlled companies.

Precedent 12—Full form confidentiality clause – know-how licensing

agreement
The Licensee agrees:
1 not at any time during or after the Term to use (other than as may
be expressly permitted under this agreement) or divulge or allow
to be divulged to any person the Know-how or any other confiden-
tial information imparted to it by the Licensor other than to persons
who have signed secrecy undertakings in the form approved by the
Licensor;
2 not to permit any person to act or assist in [the Business] until such
person has signed such an undertaking;
3 that all aspects of the Know-how shall be treated as confidential
information by the Licensee and:
(a) shall be disclosed only to those employees of the Licensee
whose duties cannot be fulfilled without such disclosure and
then only to the extent necessary to enable them to perform
such duties;
(b) visitors to the premises where drawings or other elements of the
Know-how are present or are in use shall be restricted so far as
is necessary to minimise disclosure of all elements of the Know-
how;
(c) the obligation of confidence shall continue after the end of the
term until the Know-how is in the public domain; and
(d) notwithstanding the obligation of confidence imposed under the
terms of this agreement it shall not be a breach of this agree-
ment for either party to disclose in general terms relevant items
of the Know-how to customers or potential customers so far as
it is bona fide necessary to do so in order to promote sales.

Precedent 13—Full form confidentiality clause (in eg joint application for

production licence)
Notwithstanding Clause [no] (termination date) all information and data
acquired or received for the purposes of and discussions and negotia-
tions pursuant to this agreement shall during the term of this agreement

166

M04_Boilerplate_Clauses_C.indd 166 07/09/2017 12:57

 Confidentiality

and for a subsequent period of 5 years be held confidential and shall not
be made available or disclosed in whole or in part to any third party with-
out the prior written approval of all the parties provided that any party
may without such approval:
1 make available or disclose such data and information to any affiliate
of such party upon obtaining a similar undertaking of confidentiality
but of unlimited duration from such affiliate;
2 make available or disclose such data and information to any outside
professional consultants upon obtaining a similar undertaking of con-
fidentiality but of unlimited duration from such consultants;
3 make available or disclose such data and information to any bank
or financial institution from whom such party is seeking or obtaining
finance upon obtaining a similar undertaking of confidentiality but of
unlimited duration from such bank or institution;
4 make available or disclose such data to the extent required by the
production licence or by any applicable law or the regulations of any
recognised stock exchange; or
5 disclose but not make available such data and information to any
bona fide proposed new party provided that such proposed new party
shall have previously signed an undertaking to keep such information
and data confidential in terms acceptable to the parties making the
relevant application.

Precedent 14—Separate confidentiality agreement (eg by letter in

respect of proposed joint project)
(Appropriate headings)
[Name of project] (‘the Project’)
This letter is to confirm the terms and conditions pursuant to which [Party
A] is prepared to disclose details of the Project to [Party B]. In order to
induce [Party A] to disclose such details, and in consideration of the sum
of £1 paid by [Party A] to [Party B] (receipt of which [Party B] acknowl-
edges), [Party B] warrants, undertakes and agrees with [Party A] as fol-
lows:
1 This undertaking is binding upon [Party B] and all its officers, employ-
ees, servants or agents or professional advisers of such persons
(together ‘Relevant Persons’).
2 This undertaking extends to all information of whatever nature in
whatever form relating to the Project obtained from any source
(‘Confidential Information’) but does not extend to information which,
at the time it is obtained, is in the public domain.
3 [Party B] shall treat all Confidential Information as being strictly pri-
vate and confidential and shall take all steps necessary to prevent
it from being disclosed or made public to any third party by any

167

M04_Boilerplate_Clauses_C.indd 167 07/09/2017 12:57

 Confidentiality

Relevant Person or coming by any means into the possession of any

third party.
4 [Party B] shall use the Confidential Information solely for the purpose
of evaluating whether or not to enter into an agreement with [Party
A] relating to the Project or to perform any obligations which B may
undertake or have undertaken with [Party A] relating to the Project
and [Party B] shall not use any part of the Confidential Information for
any other purpose whatever.
5 [Party B] shall not use or disclose or permit the disclosure by any
person of the Confidential Information for the benefit of any third
party or in such a way as to procure that [Party B] may at any time
obtain commercial advantage over [Party A].
6 Neither [Party B] nor any of the Relevant Persons shall by any
means copy or part with possession of the whole or any part of the
Confidential Information.
7 The Confidential Information and its circulation shall be restricted to
circulation and disclosure to individuals whose identity shall have
been approved by [Party A] prior to disclosure in writing.
8 [Party B] shall keep all materials containing Confidential Information
in a safe and secure place and return them to [Party A] immediately
on determination of the discussions in relation to the Project or on
[Party A]’s prior request.
9 [Party B] undertakes to indemnify and keep [Party A] at all times fully
indemnified from and against any loss or disclosure of Confidential
Information and from all actions, proceedings, claims, demands,
costs, awards and damages arising directly or indirectly as a result of
any breach or non-performance by [Party B] of any of [Party B]’s war-
ranties, undertakings or obligations under this agreement.

Precedent 15—Example of two-way confidentiality agreement

(Letter on ABC plc stationery)
[date]
XYZ Limited
Address
For the attention of Mr/Ms [ ]
Dear [name of company] [name of contact person]
Two-Way Confidentiality Agreement
Each of us is prepared to disclose to the other information which we regard as
confidential, which the Receiving Party may use for the purpose of consider-
ing whether to enter into an agreement with the Disclosing Party relating to
[state purpose] (the ‘Purpose’), subject to the following terms and conditions:

168

M04_Boilerplate_Clauses_C.indd 168 07/09/2017 12:57

 Confidentiality

1 Definitions
‘Disclosing Party’ shall mean the party to this agreement that discloses
Information, directly or indirectly to the Receiving Party under or in antici-
pation of this agreement.
‘Receiving Party’ shall mean the party to this agreement that receives
Information, directly or indirectly from the Disclosing Party.
‘Information’ shall include information provided directly or indirectly by
the Disclosing Party to the Receiving Party in oral or documentary form
or by way of models, biological or chemical materials or other tangible
form or by demonstrations and whether before, on or after the date of this
agreement.
‘Confidential Information’ shall mean:
(a) in respect of Information provided in documentary or by way of a
model or in other tangible form, Information which at the time of pro-
vision is marked or otherwise designated to show expressly or by
necessary implication that it is imparted in confidence; and
(b) in respect of Information that is imparted orally, any information that
the Disclosing Party or its representatives informed the Receiving
Party at the time of disclosure was imparted in confidence and which
is reduced to writing, marked ‘Confidential’ and sent to the Receiving
Party within 30 days of the original disclosure; and
(c) any copy of any of the foregoing; and
(d) the fact that discussions are taking place between us.

2 Confidentiality and non-use

The Receiving Party undertakes to the Disclosing Party (a) to keep the
Confidential Information secret at all times; (b) not to disclose it or allow it
to be disclosed in whole or in part to any third party without the Disclosing
Party’s prior written consent; and (c) not to use it in whole or in part for
any purpose except for the Purpose. The Receiving Party undertakes to
take proper and all reasonable measures to ensure the confidentiality of
the Confidential Information.

3 Exceptions
The above obligations of confidentiality shall not apply to any Information
which the Receiving Party can show by written records:
(a) was known to the Receiving Party before the Information was
imparted by the Disclosing Party; or
(b) is in or subsequently comes into the public domain (through no fault
on the Receiving Party’s part); or

169

M04_Boilerplate_Clauses_C.indd 169 07/09/2017 12:57

 Confidentiality

(c) is received by the Receiving Party without restriction on disclosure or

use from a third party lawfully entitled to make the disclosure to the
Receiving Party without such restrictions; or
(d) is developed by any of the Receiving Party’s employees who have
not had any direct or indirect access to, or use or knowledge of, the
Information imparted by the Disclosing Party.

4 Disclosure to employees
The Receiving Party undertakes to permit access to the Confidential
Information only to those of the Receiving Party’s directors and employ-
ees who reasonably need access to the Confidential Information for
the Purpose, and on the conditions that such directors and employees
shall have:
(a) entered into legally binding confidentiality obligations to the Receiving
Party on terms equivalent to those set out in this agreement (and such
obligations extend to the Confidential Information);
(b) been informed of the Disclosing Party’s interest in the Confidential
Information and the terms of this agreement; and
(c) been instructed to treat the Confidential Information as secret and
confidential in accordance with the provisions of this agreement.
The Receiving Party shall be responsible for ensuring that the Receiving
Party’s directors and employees comply with the provisions of this agree-
ment.

5 Return of information and property

The Receiving Party acknowledges and agrees that the property and
copyright in Confidential Information disclosed to it by the Disclosing
Party, including any documents, files and other items containing any
Confidential Information, belongs to the Disclosing Party. At the Disclosing
Party’s written request, the Receiving Party will return immediately to the
Disclosing Party all Confidential Information which the Receiving Party
has received under this agreement and which may still be in the Receiving
Party’s possession, including any copies made, and make no further
use or disclosure of any of the Confidential Information. The Receiving
Party may, however, keep one copy of the Disclosing Party’s Confidential
Information in its legal adviser’s files solely for the purpose of enabling it
to comply with the provisions of this agreement. The obligations on the
Receiving Party under this agreement shall continue in force for a period
of [5 or 10 or 15] years from the date of this agreement.

6 No implied rights
This agreement shall not be construed (a) to grant the Receiving Party
any licence or rights other than as expressly set out herein in respect of

170

M04_Boilerplate_Clauses_C.indd 170 07/09/2017 12:57

 Confidentiality

the Confidential Information, nor (b) to require the Disclosing Party to dis-
close any Confidential Information to the Receiving Party. No warranty or
representation, express or implied, is given as to the accuracy, efficacy,
completeness, capabilities or safety of any materials or information pro-
vided under this agreement.

7 Law and jurisdiction

This agreement shall be governed by and construed in accordance with
English law and shall be subject to the [non-]exclusive jurisdiction of the
English courts.
We shall be obliged if you will confirm your acceptance of these terms
and conditions by signing and returning the attached copy of this letter.
Yours faithfully
For and on behalf of ABC plc
Signature ___________________________
Title _______________________________
We accept the terms and conditions of this letter this [ ] day of [ ] 20[ ]
For and on behalf of XYZ Limited
Signature ___________________________
Title _______________________________

Case analysis

EPI Environmental Technologies Inc v Symphony Plastic Technologies

[2004] EWHC 2945 (Ch), [2004] All ER (D) 374 (Dec)
1 The parties entered into a manufacturing and know-how licence with
incidental trade mark rights agreement (together with an appended
confidentiality agreement) (the Licence). This agreement was
amended several times.
2 The claimant supplied to the defendant an additive for the use in
manufacturing film plastic products (‘DCP 509’) under the Licence.
This was used essentially in the manufacture of biodegradable plas-
tic bags.
3 The defendant created its own additive also for use in manufacturing
film plastic products (‘BD92384’), including the manufacture of bio-
degradable plastic bags.
4 The agreement contained the following relevant terms:
(a) a restriction on disclosure of confidential information to affiliates
of the parties;

171

M04_Boilerplate_Clauses_C.indd 171 07/09/2017 12:57

 Confidentiality

(b) a restriction on the use of confidential information;

(c) a prohibition on analysing or attempting to analyse DCP 509;
(d) DCP 509 could only be used for the purposes of the Licence.
5 The claimant’s main claim was that BD92384 breached the confiden-
tiality agreement between the parties and was a misuse of confiden-
tial information provided to the defendant by the claimant.
6 The defendant argued that in order for information or secrets to be
protected by the law of confidence that information or secret must
be confidential (ie not in the public domain). They argued that once it
is published in a patent application or released by the owner of that
information then as a matter of law it falls into the public domain and
therefore it ceases to be secret.
7 The central argument turned on the following issues (and in particular
around the first):
(a) there must be a body of information which is private or confi-
dential; and
(b) that information must be ‘communicated to a person who
knows or ought fairly and reasonably know it is to be regarded
as confidential’.
8 The defendant argued that
(a) the contents of DCP 509 and the manufacturing processes were
in the public domain;
(b) if so then there can be no breach of confidence;
(c) (b) will hold even if they (the defendants) analysed what was
provided to them by the claimant (ie in breach of the clause
prohibiting analysis, which the defendant denied in any case) or
used public sources.
9 The claimant argued:
(a) the defendant could use the public domain information, as long as
the defendant obtained that information from the public domain;
(b) but the defendant could not use the information if it was ob-
tained from accessing it by analysing DCP 509 (which was sup-
plied confidentially);
(c) the defendant was not able to analyse DCP 509 to deter-
mine which information it contained was in the public domain
and thereby be free to use that information (rather than going
through the public domain route); and
(d) it was possible to acquire a finished product (even though pro-
tected by a patent) and then analyse the finished product to de-
termine its constituent parts (in this case to take a plastic bag).

172

M04_Boilerplate_Clauses_C.indd 172 07/09/2017 12:57

 Confidentiality

10 The judge summarised what the argument of the claimant was: to

transform public domain material into private material by virtue of
the confidential relationship that arises between the claimant and the
defendant.
11 According to the claimant the key element that was confidential
was ‘the make up of the additive that the particular formulation of it
worked’. The judge had problems with this:
‘39. … It is self evident to my mind that the product works, because
the Claimant are selling it. When the product is sold, it is sold with
claims as to its suitability. If it did not work there would presum-
ably be a contractual claim arising out of that sale. Mr Hobbs QC
suggests that there is a particular confidentiality about each of the
Claimant’s products. It seems to me that that is not sustainable.
The whole world knows the Claimant sells additives that are added
to plastic products for the purpose of making them degradable.
The Claimant’s website pronounces that. Equally, the whole world
knows (from the Claimant’s own website) that “totally degradable
plastic additives (TDPA) are comprised of a proprietary blend of
prodegradants, stabilisers and fillers in thermoplastic polymers for
use in various products for photo, thermal and mechanical stress
degradation of the finished products incorporating this additives.”
Further information is freely available from the Claimant’s repre-
sentatives.
40. It seems to me, that the fact that the Claimant generally pro-
vides additives comprised of ingredients in that way is in the public
domain and none of those matters can be said to be private/con-
fidential.’
12 In essence the judge held that a confidentiality obligation will in reality
only protect that part which is confidential and not that which is in the
public domain. If a person receives information from another which
is a mixture of public and private information, s/he must take care to
use only that which is public information (and does not have to go to a
public source to obtain that information which is in the publication but
can even use it if provided by the provider of the information):
‘48. In my judgment, what Lord Denning [in Seager v Copydex Ltd
(No 1) [1967] RPC 349] is saying is that a recipient of mixed infor-
mation should take care only to use the public information. If he
uses the private information he can only do so on pain of payment.
Obviously the easiest way to establish that only public information
has been obtained is to go to the public sources. It is instructive
to see that Lord Denning was of the view […] that publication of
the patent and the use of the information in the patent would not
be actionable. It is clear in my judgment that, [referring to part of
the judgment of] Lord Denning is acknowledging that it is open to
the recipient of the information which is mixed public and mixed

173

M04_Boilerplate_Clauses_C.indd 173 07/09/2017 12:57

 Confidentiality

private to use the public information, but that he should not be in a

better position than if he had gone to the public source. That to my
mind means that if he is provided with information, which is in part
public, provided that information is a public source, he can use it. It
cannot be presumed that Lord Denning would expect the recipient
of public source information to have to pay for it. It is clear from the
next sentence of the judgment that when he is referring to paying
and head start, he is referring to the extra private information that
is provided contemporaneously with public information.’
13 If the defendant had merely copied the finished product then the
claimant would have succeeded in its action. But, in essence, if the
defendant takes the public domain parts of the information supplied
by the claimant and goes through the effort to make up the end result
using only the public domain information then the claimant could not
succeed. If the claimant had taken public information (such as what
was in its patent application, what it had published on its website and
else) and then gone through the process of creating a finished addi-
tive, then only the things which were contained or part of the process
of creating the finished additive and which had not been released
to the public domain would be capable of protection by the law of
confidence. And as long as the defendant did not use those things
that made up the process of creating the finished additive then the
defendant would not be in breach of any confidentiality obligations to
the claimant:
‘49… To my mind it is important to appreciate that if the prod-
uct is supplied in confidence and is merely copied completely […]
I can well see how complaint can be made. If that exercise is done
only, the defendant has the product of the use of the claimant’s
brains time and energy in producing a finished product, which they
merely replicate.
50. If there is something secret or confidential which they thereby
merely copied that would be actionable. However, a thing does not
become confidential merely because it is supplied confidentially
[…]However, take one example. Suppose [the claimant] supplied
the defendant with a formula for making a very special cake which
would be very unique to [the claimant]. A lot of the ingredients
would be common ingredients, but it would be contended that the
resultant product is arrived at by use of the secret formula.
51. Suppose the secret formula is not a secret formula at all, but
is actually itself a copy of a cake formula that has been published
generally for public use. The product and the formula that [the
claimant] provide cannot therefore be confidential.
52. That must equally be true in my view in respect of constituent
parts. I have already identified that [the claimant] itself proclaims
what type the constituent parts of its products are. Equally, if there

174

M04_Boilerplate_Clauses_C.indd 174 07/09/2017 12:57

 Confidentiality

is other material in the public domain, which points to specific con-

stituents, I do not see how that can be said to be private and I do
not see how [the defendant] (absent a contractual provision) can
be prevented even by examination and analysis of EPI’s product of
using information they acquire as a result of that exercise which is
in the public domain.’
…
62. In reality, it is, I suspect, a question of fact in each case as to
seeing what is the secret, and what use has been made of it. I do
not see … the specific products and their makeup prevents a party
from analysing that product (provided the contracts allows them
so to do) and utilising those parts of the constituents of the prod-
uct and the method of making up, which are in the public domain.
Otherwise, by signing a confidentiality agreement, Symphony
would be the only organisation in the world that could not do
that. That to my mind would be a bizarre result and is not what is
intended by the law of confidence.’
15 The judge specifically did not decide whether a clause preventing
the analysis of confidential or other information provided by a person
could be legally effective.

175

M04_Boilerplate_Clauses_C.indd 175 07/09/2017 12:57

 Consent

Purpose of the clause

In an agreement the word ‘Consent’ can have a number of different meanings

or uses: eg:
• stating who is responsible for obtaining permission etc from a third party: that a
contracting party is responsible for obtaining official consents necessary
for the contract to proceed, such as:
• in order for the building of houses by a developer, a party has the
obligation to obtain planning permission;
• to conduct a clinical trial of a drug compound, the party conducting
the trial has to seek an ethics committee opinion and approval from
the Medicines Health Regulatory Authority; or
• a software developer has developed and will host online gambling
software, and will need to obtain a licence from the GB Gambling
Commission before end users can start betting using the gambling
software;
• a statement by a party that it has obtained (necessary, required) approvals,
permissions: sometimes a party to an agreement will need to state (or
warrant) that it has either obtained some specific approval or permission:
eg, in a sale of business agreement, the seller may need to warrant that
it had obtained all the licences and consents it needs to carry on the
business that is being sold. Such a warranty might go on to state that the
seller is not in breach of those licences and consents;
• an obligation requiring one party to obtain the approval or permission from the
other party: that a party may not take certain actions until or unless it has
obtained the consent of the other party:
eg, a party might be restricted from issuing a press release about the
contract, unless the other party had given its prior written consent (see
Precedents 1 and 2);
eg neither party being able to assign their rights and transfer their
obligations unless each has the prior consent of the other party (see
Precedent 3).

176

M04_Boilerplate_Clauses_C.indd 176 07/09/2017 12:57

 Consent

• acceptance: that a party is stating that something done under a contract by

another party is in accordance with the provisions of the contract. In this
sense, ‘consent’ has a meaning closer to that of ‘acceptance’.
Eg, in an agreement where one party is to develop software for another
party, the agreement may provide that when the software developer has
reached a particular stage in the development of the software, then the
other party will receive a copy of the software and, after testing, accept
that the software is in accordance with the specification for the software
or meets certain acceptance criteria and consents to the software
development carrying on to the next stage.
This section deals with situations under the last two of these four points. See
also Assignment.

Drafting issues

• Should the requirement for consent be subject to a provision that it cannot be

unreasonably withheld?
Such a term is not generally implied into ordinary commercial contracts.
‘There is no principle of law that, whenever a contract requires the
consent of one party to be obtained by the other, there is an implied term
that such consent is not to be unreasonably refused. It all depends on the
circumstances’ (Price v Bouch (1986) 53 P & CR 257).

It seems the courts may make a distinction between a matter requiring ‘a

general and unrestricted consent’ and consents to very specific matters,
eg, approving ‘a title or plans which are free from any tenable objection’
(see Clerical Medical and General Life Assurance Society v Fanfare Properties
Ltd (2 June 1981, unreported), but approved in Cryer v Scott Bros (Sudbury)
Ltd (1986) 55 P & CR 183 at 194, CA)). In the latter situation, a court may
more readily imply a term that consent will not be unreasonably withheld,
if this is necessary to give business efficacy to the contract. If in doubt, the
contract drafter should state whether consent may be refused at a party’s
absolute discretion.
• Should the need to give consent be matched to a certain standard? If a party is
required to give consent, does that party have an obligation:
• to consider certain matters or things?
• to use a set of criteria or requirements?
• to have to give its consent if the set of criteria or requirements are
matched or fulfilled?
• Leases and other real property transactions. If there is a provision concerning
consent in a lease or other real property document there is often (but not
always) an implied term that consent will not be unreasonably withheld
(see eg Cryer v Scott Brothers (Sunbury) Ltd (1988) P & CR 183, CA).

177

M04_Boilerplate_Clauses_C.indd 177 07/09/2017 12:57

 Consent

Therefore, if the party whose consent is required is to have an absolute

discretion as to whether it gives consent, this will need to be specifically
stated.
• Time limit on consent? Should there be a time limit on the party deciding
whether to give the consent, eg:
• an obligation not to unreasonably delay giving consent; or
• to give or refuse consent within a certain time period; or
• that consent is deemed to be given or refused if the party responsible
for giving consent has not provided a response by the end of any
specified time period.
• Reasons for withholding consent? Does the party responsible for giving
consent need to state reasons for withholding its consent?
• What factors can the party who has to provide consent take into account? Eg, is the
party required to provide consent only allowed to consider factors relating
to the specific agreement or can it take into account its other business
interests (see eg, Sargent v Macepark (Whittlebury) Ltd [2004] EWHC 1333
(Ch), [2004] 4 All ER 662, although that was a case relating to the
Landlord and Tenant Act 1927, s 19(2))?
• Consent provided but not in (exact) terms sought by party requiring the consent.
If a party is required to obtain or provide consent then the consent may
be provided in a form that is different from what one or all of the parties
expect. If this is the case, what is to happen?; ie is it to be taken that the
consent is not obtained or provided at all or is there to be some mechanism
for deciding whether the consent is sufficient to meet the matter that
required the consent? This is likely to be most relevant where a third
party needs to provide a form of consent but does so in its owns terms.
It may be possible, before the agreement is entered into, to determine
the likely outcomes of the consent not being either forthcoming at all
or in modified or different terms than the parties wish for. Alternatively
the parties may put in place a mechanism where representatives of the
parties meet and decide how the contract should be altered to cope with
the modified consent (see City and General (Investment) Ltd v Razama Ltd
[2009] EWCA Civ 1568, and Case analysis below).

Location in the agreement

The requirement to give or withhold consent can appear in any clause which
requires a party to agree to something before the other party can or cannot
do it.

Linkage and use

The requirement to give or withhold consent often appears in the following

situations:

178

M04_Boilerplate_Clauses_C.indd 178 07/09/2017 12:57

 Consent

• In a Main Commercial Provision, where a party is required to state whether

another party has performed its obligations under the agreement.
Eg, in a software development agreement, the developing party will be
responsible for developing a specification and then, after writing the
software, will be required to test the software. At both these stages the
other party will be required to give its consent that the specification and
the software meet the required standard.
• In a Main Commercial Provision, where there may be a change in
personnel or other type of change (a change in specification, change in
quantity, etc) which requires the consent of a party.
Eg, where a service is being performed, and a particular person is named
as performing that service, if there is to be change then the other party
may be required to give its consent.
• In the Boilerplate section clauses such as those dealing with:
• Assignment;
• Announcements;
• Amendment.

Sample precedent material

Precedent 1—No press release etc without consent of other party

Neither Party may issue any press release concerning the existence or
terms of this agreement without the prior written consent of the other
Party, which consent may not be unreasonably withheld or delayed.
A Party who refuses to give a consent within 30 days of being requested
to do so, shall promptly notify in writing the other Party of its reasons for
such refusal.

Precedent 2—No press release without consent of other party

Neither Party may issue any press release concerning the existence or
terms of this agreement without the prior written consent of the other
Party. A Party may withhold or delay giving any such consent at its sole
and absolute discretion and without giving reasons therefore.

Precedent 3—Prior consent

This agreement and all rights under it may not be assigned or transferred
by either of the parties without the prior written consent of the other.

Precedent 4—Consent not to be unreasonably withheld or delayed

Should any individual leave the Agency, the Agency will, with the Client’s
consent, appoint a suitable replacement, such consent not to be unrea-
sonably withheld or delayed.

179

M04_Boilerplate_Clauses_C.indd 179 07/09/2017 12:57

 Consent

Precedent 5—Consent not to be unreasonably withheld – time limit

Prior consent shall not be unreasonably withheld or delayed and shall be
deemed to have been given if it has not been reasonably withheld within
10 business days of receipt by the Borrower of any request therefore.

Precedent 6—Consent not to be unreasonably withheld in specified

circumstances
In the case of an intended assignment by the Agent consent to such
assignment shall not be unreasonably withheld in the following circum-
stances [set out particular circumstances eg:]
1 The proposed assignee shall agree directly with the Principal to be
bound by the terms of this agreement;
2 etc.

Case analysis

City and General (Investment) Ltd v Razama Ltd [2009] EWCA Civ 1568
1 The claimant sold a property to the defendant. The property had
planning permission. However, the property was subject to a condi-
tion that the approval of Network Rail (‘Network Rail Condition’) was
obtained before any building work was carried out as the property
was near a railway line.
2 The contract between the claimant and the defendant required that
the claimant obtained consent from Network Rail (‘Network Rail
Consent’). The claimant had to obtain the consent prior to the com-
pletion date using its ‘entire endeavours’ to do so.
3 If the claimant failed to obtain the consent then, essentially, the
defendant kept part of the purchase money for the property. Ie a cer-
tain sum would be held by its solicitors (ie not paid over to the claim-
ant), and for every month that the consent was not forthcoming the
defendant could withdraw a proportion of that sum until the balance
was zero.
4 The Network Rail Condition was: ‘not at any time – (a) without pre-
viously submitting detailed plans and sections thereof to [Network
Rail] and obtaining their approval thereto and (b) without complying
with such reasonable conditions as to foundations or otherwise as
[Network Rail] shall deem it necessary to impose to erect or add to
any building or structures or to execute any works on any part of the
land hereby transferred’.
5 The contract between the claimant and defendant defined the mean-
ings of:
(a) ‘entire endeavour’: ‘All those actions which a prudent and de-
termined seller acting in its own interest and anxious to achieve

180

M04_Boilerplate_Clauses_C.indd 180 07/09/2017 12:57

 Consent

development of the property in accordance with the planning

permission dated 2nd November 2004 would take to obtain
Network Rail consent but for the avoidance of doubt and the
buyer acknowledge[s] that in taking those actions the seller shall
not be obliged to incur any expenditure or liability actual or con-
tingent whether as to capital expenditure fees costs expenses
or other outgoings exceeding a maximum aggregate financial
obligation of £50,000 excluding the VAT.’; and

(b) ‘Network Rail Consent’: ‘Written approval whether by deed or

otherwise pursuant to clause 1(a) of the British Railways Board
transfer and referred to in entry (1) of the charges register to title
no. NGL 775319 permitting development of the part of the prop-
erty affected by the British Railways Board transfer in accord-
ance with the planning permission dated 2nd November 2004
which consent may include covenants restrictions and imposi-
tions as are generally imposed by Network Rail for the protec-
tion and operation of the adjacent railway such consent to be in
such form as the buyer shall approve such approval not to be
unreasonably withheld or delayed.’

6 Network Rail provided consent in the following terms: ‘Pursuant to

the restriction, I confirm that Network Rail, as owner and successor
in title to the British Railways Board, the railway situated on the land
shown edged green on the plan in Appendix 1, approves the pro-
posed development of the property as outlined in the planning per-
mission issued by London Borough of Camden dated 2nd November
2004 and the drawings referred to in the planning permission (“the
development”), copies of which are annexed hereto as Appendix 2.
This approval is subject to (a) Network Rail approval of the further
detail of the development in relation to foundations for the protection
and operation of the adjacent railways to be undertaken as part of
the development, and (b) compliance with any reasonable conditions
which may attach to the approval referred to above in paragraph (a).
The approval contained in this letter shall not constitute a form of
release, waiver or variation of any of the restrictions and covenants
and transfer which will continue in full force and effect.’ (‘Network Rail
Letter’)

7 The case centred on whether the consent provided by Network Rail

fell within the definition of Network Railway Consent in the contract
between the claimant and the defendant.

8 In the court of first instance the judge found in the definition of

Network Rail Consent the words ‘written approval’ (but only qualified
by the words: ‘may include covenants restrictions and impositions as
are generally imposed by Network Rail for the protection and opera-
tion of the adjacent railway’) required an unqualified approval. And
this Network Rail had not provided in the Network Rail Letter.

181

M04_Boilerplate_Clauses_C.indd 181 07/09/2017 12:57

 Consent

9 The Court of Appeal disagreed, deciding:

(a) it was necessary to interpret the Network Rail Consent against
the commercial background;
(b) the Network Rail Letter only reservation of consent on focussed
on the foundations of the building (something which the original
planning permission did not deal with);
(c) the Network Rail Letter did approve the building work;
(d) the reservation in the Network Rail Letter was written in narrow-
er terms than found in the Network Rail Condition (at (b))
10 The Court of Appeal held: ‘It serves, to my mind, to emphasise that
the development [in the Network Rail Letter] was agreed to in prin-
ciple and that there could be no question of Network Rail frustrating
its execution by reason of any dissatisfaction with proposed founda-
tions. On the respondent’s case, the restrictions at (a) and (b) in the
[Network Rail L]etter are repugnant to the generality of the approval
contemplated in the [Network Rail Consent definition], and the judge
agreed with that position. In my judgment, however, the nature of
those provisions set out in the letter’s contents plainly demonstrate
that the letter is in truth consonant with the [Network Rail Consent
definition]. As I have said, the respondent was bound to design the
foundations. Network Rail was, in truth, bound to reserve a right to
approve their detail for the protection and operation of the railway.
Given all these considerations the judge’s construction cannot be
sustained. In those circumstances there was no reasonable basis on
which the buyer might within the [Network Rail Consent definition]
withhold approval of the consent and for these reasons for my part
I would allow this appeal.’

182

M04_Boilerplate_Clauses_C.indd 182 07/09/2017 12:57

 Consequences of termination
(survival of terms)

Purpose of the clause

Although an agreement has terminated (ie the parties have performed the
main obligations under the agreement), some rights or obligations may either
come into existence or continue after termination. It is desirable to state which
provisions (if any) continue after termination. In some cases:
• the surviving terms may continue for a limited time, eg:
• a right for an agent or distributor to sell off existing stocks of the
principal’s products, which may continue for a period such as six
months;
• on the termination of a patent licence, the licensee has a right to sell
off any existing stocks of products; or
• on the termination of consultancy services (say on a rolling month-by-
month basis), the party providing the consultancy may need to write a
final report.
• the surviving terms may need to continue either without limit of time or
for a lengthy period, eg:
• obligations of confidentiality;
• requirements to keep records and make payments for sales incurred
before the date of termination (such as in a patent licence or an
agency agreement);
• any rights which were granted before termination but are to continue
after termination, such as if a consultant provides consultancy services
and provides reports where it retains ownership of the intellectual
property, whether any licence to the client to use the reports may
continue after termination of the agreement.
Note: if the termination arises from a party’s liquidation (see Insolvency,
below), the liquidator has statutory rights to reject ‘onerous contracts’. This
right could apply to ‘consequences of termination’ provisions as it does to the
main contract.

183

M04_Boilerplate_Clauses_C.indd 183 07/09/2017 12:57

 Consequences of termination (survival of terms)

Drafting issues

Not all agreements contain a ‘consequences of termination’ provision, either

because the nature of the contract does not call for such wording or the parties
have not addressed the issue.
If there is to be a ‘consequences of termination’ clause then the following
issues are likely to arise:
• Which provisions are to survive termination? A ‘consequences of termination’
clause may list these specifically, or the clauses that deal with the provisions
may themselves state that they survive termination.
• For how long will the provisions survive termination? Clauses such as obligations
of confidentiality or maintaining records often last for a specified period
after termination. However, not all the clauses that are to survive will
survive for only a particular period, so it may be necessary to indicate
which are limited to a particular period, often by including the limit
within the clause itself rather than in the Consequences of Termination
clause.
• Does one or more of the parties need a ‘winding down’ phase or need to return
materials/documents after termination? This may be appropriate in some
agreements, such as:
• agency or licensing agreements, which involve the sale of goods or
production of goods involving materials, may need to hand back
supplies or materials belonging to one party but in the possession of
the other;
• confidentiality, and development or creation of intellectual property
agreements often involve one party providing information and
documents to another. On termination the party receiving the
information and documents may be required to return these (plus
any copies made);
• a licensee that is a party to an agreement, which licenses intellectual
property and which contains an obligation to pay royalties, may still
need to make payments after the date of termination for sales made
prior to the date of termination. The licensee may need time to
make up its accounts (particularly if sales are also made by agents/
sub-licensees, and obtaining details of sales made, the amounts paid,
stocks held etc is only done after the fact and not in real time).
• Does a party need to make or return any payments after termination? There
may be special payment provisions on termination, eg, to pay for work
in progress, to pay for materials and stocks of components made before
termination but which will not be of use, or to require the repayment of
payments made in advance.
• Are there any ‘accrued rights’ after termination? A provision that any ‘accrued
rights’ survive termination (eg, an obligation to pay liquidated damages
for a breach that occurred prior to termination).

184

M04_Boilerplate_Clauses_C.indd 184 07/09/2017 12:57

 Consequences of termination (survival of terms)

• Have the parties included a ‘sweep-up’ provision? There may be a ‘sweep-up’

provision at the end of the Consequences of Termination clause, stating that
except as stated in the clause, the parties to the agreement have no further
obligations to one another.
• Will the termination of one agreement affect or concern other agreements? If the
agreement being terminated is part of a series of agreements (eg, a master
agreement and a number of agreements made under it), do the agreements
made under it terminate or some of their provisions terminate?
• On termination are any new rights granted to a party? Particularly with
licences of intellectual property there may be additional rights created
on termination of an agreement, such as a licensee getting a licence to
intellectual property to use for certain purposes although the underlying
agreement has terminated.

Location in the agreement

The wording of a Consequences of Termination clause is usually found with other

Termination provisions located with Secondary Commercial Provisions of an
agreement.

Linkage and use

A Consequences of Termination clause usually refers to other clauses surviving

termination. The following are the type of clauses that survive:
• Confidentiality clauses;
• Indemnity clauses;
• Warranty clauses;
• Non-compete clauses;
• Maintaining records (eg, where an agent or licensee is required to sell
products, it may be required to maintain records of its sales, expenses,
costs, etc; or where a party is required for regulatory purposes to maintain
records (eg, if conducting clinical trials);
• Payment clauses (eg, there may be a continuing obligation to make
payments after termination, such as where a royalty is due under a patent
licence on sales of patented products made shortly before the agreement
is terminated);
• Arbitration and ADR clauses.
• Sub-licences. If there is a licence agreement that allows the licensee to sub-
license:

185

M04_Boilerplate_Clauses_C.indd 185 07/09/2017 12:57

 Consequences of termination (survival of terms)

• will any sub-licences also terminate immediately on termination of

agreement between the licensor and the licensee? or
• will sub-licences be allowed to continue for a period? or
• will the licensor step into the shoes of the licensee?

Sample precedent material

Precedent 1—Consequences of termination

Upon termination of this agreement for any reason:
(a) the provisions of Clauses […] and […] shall continue in force without
limit of time and the provisions of Clause […] shall continue in force
for a period of 5 years from the date of termination;
(b) each Party shall return to the other Party any documents in its pos-
session or control which contain or record any of the confidential
information of the other Party; and
(c) subject as provided in this Clause, and except in respect of any
accrued rights, neither Party shall be under any further obligation to
the other.

Precedent 2—Survival of accrued rights

Following termination of this agreement:
(a) either party shall be entitled to exercise any one or more of the rights
and remedies given to it under the terms of this agreement and the
termination of this agreement shall not affect or prejudice such rights
and remedies, and
(b) each party shall be and remain liable to perform all outstanding liabili-
ties under this agreement notwithstanding that the other may have
exercised one or more of the rights and remedies against it.

Precedent 3—Survival of rights up to termination

Termination of this agreement shall not affect any rights of the parties
accrued up to the date of termination.

Precedent 4—Non-survival of terms

No term [other than clause [no] (eg arbitration provision)] shall survive
expiry or termination of this agreement unless expressly provided.

Precedent 5—Longer form survival of rights

Either party shall be entitled to exercise any one or more of the rights and
remedies given to it under the terms of this agreement and the termina-
tion of this agreement shall not affect or prejudice such rights and rem-
edies and each party shall be and remain liable to perform all outstanding

186

M04_Boilerplate_Clauses_C.indd 186 07/09/2017 12:57

 Consequences of termination (survival of terms)

liabilities under this agreement notwithstanding that the other may have
exercised one or more of the rights and remedies against it.

Precedent 6—Alternative short form (eg in sale agreement) – survival of

terms after completion
This agreement shall (except for any obligation fully performed prior
to or at the Completion Date) continue in full force and effect after the
Completion Date notwithstanding completion.

Precedent 7—Alternative form (eg in sale agreement) – survival of terms

after completion
Completion shall not in any way prejudice or affect the operation of any
of the provisions of this agreement which contemplate or are capable of
operation after completion and accordingly all such provisions shall con-
tinue in full force and effect after completion.

Precedent 8—Alternative form– survival of terms

For provisions of this agreement that state they are to continue after the
termination or expiry of this Agreement, those provisions shall continue in
full force and effect, regardless of the means of termination or expiry of
this agreement.

187

M04_Boilerplate_Clauses_C.indd 187 07/09/2017 12:57

 Consultation

Purpose of the clause

Background
A provision in an agreement might sometimes state that a party must consult
with another party before taking certain actions. Eg, in certain agreements
involving intellectual property:
• in a research collaboration agreement, one party may be required to
consult with the other party when making patent applications in respect
of inventions made in the course of the research;
• in an agreement involving the licensing of intellectual property, one party
may be required to consult the other about whether and which party
should take infringement and other proceedings;
• in an agreement involving the licensing and further development and
exploitation of that intellectual property, a licensee may need to consult
on its plans and whether to grant (sub-)licences;
or in other types of agreement a party might be required not to admit any liability
or settle any claim or make any agreement with a third party without consulting
the other party to an agreement (such as in an insurance agreement).

Consultation and consent distinguished

An obligation to consult with another party is less onerous than an obligation

to obtain the other party’s consent to the proposed action. It is more onerous,
though, than an obligation merely to inform the other party of the proposed
action.

Meaning and requirements for consultation

There is case law on the extent of an obligation to consult. This case law is
in the area of public law (such as in relation to a local authority’s duty to
consult with interested parties in planning matters). Some of the principles
established are as follows.
• What amounts to consultation?

188

M04_Boilerplate_Clauses_C.indd 188 07/09/2017 12:57

 Consultation

• ‘Genuineness’. The party who wishes to consult must communicate a

genuine invitation to give advice (see Agricultural, Horticultural and
Forestry Industry Training Board v Aylesbury Mushrooms Ltd [1972]
1 All ER 280) and must give genuine consideration of that advice
(R v Secretary of State for Social Services, ex p Association of Metropolitan
Authorities [1986] 1 All ER 164; Blackpool and Fylde Aero Club Ltd v
Blackpool Borough Council [1990] 3 All ER 25, CA). The form of an
offer to consult is not determinative of whether there is a genuine
invitation to obtain the views of the person consulted. In Agricultural,
Horticultural and Forestry Industry Training Board v Aylesbury Mushrooms
Ltd [1972] 1 All ER 280 it was held that the sending of a letter
constituted ‘… but an attempt to consult and this does not suffice. The
essence of consultation is the communication of a genuine invitation,
extended with a receptive mind’.
• Sufficient reasons must be given. The party seeking to consult another
party must:
• give sufficient reasons for the matter or proposals that are the
subject matter of consultation so that the party being consulted
can give proper consideration and a proper response (R v North
and East Devon Health Authority, ex p Coughlan [2001] QB 213, 258,
CA); and
• state the criteria on which a decision will be made and which
factors were material (R (on the application of Capenhurst) v Leicester
City Council [2004] EWHC 2124 (Admin), (2004) 7 CCL Rep
557).
• Allowing sufficient time. The consulting party must allow sufficient time
to the consulted party to enable it to do that, and the sufficient time
must be available for the advice to be considered by the consulting
party. Sufficient does not mean ample, but at least enough to
enable the relevant purpose to be fulfilled (R v Secretary of State for
Social Services, ex p Association of Metropolitan Authorities [1986] 1 All
ER 164; also R v North and East Devon Health Authority, ex p Coughlan
[2001] QB 213, 258, CA).
• Form of the advice. The advice should be helpful, which means sufficient
and considered information or advice about aspects of the form or
substance of the proposals or their implications for the consulted
party, being aspects material to the implementation of the proposal as
to which the consulting party might not be fully informed or advised
and as to which the party consulted might have relevant information
(R v Secretary of State for Social Services, ex p Association of Metropolitan
Authorities [1986] 1 All ER 164).
• The person consulting must be receptive to views provided by the
person consulted. The consulting party must do so ‘with a receptive
mind’ (Agricultural Horticultural and Forestry Industry Training Board v
Aylesbury Mushrooms Ltd [1972] 1 All ER 280 at 284).

189

M04_Boilerplate_Clauses_C.indd 189 07/09/2017 12:57

 Consultation

• No response is required. The consulted party, once they have received a

genuine offer to be consulted, does not need to accept the offer or
provide any advice (see Agricultural, Horticultural and Forestry Industry
Training Board v Aylesbury Mushrooms Ltd [1972] 1 All ER 280 at 284)
otherwise the consulted party would have a veto.
• In the commercial context. Although the above apply to non-contractual
situations, they nevertheless provide useful criteria of the type of matters
a party might wish to consider when consulting another party (and
which might be reflected in the wording of a clause in appropriate
circumstances). In summary, in the commercial context it seems that an
obligation to consult is not met until:
• the consulting party has properly considered the consulted party’s
views on the matter on which it was consulted; and
• the consulting party must consider those views with a receptive mind.

Drafting issues

Instead of accepting a contractual obligation to consult (with all that such an

obligation implies), a party may wish to state specifically what it will do. Eg, the
party may wish to state:
• at what point in the decision-making process it will inform the other party;
• what information it will provide;
• how much time the other party will have to give its views;
• whether the other party needs to submit its views in a particular manner
or format;
• what level of obligation the consulting party has to take those views into
consideration; and
• what will happen if the other party fails to provide its views.

Location in the agreement

A Consultation provision is usually located within another clause dealing with

the parties making a decision or where some action can be proposed or taken
when a particular situation occurs.

Linkage and use

A Consultation provision can be found in many different types of clauses but is

often found in clauses concerning:
• changes or appointment of persons carrying out tasks in an agreement.

190

M04_Boilerplate_Clauses_C.indd 190 07/09/2017 12:57

 Consultation

Eg, a research contract often specifies a lead researcher. If that person

becomes unavailable, the sponsor of the research may have a right to be
consulted as to the replacement.
• ‘good faith’ negotiations;
• appointment of a third party to resolve a dispute. In such clauses, parties are
often asked to consult and then agree who will be the third party;
• announcements. Where a party wishes to make an Announcement then it
may be required to consult with another party as to its content, form and
timing;
• release of information. Where a party wishes to release information (such as
confidential information, publications etc) it may be required to consult
the other party before so doing.

Sample precedent material

Precedent 1—Consultation clause – sale of business

Where the debtor in question is a continuing debtor of the Business after
the Transfer Date the Vendor shall consult with the Purchaser before insti-
tuting any legal proceedings.

Precedent 2—Consultation clause – performing artist agreement

The Artist shall consult with the Company and obtain the prior written
consent of the Company in respect of the appointment of any new busi-
ness manager or agent of the Artist.

Precedent 3—Consultation clause – publishing agreement

The Printer shall consult with and obtain the approval of the Publisher in
relation to all aspects of the printing of copies of the Work including page
size, paper weight and quality, binding and jacket design.

Precedent 4—Consultation and consideration of recommendations

The Company shall consult with the Producer and give good faith consid-
eration to any recommendations made by the Producer.

Precedent 5—Mutual consultation clause – infringement of intellectual

property rights
If either party believes that any third party is infringing any intellectual
property rights in the Product, it shall notify the other party and the parties
shall consult with each other as to the action to be taken.

Precedent 6—Mutual consultation clause – timeshare agreement

During the period of 3 months terminating 3 months prior to any expiry
date the parties shall consult with each other with a view to establishing
the terms on which each would be prepared to enter into a new manage-
ment agreement.

191

M04_Boilerplate_Clauses_C.indd 191 07/09/2017 12:57

 Consultation

Precedent 7—Consult a licensor on grant of sub-licence by licensee

Before granting a sub-licence under its rights under this Agreement to
any person the Licensee shall first consult with the Licensor. When the
Licensee wishes to consult with the Licensor concerning the granting of
a sub-licence it:
• shall send a notice in the form specified in Schedule [ ] to the Licensor;
• shall allow at least [ ] days for the Licensor to respond to the notice
(‘Notice Period’);
• if it receives reasoned and detailed points from the Licensor concern-
ing the proposed provisions of the sub-licence or whether the sub-
licence should be granted at all (‘Response’) allow a further period of [
] days to allow the Licensor and the Licensee to discuss the Response
(‘Response Period’);
• shall not grant the sub-licence in question before the expiry of the
Notice Period and also shall not grant the sub-licence before the
expiry of the Response Period if the Licensee receives the Response
before the expiry of the Notice Period;
• shall use commercial diligent efforts to consider, with an open and
receptive mind, all the points and matters contained in a Response
and conduct any negotiations in good faith.
• [On the expiry of either the Notice Period or the Response Period,
whichever is later, the Licensee shall be entitled to grant the sub-
licence.]

Precedent 8—Consult client before using third party supplier

Prior to selecting a supplier to provide those Services which are to be
provided by a supplier and not the Consultant (‘Third Party Services’), the
Consultant shall first consult with the Client as to the Consultant’s choice
of supplier. When the Consultant has chosen a supplier for the part of the
Services in question:
1 the Consultant shall send a notice in writing to the Client;
2 the Consultant shall allow the Client at least [ ] days to respond to
the notice and for the Client to provide any observations and points
about the choice of the supplier;
3 The Consultant shall provide in the notice details about the services
to be provided by the supplier, including copies of any quotation or
estimates provided by the supplier and information it has supplied on
how it will provide the services;
4 During the period specified in 2 the Consultant shall make itself avail-
able to discuss with the Client the choice of supplier and shall provide
such additional information it already possesses as the Client may
reasonably request;

192

M04_Boilerplate_Clauses_C.indd 192 07/09/2017 12:57

 Consultation

5 The Consultant shall consider any observations or points made by

the Client with an open and receptive mind.
6 Although the Consultant has the obligation to consult the Client as
to the choice of supplier in accordance with the provisions of this
Clause [ ], the Client acknowledges and agrees that the decision of
the supplier is that of the Consultant alone.
7 At the end of the period specified in 2 above or earlier if the Client sig-
nifies its agreement to the Consultant’s choice of supplier before the
end of the period specified in 2 above, the Consultant shall have the
right to appoint the supplier.

193

M04_Boilerplate_Clauses_C.indd 193 07/09/2017 12:57

 Consumer contracts

Purpose of the clause

Background
For contracts entered into from and including 1 October 2015, there is now
one legislative measure (the Consumer Rights Act 2015, ‘CRA 2015’) that is of
principal relevance to the drafting of terms and conditions for a contract with
a consumer, and concerning:
• limitation and exclusion clauses; and
• whether a contractual provision is ‘fair’ or ‘reasonable’.
For contracts between businesses and consumers entered into prior to
1 October 2015, the old legislative regime continues to apply (involving
consideration of the Unfair Contract Terms Act 1977 and the Unfair Consumer
Contract Regulations 1999). Users should consult the previous edition of this
volume and the fourth edition of Drafting and Negotiating Commercial Contracts.
Although the CRA 2015 introduced several substantial changes, the legislative
regime in the Act is not fundamentally different to what has gone before,
being primarily a consolidation measure, and replaces provisions spread
through several Acts and statutory instruments. Many of the changes are
enhancements to existing rights or changes in detail, for example:
• there is now one meaning of a consumer (and it can only mean an
individual);
• digital content is specifically recognised and treated in a similar way to
goods (ie that the digital content must be of satisfactory quality);
• where there is a mixed contract (a contract for goods and services), then
the rights that apply are those that relate to what is supplied (eg the rights
and remedies available for goods apply to the goods part of the supply of
the goods and services);
• for goods there is now a tiered method of rights and remedies where goods
do not conform with a contract: first a 30-day right to reject; then a right
to repair or replacement (normally at the choice of the consumer), and
then a right to reject (the requirements are more detailed, and replace
previous, rights);
• a number of smaller changes and additions, such as:

194

M04_Boilerplate_Clauses_C.indd 194 07/09/2017 12:57

 Consumer contracts

• goods now must not only match any description or sample, but also
any model;
• enhancements to the rights and remedies available for the supply of
services, principally:
• what the trader says about himself or the services are now treated
as terms of the contract; and
• clear requirements for the trader to repeat performance or
reduce the price if the supply of services does not conform with
the contract.
For a detailed outline of the CRA 2015 and the changes made over previous
legislation see the companion volume, Drafting and Negotiating Commercial
Contracts (4th Edn, Bloomsbury Professional, 2016) Chapter 7. This section
assumes that the contract drafter will have an adequate understanding of
the provisions of the CRA 2015. Accordingly, this section needs to be read
together with Chapter 7 from Drafting and Negotiating Commercial Contracts.
The focus of this section remains on the drafting of contractual terms, and
principally the provisions relating to unfair terms, which are now found in the
CRA 2015, Part 2, ss 61–72, replacing the Unfair Terms in Consumer Contracts
Regulations 1999. Most of the changes are modifications of provisions found
in the 1999 Regulations, and for convenience are set out here:
• it is now possible for any contractual term to be assessed for fairness (under
the 1999 Regulations only contractual terms which were not individually
negotiated were assessed for fairness) (CRA 2015, s 62(4));
• written contractual terms now need to be ‘transparent’, that is they need
to be legible in addition to being in plain intelligible language (the latter
being the requirement under the 1999 Regulations) (CRA 2015, ss 62(2),
62(3), 68);
• the core provisions (relating to the price and the subject matter of the
contract) are, except for consideration for fairness, now more narrowly
defined (CRA 2015, s 64), principally following on from the case of Office
of Fair Trading v Abbey National plc [2009] UKSC 6;
• in order for a core term not to be assessed for fairness, not only must it be
transparent but also it must be prominent (under the 1999 Regulations
the term needed to be in plain, intelligible language) (CRA 2015, s 64(2)–
(4)).
There are a few provisions that are new, including:
• an obligation on a court to assess the fairness of a term, whether or not
a consumer who is a party to the litigation chooses to do so (CRA 2015,
s 71);
• notices (whether contractual or not) are subject to the same part of the
CRA 2015 as unfair terms (CRA 2015, s 62(2), (6)) (formerly the Unfair
Contract Terms Act 1977 applied to notices);

195

M04_Boilerplate_Clauses_C.indd 195 07/09/2017 12:57

 Consumer contracts

• the indicative list of terms that might be unfair has three additional items
(see appendix to this section, paragraphs 5, 12, and 14). The other terms
taken over from the 1999 Regulations remain largely unchanged.
The other substantive change is the Consumer Contracts (Information,
Cancellation and Additional Charges) Regulations 2013, SI 2013/3134, which
replaces the Consumer Protection (Distance Selling) Regulations 2000 and
the Cancellation of Contracts made in a Consumer’s Home or Place of Work
etc, Regulations 2008 and also applies certain provisions of the Consumer
Rights Directive (2011/83). The 2013 Regulations apply to contracts entered
into from and including 4 June 2014. These 2013 Regulations now cover the
information that a business must provide for a consumer, whether in a shop, a
place other than a shop or at a distance, before a consumer will be bound by a
contract with a trader.
Unlike the previous legislation it replaces, the 2013 Regulations are drafted in
a consistent way, and apply to most situations in which a consumer will interact
with a trader. The 2013 Regulations also contain provisions that relate to the
right for a consumer to cancel a contract. Although the 2013 Regulations do
not directly affect the contractual provisions of a contract, like the legislative
measures they replace, they contain important rights that a trader cannot
avoid by contractual wording. A significant development is that the provisions
in the 2013 Regulations which relate to the provision of information are
now treated as a term of the contract between the consumer and the trader
(CRA 2015, ss 11(4), 12, 3(3), 37, 50(3)).
The purpose of this section is to provide some practical information
concerning the following points:
• the main factors from CRA 2015, Part 2 (the provisions relating to unfair
terms) that a contract drafter should consider when drafting an agreement
for use with consumers; and
• some points relating to drafting style and choice of words, which the
contract drafter should consider in drafting an agreement.
In addition to the authors’ Drafting and Negotiating Commercial Contracts (4th
Edn), other sources of information on the provisions of the CRA 2015 include
the authors’ volume in the Encyclopaedia of Forms and Precedents, Volume 7(2),
Commercial Contracts and Other Documents, Competition and Markets
Authority Unfair contract terms provisions in the Consumer Rights Act 2015
(CMA37 2015) and the explanatory notes to the CRA 2015. The latter two
should normally always be to hand when drafting the provisions of a consumer
contract.

Drafting issues

• Do not attempt to exclude or limit liability for specific provisions where it is not
possible to exclude or limit liability. It is not possible to exclude or restrict
liability for a range of implied terms under the CRA 2015, such as those

196

M04_Boilerplate_Clauses_C.indd 196 07/09/2017 12:57

 Consumer contracts

relating to satisfactory quality etc for goods and digital content (see below
for the full list for goods, digital content and services). Although this
might be an obvious statement, what is clear under the CRA 2015 is that
traditional methods of limiting or excluding liability are unlikely to work.
Eg, adding wording to limit the liability of a business for its breach of the
implied term of satisfactory quality would be counterproductive, ie stating
that the goods are of satisfactory quality but then limiting the business’s
liability for a breach or limiting liability to a sum of money, or excluding
any warranties.
However, there is nothing to stop a supplier defining what ‘satisfactory
quality’ means in relation to the particular goods that are being sold.
• Use the wording of the statutory provisions to indicate matters clearly
affecting quality, standard or the state of the goods (or services) being
provided. Eg, the CRA 2015, s 9(2), (3) state the factors determining
(satisfactory) quality:
• description;
• price;
• fitness for all the purposes of which goods of the kind in question are
commonly supplied;
• freedom from minor defects;
• safety;
• durability;
• public statements on the specific characteristics of the goods
made about the goods by the seller, producer or his representative
(particularly in advertising or on labelling).
• State clearly the ‘strengths’, ‘weaknesses’, ‘limitations’ and the requirements
on a customer of a product or service: the supplier should provide a more
descriptive meaning of the product or service, which can reduce or avoid
liability, ie instead of attempting to exclude or limit liability, the seller or
supplier can prevent liability arising at all (although in some cases it may
be difficult to draw a clear distinction between avoiding liability arising in
the first place and excluding or limiting liability).
Eg, where a business sells LCD monitor products (which are manufactured
or supplied by third parties) to consumers:
• instead of simply stating that goods that are ordered by a consumer
will be supplied, perhaps state the meaning of satisfactory quality;
• provide wording as follows:
‘We shall supply to you the goods that you have ordered. You should note
that certain types of monitors occasionally suffer from minor errors in
the manufacturing process. In particular, LCD monitors have one or two
pixels which appear incorrectly (“pixel errors”). Such pixel errors are in
accordance with industry standards for the manufacture of LCD monitors.

197

M04_Boilerplate_Clauses_C.indd 197 07/09/2017 12:57

 Consumer contracts

Monitors must be set up correctly using the instructions provided with

the monitors. In particular setting up a monitor with the wrong display
resolution is likely to damage a monitor. Monitors must be cleaned only as
described in the instructions provided with a monitor. A monitor, because
it contains electric and electronic parts, should never be cleaned with
water or other liquids. In addition, the use of abrasive cleaners or rough
cloths is likely to damage the casing or display of a monitor.
In addition, our website contains further information concerning the
monitors which you should read (www.xxxxyyyy.co.uk).
We will not take responsibility for damage to the goods you have ordered
where you do not set up or use the goods in accordance with the instruction
manuals provided or statements or information which is provided with the
monitor.’

Although this wording is perhaps excessive, it suggests a way of defining

the meaning of satisfactory quality.
• Is the wording ‘transparent’, ie drafted in plain intelligible language, and is it
legible? The contract drafter should draft an agreement on the basis that
an ordinary consumer can use and understand the agreement without the
benefit of legal advice.
This requirement will also mean that the consumer can understand the
practical significance of the provisions including the consequences of a
contractual term in the future, the reasons for its use; and how it relates to
other provisions (see CMA 37, paras 2.45–2.48). Some points to consider:
• avoid legal ‘language’ (such as ‘consequential loss’, ‘time being of the
essence’, ‘force majeure’, ‘all conditions and warranties are excluded’,
‘vicarious liability’, ‘indemnify’, ‘mitigation’, ‘this is without prejudice
to your statutory rights’, see as well CMA 37, Annex A or Drafting and
Negotiating Commercial Contracts (4th Edn) para 7.6). If avoidance is
not possible, explain the meaning of such ‘jargon’;
• use words in their normal sense;
• use short sentences;
• minimise cross-references;
• avoid double negatives;
• make the document legible (eg reasonable type size, use of wide
margins, avoiding coloured paper, use of headings);
• adopt a ‘user-friendly’ drafting style (use ‘you’ and ‘us’);
• provide explanations and summaries;
• there should be no references to statutory and official provisions
alone;
• the consumer should understand the content of the provisions;
• organise the terms and conditions in a logical way and group topics
together where they cover similar matters.

198

M04_Boilerplate_Clauses_C.indd 198 07/09/2017 12:57

 Consumer contracts

• Is the wording concerning the subject matter of the contract and the price
payable prominent? The CRA 2015 has introduced a new requirement for
a core term not to be assessed for fairness, ie the ‘core terms’ need to
be prominent in addition to being transparent (ie in plain intelligible
language and legible) if they are to be excluded from assessment as to
whether they are fair (CRA 2015, s 64(2)). Prominent will mean that the
contractual terms have to be brought to the attention of the consumer,
so that the average consumer will be aware of them (CRA 2015, s 64).
The average consumer means a person ‘who is reasonably well-informed,
observant and circumspect’ (CRA 2015, s 64(5)).
This can be done by stating the core terms prior to the parties entering into
the contract, early on in a contract or in other documents for example.
A significant difference between the CRA 2015 and previous legislation is
that a contract term cannot be assessed for fairness:
‘…to the extent that-- (a) it specifies the main subject matter of the
contract, or (b) the assessment is of the appropriateness of the price
payable under the contract by comparison with the goods, digital content
or services supplied under it’ (CRA 2015, s 64(1)).

This provision of the CRA 2015 is ‘to be narrowly interpreted as two sides
of a bargain made between the trader and the consumer (the trader
agreeing to provide goods and services and the consumer willing to pay
for them)’. The other types of price terms that appear in the indicative
list support the view that there should be a narrow interpretation of
the core exemption (from the Explanatory Notes to the CRA 2015,
para 315, following the case of Office of Fair Trading v Abbey National plc
[2009] UKSC 6). One consequence of this is that the contract drafter
should not attempt to bring within the scope of the core exemption
matters that will create an unfair imbalance through the use of drafting
techniques, particularly matters such as:
• cancellation provisions;
• disproportionate financial sanctions;
• exclusion clauses; or
• other matters mentioned in the indicative list set out in the CRA 2015,
Sch 2 (see CMA 37, para 3.4).
A second consequence is that the meaning of ‘price’ will also have a narrow
and restricted meaning and will not normally include such matters as:
• the timing of the payment of the price;
• the method of payment;
• any variation of the payment;
• Has the contract drafter considered the indicative list of terms (in the CRA 2015)
that are potentially unfair? Under the CRA 2015, terms in a contract need
to be ‘fair’, that is to say, they must not cause a significant imbalance in

199

M04_Boilerplate_Clauses_C.indd 199 07/09/2017 12:57

 Consumer contracts

the parties’ rights, which is contrary to the requirement of good faith, and
causes any detriment to the consumer (CRA 2015, s 62). This requirement
needs considering against an ‘indicative and non-exhaustive’ list of terms
that are regarded as unfair (CRA 2015, s 63 and Sch 2 and see Extracts from
legislation below).
• Has the guidance issued by the CMA been considered? The CMA provides
guidance about unfair terms generally and for specific industry sectors.
Where an agreement is being drafted, the drafter should consider:
• the general guidance on the unfair provisions, together with the
extensive set of wording held by the CMA as unfair (often with revised
wording) (see CMA 37 and the Appendix to this);
• unfair terms within particular sectors: the CMA has taken over
guidance originally issued by the now-defunct OFT on the following
(although this list has not been updated to reflect the changes
introduced by the CRA 2015, they are still of relevance):
• Guidance on unfair terms in tenancy agreements (OFT356);
• Guidance on unfair terms in health and fitness club agreements
(OFT373);
• Guidance on unfair terms in care home contracts (OFT635);
• Guidance on unfair terms in consumer entertainment contracts
(OFT667);
• Guidance on unfair terms in package holiday contracts (OFT668);
• Guidance on unfair terms in IT consumer contracts made at a
distance (OFT 672);
• Guidance on unfair terms in holiday caravan agreements
(OFT 734);
• Guidance on unfair terms in home improvements contracts
(OFT 737),
• Other statutory matters affecting contract provisions with a consumer. When
drafting an agreement, in addition to considering whether:
• the provisions are unfair (CRA 2015, ss 61–72); or
• whether the provisions exclude or restrict statutory rights and remedies
(CRA 2015, ss 31 (for goods), 47 (digital goods), 57 (services), 65(1)
(personal injury and death);
the contract drafter should also consider other matters that do not directly
affect the actual wording of the consumer contract but impact on what a
trader can do, such as:
• Will the right information be provided to the consumer prior to the consumer
entering into a contract with the trader? Unless the relevant (prescribed)
information is provided prior to the trader and consumer entering

200

M04_Boilerplate_Clauses_C.indd 200 07/09/2017 12:57

 Consumer contracts

into the contract then the consumer will not be bound by the contract
(2013 Regulations, regs 9, 10, and 13), and certain aspects of that
pre-contract information will be treated as a term of the contract
(CRA 2015, ss 12, 36, 50(3)). The information a trader needs to provide
is set out in Sch 1 of the 2013 Regulations and varies depending on
whether the contract is an on premises or, an off premises or distance
contract, and also whether the right to cancel is available to the
consumer. The information relates to the description of the goods or
services, details about the trader, the amount the consumer will have
to pay, details and pricing of delivery, the right to cancel and details
on how to cancel and whether the consumer has to bear the cost of
returning items, etc.
The 2013 Regulations do not apply at all (that is the requirement to
provide prescribed information or cancellation rights) to some contracts,
and only some of the information requirements apply to some types of
contracts.
The 2013 Regulations (reg 6(1)) do not apply to the part of the contract
that concerns:
• gambling;
• participating in a lottery;
• banking, credit, insurance, personal pension, investment or payment
services;
• the creation of immovable property or of rights in immovable property;
• rental of accommodation for residential purposes;
• the construction of new buildings or substantially new buildings by
the conversion of existing buildings;
• the supply of foodstuffs, beverages or other goods intended for current
consumption in a household where the supply is made by a trader
who makes regular rounds to the home, workplace or residence of the
consumer;
• package holidays and package tours;
• timeshare, and long-term holidays.
The 2013 Regulations (reg 6(2)) also do not apply at all to contracts
concluded by particular technical means (such as by a vending machine,
through a public telephone, or which are concluded by a single connection
by telephone, internet or fax, and the connection is established by the
consumer).
For some contracts the requirement to provide some or all of the
prescribed information does not apply (eg if the contract is worth less
than £42, for the supply of medicines and transport, or if the supplier is
providing services immediately and the payment the consumer is making
is less than £170) (eg 2013 Regulations, reg 7).

201

M04_Boilerplate_Clauses_C.indd 201 07/09/2017 12:57

 Consumer contracts

The 2013 Regulations are detailed. To set out that substantial detail so
that all of the essential matters are mentioned is outside the scope of this
book. But for the contract drafter, the detail is essential to ensure that any
contract provision does not conflict with the 2013 Regulations.
• Has the trader provided details and complied with the provisions concerning
the right to cancel?
The 2013 Regulations also cover the right of the consumer to cancel
a contract (normally 14 days after the goods are delivered to the
consumer or 14 days after the entering into the contract for services
and digital content, but extended up to 12 months if the prescribed
information is not provided). The 2013 Regulations cover such matters
as how the consumer can cancel, whether the trader can reduce
the amount it repays because of the way the consumer has handled
goods, the timing of repayments as well as setting out in detail the
circumstances when the right to cancel is lost, particularly with regard
to services and digital content (and the period for cancellation starts
earlier than goods).
For the right to cancel, the 2013 Regulations (reg 28(1)) contain a
separate list of contracts where that right does not apply:
• for on-premises contracts;
• where the consumer is paying less than £42;
• for any part of the contract that concerns supply of medicines;
• for goods and services where the supply is dependent on the
fluctuation in the financial markets (and the fluctuations are not
in the control of the trader) other than the supply of water, gas,
electricity or district heating;
• for goods or services made to the consumer’s specification;
• for the supply of alcohol other than for immediate supply and
subject to other conditions;
• where, following a request from a consumer, a supplier visits
the consumer and carries out repair or maintenance on an
urgent basis (but this will cover only the immediate repair or
maintenance and any parts necessary), but any additional services
or parts would be subject to the right to cancel (2013 Regulations,
reg 28(2));
• for contracts concluded at a public auction;
• for contracts for the supply of accommodation, transport of
goods, vehicle rental services, catering or services relating to
leisure activities where there is a specific date or specific date of
performance.
There are also some situations (rather than types of contract) where
the right to cancel does not apply (2013 Regulations, reg 28(3)):

202

M04_Boilerplate_Clauses_C.indd 202 07/09/2017 12:57

 Consumer contracts

• goods which are sealed and are unsealed by the consumer but
are not suitable for return for health protection or for hygiene
reasons;
• audio or video records or software which are supplied sealed
(ie on physical media) and which are unsealed by the consumer;
• where goods are mixed with other items after delivery and it is no
longer possible to separate them.
• Is the supplier (or someone else, such as the manufacturer) offering guarantees?
Some traders provide a guarantee (or the manufacturer does). The
contract between the trader and the consumer may not contain the
terms and conditions of the guarantee. Whether or not the trader’s
terms and conditions contain wording concerning a guarantee,
there are provisions in the CRA 2015 regarding guarantees of which
the trader will need to take account. The CRA 2015, s 30 applies
to a guarantee that is provided with a supply of goods, and is an
undertaking offered by a person in the course of business without
extra charge. The undertaking is that if the goods do not conform
to their specification set out in the guarantee statement (or any
associated advertising) then the consumer will be reimbursed for the
price paid for the goods or the goods will be repaired, replaced or
dealt with in some other way. The main provisions that a contract
drafter needs to consider are:
• the guarantee does not apply to digital content but is not restricted
as to how the consumer obtains the goods, ie whether the goods
are sold by themselves as well as supplied under a contract for
the supply of a service. For example, when a provider of services
supplies the goods as part of providing the services (eg a plumber
fitting a new boiler);
• the guarantor should use plain intelligible language;
• the guarantee needs to contain the essential particulars for
making a claim under the guarantee together with the length
of the guarantee, its territorial scope, the contact details of the
guarantor and a statement that the statutory rights in relation to
the goods which are sold or supplied are not affected;
• the guarantee must be written in English if the goods are offered
in the United Kingdom;
• the guarantee takes effect from the date of delivery.
• Other points concerning risk and delivery. If the contract drafter is not
familiar with drafting consumer terms and conditions, the default
provisions regarding risk and delivery in the CRA 2015 are different
from those found in the Sale of Goods Act 1979. An approach where
such terms are drafted in favour of one party or another in a non-
consumer contract will not work in a consumer contract:

203

M04_Boilerplate_Clauses_C.indd 203 07/09/2017 12:57

 Consumer contracts

• Delivery: Unless the trader and consumer agree otherwise, delivery

of goods means delivery to a consumer and is treated as a term of
the contract (CRA 2015, s 28(2)). Also, unless the parties agree
otherwise, goods are to be delivered without undue delay and
in any event, no later than 30 days after the date on which the
contract is entered into (CRA 2015, s 28(3)). There are further
detailed rules as to what happens if delivery is not made;
• Risk: Risk is to remain with the trader until physical possession
of the goods passes to the consumer (or a third party, where the
consumer has specified that a third party should take possession
of the goods) (CRA 2015, s 29).
• Provisions for which a trader cannot exclude or restrict liability. A contract
term is not binding on a consumer if it attempts to exclude or restrict
liability arising under any of the following provisions of the CRA 2015:
• goods (s 31):
• goods to be of satisfactory quality (s 9);
• goods to be fit for particular purpose (s 10);
• goods to be as described (s 11);
• pre-contract information that is included in the contract as a
term of the contract (s 12);
• goods to match a sample (s 13);
• goods to match a model which is seen or examined (s 14);
• where the contract includes installation of goods, if the
installation is not carried out correctly, the goods will not
conform with the contract (s 15);
• if goods include a supply of digital content, and the digital content
does not conform to the contract to supply that digital content
then the goods also do not conform to the contract (s 16);
• trader to have right to supply the goods (s 17);
• delivery of goods (s 28);
• passing of risk (s 29);
• digital content (s 47):
• digital content to be of satisfactory quality (s 34);
• digital content to be fit for particular purpose (s 35);
• digital content to be as described (s 36);
• pre-contract information that is included in contract as a
term of the contract (s 37);
• trader’s right to supply digital content (s 41).

204

M04_Boilerplate_Clauses_C.indd 204 07/09/2017 12:57

 Consumer contracts

• services (s 57):
• service to be performed with reasonable care and skill (s 49);
• the information a trader provides on its service or itself is to
be binding (s 50);
• that a reasonable price is payable (s 51);
• that there is reasonable time for performance of the service
(s 52);
The above prohibition on excluding or restricting liability also means that
a term of a contract is not binding to the extent that the term would
(ss 31(2), 47(2), 57(4)):
• exclude or restrict a right or remedy concerning liability under one of
the matters listed under the above bullet point;
• subject a right or remedy (or its enforcement) to a restrictive or
onerous condition;
• permit a trader to put a person at a disadvantage if the person pursues
a right of remedy;
• exclude or restrict rules of evidence or procedure.
A reference to restricting or excluding liability also ‘includes preventing
an obligation or duty arising or limiting its extent’ (s 31(3), s 57(5)).
The above rights and remedies are automatically treated as terms of the
contract between a consumer and a trader.
• What if it is not possible to prepare terms and conditions only for use by a consumer?
Some businesses do not trade only with consumers or may only sell a small
amount of what they offer to consumers. It may simply not be worth the
time or effort to prepare a new set of terms. At a minimum there should
be wording that the terms implied by the Sale of Goods Act 1979 are not
limited or excluded (see Precedent 1).

Sample precedent material

Precedent 1—Minimum wording where not possible to redraft an

agreement for consumer use only
1 Any provision in this Agreement which seeks to or does exclude lia-
bility of the Supplier for breach of the terms implied by the [Sale of
Goods Act 1979][Supply of Goods and Services Act 1982] shall apply
where the Customer is a consumer.
2 Any provision in this Agreement where delivery is stated to be made
by delivery to a courier shall not apply to a Customer who is a con-
sumer.

205

M04_Boilerplate_Clauses_C.indd 205 07/09/2017 12:57

 Consumer contracts

Precedent 2—Sample set of boilerplate provisions

The terms and conditions of this contract

We intend that the terms and conditions of our contract with you is set
entirely in this agreement. Please read through it carefully before you
[sign this agreement][other method for consumer to enter into agree-
ment]. If you have any questions about these terms and conditions or
wish to change them please contact us. You can contact us in the follow-
ing ways [specify].

Amending or varying this contract

If you or we wish to change any of the terms and conditions of this con-
tract you and we will need to both agree to the change. We would prefer
that any changes that are agreed are put in writing.

Waiver
If you do not comply with or follow any of the terms and conditions of this
contract but we choose not to do anything about this, we can still do so
(that is using any of the rights or remedies available to us) whether in rela-
tion to the specific failure to comply or following any future failure.

Communications
You may contact us by telephone, email or in writing. The details for each
of these methods of communication are found at [specify]. If you contact
us by email then you are authorising us to send you any notices, docu-
ments or other communications we need to send you under this contract
by email to the email address you used in your email. If you do not wish us
to use email please let us know.

Law and jurisdiction

These terms and conditions and the contract between you and us are
subject to and governed by the law of England and Wales. We hope
that you will discuss with us any problems you are having with us or [our
goods][our services] but if we or you cannot resolve any problem or dis-
pute between you and us, we or you will use only the courts of England
and Wales to do so.

Third parties
For the purpose of the Contracts (Rights of Third Parties) Act 1999, only
you or we can enforce any of the terms and conditions of this contract.
Any person who is not a party to this contract cannot enforce any of the
terms and conditions.

206

M04_Boilerplate_Clauses_C.indd 206 07/09/2017 12:57

 Consumer contracts

Precedent 3—Sample wording for a guarantee

We wish you to be happy with the [goods][name of product, model
number etc] you have bought from [us (if the seller is also providing the
guarantee)][name of supplier, if supplier and guarantor are different]. We
would like to offer you the following guarantee:
For a period [12][24] months starting from the date of your purchase, if
the [goods][name of product, model number etc] breaks down, fails to
operate or is defective we will either repair the [goods][name of product,
model number etc] or replace it at our option.
This guarantee will not cover the following situations:
1 if you deliberately or accidentally damage the [goods][name of prod-
uct, model number etc];
2 if you do not follow the instructions and guidance in the (user) manual
or similar documents for the operation or use of the [goods][name of
product, model number etc];
3 if you use the [goods][name of product, model number etc] other than
for any normal domestic purpose;
4 if
(a) there is cosmetic damage; and/or
(b) parts of the [goods][name of product, model number etc] are
damaged, defective or break down but which do not affect the
normal operation of the [goods][name of product, model num-
ber etc].
To claim under this guarantee:
1 Please do not return [goods][name of product, model number etc]
without please notifying first that you wish to make claim under the
guarantee;
2 If we ask you to return the [goods][name of product, model number
etc] please send or take it to the address below;
3 We will refund any of your reasonable costs in returning the goods
(such as the cost of postage) unless we arrange to pick up the [goods]
[name of product, model number etc] from you.
This guarantee does not affect your statutory rights in relation to [goods]
[name of product, model number etc].
[name of company providing guarantee and their address, if different to
the seller].

207

M04_Boilerplate_Clauses_C.indd 207 07/09/2017 12:57

 Consumer contracts

Case analysis

Harrison v Shepherd Homes Ltd [2011] EWHC 1811 (TCC)

(Case appealed and not on the issue set out below (appealed on the
proper amount of damages payable). The appeal was dismissed:
[2012] EWCA Civ 904.)
1 The defendant built a number of houses. The claimants pur-
chased them.
2 The claimants’ claim related to a number of issues, including Clause
7.1 of the sale agreement between each claimant and the defendant.
Clause 7.1 stated:
‘The Works shall be completed by the Seller in a good and workmanlike
manner and shall be so completed and made ready for occupation with all
reasonable despatch after the Agreement Date …’

Relevant defined terms: ‘Works’ meant ‘The house of the House

Type and any ancillary works constructed or to be constructed by the
Seller on the Site in accordance with the Specification’
and ‘Specification’ meant ‘the drawings and specifications relating
to the Works previously approved by the relevant authorities and any
amendment of them from time to time’.
3 The defendant argued that the meaning of Clause 7. 1 did not include
a ‘…requirement that the Works are to be carried out to a profes-
sional design or that the property is to be “suitable” for occupation”
[from 36]; that there was only a limited obligation to do the work nec-
essary to achieve completion. The defendant argued that the phrase
‘in a good and workmanlike manner’ only applied to specific period
(between the date of contract to the date of completion, and not
before the date of contract.
4 The claimants had retained solicitors to deal with the conveyancing.
5 The above clause and the interpretation of the defendant came to be
considered against the provisions of the 1999 Regulations (now the
CRA 2015).
6 The judge repeated part of an earlier judgment he had made (Mylcrist
Builders Ltd v Buck [2008] EWHC 2172 (TCC), [2009] 2 All ER (Comm)
259) as to the principles to be derived from earlier cases concerning
the application of the 1999 Regulations:
‘(1) A term is unfair if it causes a significant imbalance in the parties’ rights
and obligations under the contract to the detriment of the consumer in
a manner or to an extent which is contrary to the requirement of good
faith.
(2) There is “significant imbalance” if a term is so weighted in favour of the
supplier as to tilt the parties’ rights and obligations under the contract
significantly in his favour.

208

M04_Boilerplate_Clauses_C.indd 208 07/09/2017 12:57

 Consumer contracts

(3) The element of “detriment to the consumer” makes clear that the
Regulations are aimed at significant imbalance against the consumer,
rather than the seller or supplier.
(4) The requirement of good faith is one of fair and open dealing in which:
(a) Openness requires that the terms should be expressed fully, clearly
and legibly, containing no concealed pitfalls or traps. Appropriate
prominence should be given to terms which might operate dis­
advantageously to the customer.
(b) Fair dealing requires that a supplier should not, whether deliberately
or unconsciously, take advantage of the consumer’s necessity,
indigence, lack of experience, unfamiliarity with the subject matter
of the contract, weak bargaining position or any other factor listed
in or analogous to those listed in Sch 2 to the 1994 Regulations
(an inducement to the consumer to agree to the term, whether
goods or services were sold or supplied at the special order of
the consumer or whether the seller or supplier dealt fairly and
equitably with the consumer). The supplier should deal fairly and
equitably with the consumer.
(5) Schedule 2 to the Regulations is best regarded as a check list of terms
which must be regarded as potentially vulnerable to being unfair.
(6) Useful approaches include:
(a) assessing the impact of an impugned term on the parties’ rights
and obligations by comparing the effect of the contract with the
term and the effect it would have without it.
(b) considering the effect of the inclusion of the term on the substance
or core of the transaction; whether if it were drawn to his attention
the consumer would be likely to be surprised by it; whether the term
is a standard term, not merely in similar non-negotiable consumer
contracts, but in commercial contracts freely negotiated between
parties acting on level terms and at arms’ length; and whether, in
such cases, the party adversely affected by the inclusion of the
term or his lawyer might reasonably be expected to object to its
inclusion and press for its deletion.
(7) Where the consumer has imposed the term either by their own choice
or a choice made by their professional agent then it is unlikely that
there would be any lack of good faith or fair dealing with regard to the
incorporation of the terms into the contract.’

7 The judgment expanded on the meaning of good faith in the context

of how the defendant in the case should act:
‘[112] … Fair dealing requires that [the defendant] should not, whether
deliberately or unconsciously, take advantage of the consumer’s necessity,
indigence, lack of experience, unfamiliarity with the subject matter of
the contract, weak bargaining position or any other factor listed in or
analogous to those listed in Sch 2 to the 1994 Regulations (an inducement
to the consumer to agree to the term, whether goods or services were sold
or supplied at the special order of the consumer or whether the seller or
supplier dealt fairly and equitably with the consumer). The supplier should
deal fairly and equitably with the consumer. As I said in Mylcrist v Buck
the requirement of good faith is one of fair and open dealing in which
openness requires that the terms should be expressed fully, clearly and
legibly, containing no concealed pitfalls or traps.

209

M04_Boilerplate_Clauses_C.indd 209 07/09/2017 12:57

 Consumer contracts

8 The judge then went to consider whether the defendant’s interpreta-

tion of Clause 7.1 of the sales agreement (see para 3 above) accorded
with the requirement to show good faith:
‘[113] If Cl 7.1 had the effect contended for by [the Defendant] then I do
not consider that the term would have been expressed fully, clearly and
legibly and it would have contained concealed pitfalls in not giving the
Claimants an ability to claim for failure to complete the works in a good
and workmanlike manner or for failure properly to carry out the design.
I consider that on that basis [the Defendant], although there is nothing
to show that it would have been other than unconsciously, would be
taking advantage of a house purchaser wishing to purchase a property
with all the pressures on them which are familiar to those involved in
such property transactions. Whilst they were advised by solicitors, the
evidence indicates that the Claimants were not alerted to any problems
with the terms and whilst the opportunity for them to be advised has to
be weighed in the overall assessment of good faith, I do not consider
that it detracts sufficiently from the other matters to show that there
would have been fair and open dealing in this case. I should say that I see
nothing to suggest that there was anything in terms of the nature of the
conveyancing role or fee or the way in which the solicitors were engaged
by the Claimants which makes the particular circumstances in which the
solicitors were engaged by the Claimants in this case different from any
other conveyancing transaction.
[114] I therefore consider that, if Cl 7.1 of the sales contracts had the effect
contended for by [the Defendant] and meant that the Claimants could not,
after completion, bring a claim against [the Defendant] for breach of the
obligation to complete the works in a good and workmanlike manner and
could not bring a claim for failure to carry out the design of the works
properly then that term would be unfair because it was not individually
negotiated and contrary to the requirement of good faith it would cause
a significant imbalance in the parties’ rights and obligations arising under
the contract, to the detriment of the Claimants as consumer.’

210

M04_Boilerplate_Clauses_C.indd 210 07/09/2017 12:57

 Consumer contracts

Extracts from legislation

Sections from the Consumer Rights Act 2015

(The terms that are new to the Schedule (5, 12 and 14) are marked
with an asterisk.)

SCHEDULE 2 Consumer Contract Terms which may be Regarded as

Unfair (s 63)

Part 1 List of Terms

1
A term which has the object or effect of excluding or limiting the trader’s
liability in the event of the death of or personal injury to the consumer
resulting from an act or omission of the trader.
2
A term which has the object or effect of inappropriately excluding or lim-
iting the legal rights of the consumer in relation to the trader or another
party in the event of total or partial non-performance or inadequate per-
formance by the trader of any of the contractual obligations, including the
option of offsetting a debt owed to the trader against any claim which the
consumer may have against the trader.
3
A term which has the object or effect of making an agreement binding
on the consumer in a case where the provision of services by the trader
is subject to a condition whose realisation depends on the trader’s will
alone.
4
A term which has the object or effect of permitting the trader to retain
sums paid by the consumer where the consumer decides not to conclude
or perform the contract, without providing for the consumer to receive
compensation of an equivalent amount from the trader where the trader is
the party cancelling the contract.
*5
A term which has the object or effect of requiring that, where the con-
sumer decides not to conclude or perform the contract, the consumer
must pay the trader a disproportionately high sum in compensation or for
services which have not been supplied.
6
A term which has the object or effect of requiring a consumer who fails
to fulfil his obligations under the contract to pay a disproportionately high
sum in compensation.

211

M04_Boilerplate_Clauses_C.indd 211 07/09/2017 12:57

 Consumer contracts

7
A term which has the object or effect of authorising the trader to dis-
solve the contract on a discretionary basis where the same facility is not
granted to the consumer, or permitting the trader to retain the sums paid
for services not yet supplied by the trader where it is the trader who dis-
solves the contract.
8
A term which has the object or effect of enabling the trader to terminate
a contract of indeterminate duration without reasonable notice except
where there are serious grounds for doing so.
9
A term which has the object or effect of automatically extending a con-
tract of fixed duration where the consumer does not indicate otherwise,
when the deadline fixed for the consumer to express a desire not to
extend the contract is unreasonably early.
10
A term which has the object or effect of irrevocably binding the consumer
to terms with which the consumer has had no real opportunity of becom-
ing acquainted before the conclusion of the contract.
11
A term which has the object or effect of enabling the trader to alter the
terms of the contract unilaterally without a valid reason which is specified
in the contract.
*12
A term which has the object or effect of permitting the trader to determine
the characteristics of the subject matter of the contract after the con-
sumer has become bound by it.
13
A term which has the object or effect of enabling the trader to alter uni-
laterally without a valid reason any characteristics of the goods, digital
content or services to be provided.
*14
A term which has the object or effect of giving the trader the discretion
to decide the price payable under the contract after the consumer has
become bound by it, where no price or method of determining the price is
agreed when the consumer becomes bound.
15
A term which has the object or effect of permitting a trader to increase the
price of goods, digital content or services without giving the consumer

212

M04_Boilerplate_Clauses_C.indd 212 07/09/2017 12:57

 Consumer contracts

the right to cancel the contract if the final price is too high in relation to the
price agreed when the contract was concluded.
16
A term which has the object or effect of giving the trader the right to
determine whether the goods, digital content or services supplied are in
conformity with the contract, or giving the trader the exclusive right to
interpret any term of the contract.
17
A term which has the object or effect of limiting the trader’s obligation to
respect commitments undertaken by the trader’s agents or making the
trader’s commitments subject to compliance with a particular formality.
18
A term which has the object or effect of obliging the consumer to fulfil
all of the consumer’s obligations where the trader does not perform the
trader’s obligations.
19
A term which has the object or effect of allowing the trader to transfer
the trader’s rights and obligations under the contract, where this may
reduce the guarantees for the consumer, without the consumer’s agree-
ment.
20
A term which has the object or effect of excluding or hindering the con-
sumer’s right to take legal action or exercise any other legal remedy, in
particular by--
(a) requiring the consumer to take disputes exclusively to arbitration not
covered by legal provisions,
(b) unduly restricting the evidence available to the consumer, or
(c) imposing on the consumer a burden of proof which, according to the
applicable law, should lie with another party to the contract.

Part 2 Scope of Part 1

Financial services
21
Paragraph 8 (cancellation without reasonable notice) does not include a
term by which a supplier of financial services reserves the right to termi-
nate unilaterally a contract of indeterminate duration without notice where
there is a valid reason, if the supplier is required to inform the consumer of
the cancellation immediately.

213

M04_Boilerplate_Clauses_C.indd 213 07/09/2017 12:57

 Consumer contracts

22
Paragraph 11 (variation of contract without valid reason) does not include
a term by which a supplier of financial services reserves the right to alter
the rate of interest payable by or due to the consumer, or the amount of
other charges for financial services without notice where there is a valid
reason, if--
(a) the supplier is required to inform the consumer of the alteration at the
earliest opportunity, and
(b) the consumer is free to dissolve the contract immediately.
Contracts which last indefinitely
23
Paragraphs 11 (variation of contract without valid reason), 12 (determina-
tion of characteristics of goods etc after consumer bound) and 14 (deter-
mination of price after consumer bound) do not include a term under
which a trader reserves the right to alter unilaterally the conditions of a
contract of indeterminate duration if--
(a) the trader is required to inform the consumer with reasonable notice,
and
(b) the consumer is free to dissolve the contract.
Sale of securities, foreign currency etc
24
Paragraphs 8 (cancellation without reasonable notice), 11 (variation of
contract without valid reason), 14 (determination of price after consumer
bound) and 15 (increase in price) do not apply to--
(a) transactions in transferable securities, financial instruments and other
products or services where the price is linked to fluctuations in a
stock exchange quotation or index or a financial market rate that the
trader does not control, and
(b) contracts for the purchase or sale of foreign currency, traveller’s
cheques or international money orders denominated in foreign cur-
rency.
Price index clauses
25
Paragraphs 14 (determination of price after consumer bound) and 15
(increase in price) do not include a term which is a price-indexation clause
(where otherwise lawful), if the method by which prices vary is explicitly
described.

214

M04_Boilerplate_Clauses_C.indd 214 07/09/2017 12:57

 Contra proferentem

Purpose of the clause

Background
The contra proferentem rule is a common law rule, which provides that unclear
contract wording is interpreted against the interests of the maker or the party
that benefits from the wording. The precise scope of the rule is not entirely
clear from the reported cases. There seem to be three main strands:
• in agreements concerned with the grant of rights to property, unclear
wording is interpreted against the grantor (Johnson v Edgware Rly Co
(1866) 35 Beav 480);
• in other types of agreements, unclear wording in a clause is interpreted
against the party in whose favour the clause is made, ie the party which
‘proffered’ (put forward) the wording (Savill Bros Ltd v Bethell [1902] 2
Ch 523, CA);
• as a third strand of the rule, it seems that in grants from the Crown, unclear
wording is interpreted against the grantee, ie, the rule is reversed and
the Crown has the benefit of the doubt; but it seems that this exception
only applies to grants concerned with land (Earl of Londsdale v A-G [1982]
1 WLR 887).

Application of the rule to commercial contracts

In relation to the second of these strands, the rule seems to be that wording
is interpreted against the party who benefits from the wording, not that the
wording will be interpreted against the party which drafted the wording (see
Pera Shipping Corpn v Petroship SA [1984] 2 Lloyd’s Rep 363 at 356 and Youell
v Bland Welch & Co Ltd [1992] 2 Lloyd’s Rep 127 at 134). The rule will not
apply if:
• the wording is clear and unambiguous (see also Quest 4 Finance Ltd v
Maxfield [2007] EWHC 2313 (QB)); or
• the wording does not clearly benefit one party, or benefits both parties
equally; or
• the wording is a standard form of contract prepared by a representative
body (Tersons Ltd v Stevenage Development Corpn [1963] 2 Lloyd’s Rep 333).

215

M04_Boilerplate_Clauses_C.indd 215 07/09/2017 12:57

 Contra proferentem

Also the contra proferentem rule does not apply:

• to a clause that ‘emerged as a result of joint efforts’ (Levison v Fairn [1978]
2 All ER 1149 at 1156); or
• where there is ‘a joint drafting effort’ (Kleinwort Benson Ltd v Malaysian
Mining Corpn Berhad [1988] 1 WLR 799); or
• to a clause that operated for the benefit of both parties (Oxonica Energy
Ltd v Neuftec Ltd [2008] EWHC 2127 (Pat); Steria Ltd v Sigma Wireless
Communications Ltd [2008] BLR 79).
Parties might seek to take advantage of this line of authorities, by including a
clause in the contract to state that the contract was the result of a joint drafting
effort, as in Precedent 1.
In practice, it is rarer to encounter a clause similar to Precedent 1 in a
contract drafted by English lawyers. However, similar wording is sometimes
encountered in contracts drafted by leading US firms of attorneys, as part
of the ‘boilerplate’ provisions at the end of the contract. It appears that US
courts are more prepared to consider the negotiating history of an agreement
when interpreting its terms.
Accordingly, in an English law contract a contra proferentem clause might be
useful but is unlikely to be included in most cases.

Relevance of the rule

While the rule may continue to exist as a possible way of interpreting a

contractual provision, its relevance as a tool in interpreting a contractual
provision is lessened, as:
• the courts will now see the rule as of little relevance to modern commercial
contracts (CDV Software Entertainment AG v Gamecock Media Europe Ltd
[2009] EWHC 2965 (Ch)). They will make use of it only as a last resort
(Landlord Protect Ltd v St Anselm Development Co Ltd [2008] EWHC 1582
(Ch)) and only where there is doubt or ambiguity (Joint London Holdings
Ltd v Mount Cook Land Ltd [2005] EWCA Civ 1171, [2005] 3 EGLR 119);
and
• the rule runs across the trend that the parties are free to make whatever
contract they wish and that the role of the courts is to interpret the words of
the contract and apply them (Investors Compensation Scheme v West Bromwich
Building Society [1998] 1 All ER 98, HL and culminating most recently in
Rainy Sky SA [2011] UKSC 50 and Arnold v Britton [2015] UKSC 36). One
of the points coming from these cases is that if the wording of a clause is
clear and unambiguous then the court must apply it even if it leads to an
improbable result; the role of the court is not to make the wording of the
clause accord with commercial common sense. Only if there is ambiguity
can a court make a clause accord with commercial common sense.

216

M04_Boilerplate_Clauses_C.indd 216 07/09/2017 12:57

 Contra proferentem

The consequence of these two points (particularly in regard to the second) is

that the role of the contra proferentem rule is likely to be limited if the parties use
clear language, and it will not protect a party who has made a bad deal or has
agreed to wording which is not to its benefit. (For an outline of the modern
approach to the interpretation of contracts, see the companion volume,
Drafting and Negotiating Commercial Contracts (4th Edn, 2016, Bloomsbury
Professional Publishing) Chapter 6).

Sample precedent material

Precedent 1—Sample clause

The Parties acknowledge and agree that this agreement has been jointly
drafted by the Parties and accordingly it should not be construed strictly
against either Party.

217

M04_Boilerplate_Clauses_C.indd 217 07/09/2017 12:57

 Contracts (Rights of Third Parties)
Act 1999

Purpose of the clause

Background
The Contracts (Rights of Third Parties) Act 1999 (1999 Act) made modifications
to the common law doctrine of privity of contract. It allows a person who is not
a party to a contract (‘third party’) the right to enforce certain terms of the
contract. Generally, the 1999 Act will apply to most contracts for goods and
services and the third party will have the right to enforce a term of a contract
if the contract states that it can or if a contract confers a benefit on the third
party. There are limitations and exclusions to this (see below).
In practice, since the 1999 Act came into force most contracts now include
standard boilerplate wording so that a third party cannot enforce any of the
terms of the contract.

Who is a ‘third party?

A third party is ‘a person who is not a party to a contract’ (1999 Act, s 1(1)).

What the 1999 Act allows a third party to do

The 1999 Act allows a third party a right to enforce a term of a contract in two
situations, namely where:
• the contract states explicitly that it may do so (1999 Act, s 1(1)(a)); or
• a term of the contract purports to confer a benefit on the third party
(1999 Act, s 1(1)(b)).
This provision only applies if on the proper construction of the contract it
appears that the parties intended that the term be enforceable by the third
party (1999 Act, s 1(2)).
The word ‘benefit’ does not mean that a third party’s position is improved
if the contract is performed, but that the language used by the parties to the
contract shows that the parties had as one of the purposes of their bargain the

218

M04_Boilerplate_Clauses_C.indd 218 07/09/2017 12:57

 Contracts (Rights of Third Parties) Act 1999

intention to benefit the third party (rather than the third party incidentally
getting a benefit from the contract being performed) (see Dolphin Maritime &
Aviation Services Ltd v Sveriges Angartygs Assurans Forening [2009] EWHC 716
(Comm), para 74, with the judge focusing on the purposive effect of the word
‘confer’ in s 1(1)(b)). In an earlier case, identified in Dolphin Maritime,
concerning the meaning of ‘purpose’, the purpose had to be a ‘predominant
purpose or intent behind the term’, which purports to confer a benefit on a
third party (Prudential Assurance Co Ltd v Ayres [2007] EWHC 775 (Ch)).

New rights in addition to other rights

This new right is in addition to any other right or remedy that the third party
may have independently of the 1999 Act (1999 Act, s 7(1)).

Modifies but does not replace existing law regarding privity of

contract

The 1999 Act amends the rules on privity of contract but does not abolish
them. The common law doctrine of privity of contract will continue, unaltered,
in situations where the 1999 Act does not apply. Moreover, the 1999 Act does
not prevent a third party from relying on rights that exist apart from the 1999
Act, for example claims based in tort (see 1999 Act, s 7(1)).
The doctrine of privity of contract generally provides that only the parties to a
contract (the ‘contracting parties’) can have enforceable rights and obligations
under the contract. Put another way, only a contracting party may sue another
contracting party for breach of contract. It is, in general, not enough that
a person is referred to in the text of the contract; to be contracting parties
persons must generally sign the contract or have their agent or representative
do so on their behalf. English law in this area has been fairly strict, compared
with some other countries’ laws. The 1999 Act gives greater rights to third
parties than they had under previous English law rules.

No formalities for enforcing a third party’s rights

If a contract indicates that the third party can enforce a particular term then
there is no further requirement necessary for the third party to do so (unless
the contracting parties have specified some such requirement).

Exceptions to application of the 1999 Act

The 1999 Act does not apply to all contracts. In particular:

• certain categories of contract are automatically excluded from the 1999
Act (see ‘Is the subject matter of the agreement excluded by the 1999 Act?’ under
Drafting Issues below);

219

M04_Boilerplate_Clauses_C.indd 219 07/09/2017 12:57

 Contracts (Rights of Third Parties) Act 1999

• the 1999 Act only grants rights to a third party who meets the criteria set
out in the 1999 Act (1999 Act, s 1(1)), and those rights are qualified by the
other provisions of the 1999 Act;
• it does not apply to contracts entered into before 11 November 1999 (and
before 10 May 2000 unless the parties otherwise agree) (1999 Act, s 10).

Remedies given to third parties

If a contract allows the third party to enforce a term of that contract by virtue
of the 1999 Act, s 1(1) then it will have available ‘any remedy that would have
been available to him in an action for breach of contract if he had been a party
to the contract’ (1999 Act, s 1(5)).
The 1999 Act provides also that the rules regarding damages, injunctions,
specific performance and other reliefs are to apply accordingly (1999 Act,
s 1(5)). A third party is provided with the same remedies as if it was one of the
contracting parties. The third party can recover damages for loss of bargain
and the principles of remoteness and mitigation which apply to the parties
would also apply to the third party.
The third party does not become a contracting party (1999 Act, s 7(4)).

Third party beneficiary examples

Contract with contracting party that is part of international group of

companies
The contracting party may wish the contract to benefit other companies in
the same group as itself. An example might be a licence agreement covering
several territories, in which the licensee is a major international company.
It is not uncommon for such a licensee to seek to include in the contract a
definition of ‘affiliate’ (eg its subsidiaries in particular territories covered
by the licence) and provide that both it and its affiliates may exploit the
licence. Under some countries’ laws, such a provision may give the affiliates
enforceable rights under the contract. By contrast, the English law rules in this
area have been quite strict; prior to the coming into force of the 1999 Act, the
affiliates would not have had direct, enforceable rights against the licensor.
This assumes that the affiliates are not contracting parties. Sometimes,
techniques are used to overcome this difficulty, eg, the licensee might
expressly enter into the contract as the agent of its affiliates. However, such
techniques have their own difficulties, eg how does the licensee obtain its
agency authority? The 1999 Act will make it much easier, in this example, for
the affiliates to enforce the contract directly against the licensor.

Research contract between sponsoring company and university

Research contracts with universities will often provide for research work to
be done by, or under the supervision of, a named academic scientist who will

220

M04_Boilerplate_Clauses_C.indd 220 07/09/2017 12:57

 Contracts (Rights of Third Parties) Act 1999

usually be an employee of the university. Sometimes that scientist is referred

to in the research contract; and sometimes, but not always, he is asked to
be a signatory to the research contract. Where he is not made a contracting
party, he would (prior to the coming into force of the 1999 Act) have had
no enforceable rights or obligations vis-a-vis the sponsoring company. Eg,
the contract may provide that he will chair a steering committee that will
review the progress of the research project, or that he will have confidentiality
obligations to the sponsoring company. On occasion, such contracts have been
drafted (generally by non-lawyers) without due attention being given to the
rules on privity of contract and have not given the scientist enforceable rights
or obligations. With the coming into force of the 1999 Act, enforceable rights
(but not obligations) may be given to the scientist who is not a contracting
party but is named in the contract as having certain rights.

Contract containing indemnity

A detailed indemnity clause in a contract to which only A and B are parties,
might include the following words:
‘A shall indemnify and hold harmless B, its affiliates, and their respective officers,
employees, consultants, agents and representatives…’

Prior to the coming into force of the 1999 Act, B’s employees (for example)
would not have enforceable rights against A under the indemnity. B might
be able to enforce the indemnity on their behalf. Under the 1999 Act, B’s
employees may well have directly enforceable rights.

Drafting issues

The parties to a contract may need to clarify whether the contract, or any of its
terms, is intended to benefit any third parties, and if so:
• Is the subject matter of the agreement excluded by the 1999 Act? The main
excluded categories are (1999 Act, s 6):
• bills of exchange, promissory note or negotiable instrument;
• company memorandum and articles (no rights are conferred to a
third party in the case of any contract binding on a company and its
members under Companies Act 2006, s 33);
• contracts of employment;
• contracts of carriage of goods by sea, rail, road or air (except that a
third party may in reliance on that section avail himself of an exclusion
or limitation of liability clause in such a contract).
• Who are the third parties? Is the third party expressly identified:
• by name? or
• as a member of a class? or

221

M04_Boilerplate_Clauses_C.indd 221 07/09/2017 12:57

 Contracts (Rights of Third Parties) Act 1999

• as answering a particular description (1999 Act, s 1(3))?

In effect the third party has to be sufficiently identified against the
benefit they are to receive under the contract, and because of the
use of the word ‘expressly’ a court will not be allowed to interpret or
imply that a third party is identified against a benefit (see Avraamides
v Colwill [2006] EWCA Civ 1533, [2006] All ER (D) 167 (Nov), and
Case analysis below).
The third party need not be in existence at the time the contract
is entered into (1999 Act, s 1(3)). This could include allowing
contracting parties to confer enforceable rights on, for example:
• a company that has not yet been incorporated; or
• a sub-licensee that has not yet been granted a sub-licence; or
• a named role, which is to carry a specific function under the
contract, but from time to time may be changed, such as a project
director in a hardware and software installation contract.
Where it is intended to give enforceable rights to a third party, the
parties should be careful not only to identify the third party, but also
to make it clear that the term is to be enforceable by the third party
(see Nisshin Shipping Co Ltd v Cleaves & Co Ltd [2003] EWHC 2602
(Comm), [2004] 1 All ER (Comm) 481 and Laemthong International
Lines Co Ltd v Artis [2005] EWCA Civ 519, [2005] 23 All ER (Comm)
167), and Case analysis below), and applied in Great Eastern Shipping Co
Ltd v Far East Chartering Ltd and Binani Cement Ltd [2011] EWHC 1372
(Comm).
• Are the provisions of the contract made for a third party’s benefit? The 1999 Act
provides two tests where a third party has a right to enforce a term of a
contract:
• the contract states explicitly that it may do so (1999 Act, s 1(1)(a));
or
• a term of the contract purports to confer a benefit on the third party
(1999 Act, s 1(1)(b)).
This provision only applies if on the proper construction of the contract
it appears that the parties intended that the term be enforceable by
the third party (1999 Act, s 1(2)).
• Do the parties to the agreement wish for a third party to be able to enforce the
agreement against the parties?
• Does the party who accepts it has obligations to a third party wish to make such
obligations subject to conditions or obligations, and if so, what are those conditions
or obligations? Eg, a third party may be required to give notice to the party
who is the promisor in the agreement of the third-party right, before the
third party is able to exercise the right.

222

M04_Boilerplate_Clauses_C.indd 222 07/09/2017 12:57

 Contracts (Rights of Third Parties) Act 1999

• Are the third parties’ rights assignable? This point appears not to be specifically
addressed by the 1999 Act. If such rights are assignable, will the assignee
also be able to enforce them in the same way?
• Can the contracting parties agree to revoke a third party’s rights without the consent
of the third party?
Under the 1999 Act, once a third party is granted a right under an
agreement then such a right cannot be taken away or varied if:
• the third party has communicated its assent to the term in the
agreement with the promisor (it appears that for the assent to be
effective it can only be made to the promisor);
• the promisor is aware that the third party has relied on the term in the
agreement; or
• the promisor can reasonably be expected to have foreseen that the
third party would rely on the term in the agreement, and has in fact
relied on it (1999 Act, s 2).
• Can the third party enforce the whole of an agreement or only specific provisions?
• If a specific provision is for the benefit of a third party, can the third party have the
benefit of any allied or related clauses? Eg, if payments are to be made to the
third party, should any related payment clauses (eg specifying interest on
late payments) also apply to the third party?

Location in the agreement

A 1999 Act clause is usually located in the Boilerplate section of an agreement.

Linkage and use

Often, it is suggested, the parties to a contract will not wish to ‘create any right
enforceable by a person not a party to it’ and they will not expressly grant
rights to any third party in their contract. Unless the agreement has been
drafted with care (or been checked thoroughly for possible third parties) the
danger for the parties is that such a case may arise where a term of the contract
purports to confer a benefit on the third party.
Eg, in a software licence between a software author and a distributor, there may
be a clause that the software author should provide updates/improvements of
the software to the distributor. If these are not passed on to a sub-licensee, then
the term concerning updates/improvements may be enforceable by the third-
party sub-licensee as against the software author, as it may confer a benefit
on the third party sub-licensee (ie may make the software more competitive
compared to the competition).

223

M04_Boilerplate_Clauses_C.indd 223 07/09/2017 12:57

 Contracts (Rights of Third Parties) Act 1999

In most cases where it is not intended to give rights to third parties, a simple
clause should be added to the ‘Boilerplate’ section of a contract stating that
the third-party rights are excluded.

Sample precedent material

Precedent 1—General exclusion clauses for purposes of Contracts

(Rights of Third Parties) Act 1999
A For the purposes of the Contracts (Rights of Third Parties) Act 1999
[and notwithstanding any other provision of this Agreement] this
Agreement is not intended to, and does not, give any person who is
not a party to it any right to enforce any of its provisions.
or
B This Agreement does not create any right enforceable by any person
who is not a party to it (‘the Third Party’) under the Contracts (Rights
of Third Parties) Act 1999, but this Clause [no] does not affect any
right or remedy of a Third Party which exists or is available apart from
that Act.
or
C This Agreement is not made for the benefit of, nor shall any of its pro-
visions be enforceable by, any person other than the parties to this
Agreement and their respective successors and permitted assignees.

Precedent 2—General inclusion clauses under the Contracts (Rights of

Third Parties) Act 1999
A each of [[state names] or the persons identified in Clause [no]] may in
his own right enforce the provisions of Clause [no].
or
B The provisions of Clause [no] are made for the benefit of the per-
sons named in that Clause [as well as [Party A]] and, accordingly,
each of those persons may in his own right enforce those provisions
in accordance with the provisions of the Contracts (Rights of Third
Parties) Act 1999.
or
C [(state names) or The persons identified in Clause [no] by name, class
or description, and whether or not they are in existence at the date of
this Agreement [but only for as long as they remain within that class
or description]] (‘the Third Parties’) may enforce the provisions of
Clause [no], subject to and in accordance with the provisions of the
Contracts (Right of Third Parties) Act 1999 and the following provi-
sions:

224

M04_Boilerplate_Clauses_C.indd 224 07/09/2017 12:57

 Contracts (Rights of Third Parties) Act 1999

(a) the parties may [not] rescind or vary any provision(s) of this
Agreement, including this Clause [no], at any time without the
consent of the Third Parties; and
(b) the parties may assign or otherwise transfer any or all of their
rights or obligations under this Agreement, including without
limitation their obligations to any third party, [by agreement be-
tween the parties] [in accordance with Clause [no]] and they will
not need the consent of any third party in order to do so; and
[(c) it shall be a condition precedent to any third party having any
rights under this Clause [no] that the third party in question shall
[have [executed a deed of adherence to this Agreement under
which it shall have] undertaken [to Party A] to] comply with the
provisions of [this Agreement or Clauses [insert nos as applica-
ble]] as if it were [Party B]; and]
[(d) [Party B] shall be liable to [Party A] for any failure by any third
party to comply with the provisions of Clauses [insert nos as ap-
plicable] as if [Party B] had been in breach of those provisions;
and]
(e) without limiting any other rights it may have, [Party A] shall have
available to him by way of defence or set-off against any claim
brought by a third party all those matters that would be avail-
able to [Party A] by way of defence or set-off against any claim
brought by [Party B] [as provided for in Clause [no]]; and
(f) each third party’s rights against [Party A] under this Agreement
shall be subject to the same conditions, limitations and exclu-
sions as apply to [Party B]’s rights against [Party A] under this
Agreement, [except that the third party’s rights shall also be
subject to the following conditions [state additional conditions
etc]];
(g) each third party’s rights under this Agreement are personal to
that third party and may not be assigned or otherwise trans-
ferred, in whole or in part; and
[(h) neither party shall have any liability to any third party for any
loss or damage (other than death or personal injury) resulting
from that party’s negligence, where the negligence consists of
the breach of an obligation to that third party arising under this
Agreement].
and:
D Except as provided in clause (no), this Agreement does not create any
right enforceable by any person who is not a party to it (‘Third Party’)
under the Contracts (Rights of Third Parties) Act 1999, but this clause
does not affect any right or remedy of a Third Party which exists or is
available apart from that Act.

225

M04_Boilerplate_Clauses_C.indd 225 07/09/2017 12:57

 Contracts (Rights of Third Parties) Act 1999

Precedent 3—Dispensing with third party consent

Any rights that a person other than a party to this Agreement (‘Third Party’)
may have to enforce any provision of this Agreement may be rescinded
or varied by the parties to this Agreement without the consent of the Third
Party.

Precedent 4—Successors and assignees

1 Without prejudice to the provisions of clause [no] (ie clause stating
when assignment is permitted), references in this Agreement to a
party shall include its successors and permitted assignees. However,
this Agreement does not create any right for any successor or permit-
ted assignee of either party to enforce any provision of this Agreement
at a time when such a person is not a party to this Agreement.
Or
1 For the avoidance of doubt, but without prejudice to the provisions
of clause [no] (ie assignment clause) this Agreement shall be enforce-
able by any successor or permitted assignee of either party.]

Case analysis

Nisshin Shipping Co Ltd v Cleaves & Company Ltd [2003] EWHC 2602
(Comm), [2004] 1 All ER (Comm) 481
This appears to be the first case to deal explicitly with the 1999 Act. It was
held that:
1 if a contract is silent on how a person can enforce a provision that
confers a benefit on him/her, such silence does not mean that there
was no intention to grant any rights of enforcement; and
2 for s 1(2) of the 1999 Act to apply, there would have to be an express
clause in the contract stating that the third party should not have
rights to enforce the clause conferring a benefit on him/her.

Facts
1 The case involved a series of charterparties. Each provided for pay-
ment of commission to Cleaves.
2 Cleaves, as brokers, negotiated a number of charterparties on behalf
of Nisshin.
3 Cleaves was not a party to any of the charterparties.
4 The commission clause read:
‘A commission of 2 per cent for equal division is payable by the vessel and
owners to [ ] and [Cleaves] on hire earned and paid under this Charter, and
also upon any continuation or extension of this charter.’

226

M04_Boilerplate_Clauses_C.indd 226 07/09/2017 12:57

 Contracts (Rights of Third Parties) Act 1999

5 An arbitration clause read (for most of the charters):

‘Should any dispute arise between Owners and the Charterers, the matter
in dispute shall be referred to three persons at London, one to be appointed
by each of the parties hereto, and the third by the two so chosen.’

For other charters the arbitration clause read:

‘All disputes or differences arising out of this contract which cannot
be amicably resolved shall be referred to arbitration in London. Unless
the parties agree upon a sole arbitrator, one arbitrator to be appointed
by each party. This contract is governed and construed by English
law in regards to substance and procedure, and there shall apply to
all proceedings under this Clause the terms of the London [Maritime]
Arbitrators Association current at the time when the arbitration
proceedings were commenced…’

6 It accepted by Cleaves that none of the commission clauses stated

that Cleaves could enforce such clauses directly against the owners.
7 There was a failure to pay commission due under the charterparties.
8 Cleaves referred the matter to arbitration, although it was not a party
to any of the arbitration agreements. Nisshin sought a declaration
that the arbitrators had no jurisdiction to hear a claim brought against
it by Cleaves.

Matters to be determined
1 Whether the clauses purported to confer a benefit on the brokers
within s 1(1)(b);
2 Whether s 1(1)(b) was disapplied by s 1(2) because the parties, on the
true construction of the clause, did not intend the term to be enforce-
able by the third party.

The owners submitted that

1 The arbitration clause did not make express provision for enforce-
ment by a broker of claim for commission;
2 There was no positive indication that the parties had intended the
brokers to have enforceable rights; and
3 The parties’ mutual intention on the proper construction of the con-
tracts was to create a trust of a promise in favour of the brokers – a
trust enforceable against the owners at the suit of the charterers as
trustees. That being the proper construction of the contracts by ref-
erence to the state of the law at the time when the 1999 Act came
into force, the very same contract wording did not, subsequently to
that, evidence a different mutual intention. Accordingly, the mutual
intention evidenced by the contracts was that the enforcement of the
promise to pay commission would be at the suit of the charterers who
must be joined by the brokers as co-claimants.

227

M04_Boilerplate_Clauses_C.indd 227 07/09/2017 12:57

 Contracts (Rights of Third Parties) Act 1999

Held
As this is the first case dealing substantially with the 1999 Act it is worth
setting out in some detail how it was applied:
[21] It is accepted by [counsel], on behalf of Cleaves, that the brokers were
not parties to the arbitration agreements as a matter of construction of those
clauses. Her case is that the effect of s 8 of the 1999 Act is to impose the
arbitration clauses on the owners and the brokers as the means of enforce-
ment of the commission benefit conferred by the commission clause.
[…] However, for the purposes of the submission in relation to absence of
intention to confer a benefit, the wording of the arbitration clauses is, in my
judgment, of little or no materiality. Firstly, although the parties to the char-
terparties clearly expressed their mutual intention that their disputes should
be arbitrated, that mutual intention is entirely consistent with a mutual inten-
tion that the brokers should be obliged to recover their commission by court
action rather than by arbitration. Secondly, if, on the proper construction of
the 1999 Act, the third party is obliged to enforce the commission benefit
by arbitration, even where the agreement does not on its proper construc-
tion provide for any participants in an arbitration other than the parties to the
main contract, identification of the intention to be imputed to the parties as
to enforceability of the third party commission benefit clearly has to take this
into account. That is to say, if, as a matter of law, it makes no difference to
the broker’s ability to enforce his right to commission benefit that no express
provision is made for this in the arbitration agreement, the strength of any
inference derived from the absence of such express provision could be little
more than negligible.
[22] Secondly, it is argued by [counsel] on behalf of Nisshin that there is no
positive indication in the charterparties that the parties did intend the ­brokers
to have enforceable rights. There is no suggestion in those contracts that the
owners and charterers were mutually in agreement that the brokers should be
entitled to claim against the owners as if they were parties to the contract.
[23] It is to be noted that s 1(2) of the 1999 Act does not provide that sub-s 1(b)
is disapplied unless on a proper construction of the contract it appears that
the parties intended that the benefit term should be enforceable by the third
party. Rather it provides that sub-s 1(b) is disapplied if, on a proper construc-
tion, it appears that the parties did not intend third party enforcement. In other
words, if the contract is neutral on this question, sub-s (2) does not disap-
ply sub-s 1(b). Whether the contract does express a mutual intention that the
third party should not be entitled to enforce the benefit conferred on him or is
merely neutral is a matter of construction having regard to all relevant circum-
stances. The purpose and background of the Law Commission’s recommen-
dations in relation to sub-s (2) are explained in a paper by Professor Andrew
Burrows (‘The Contracts (Rights of Third Parties) Act 1999 and its implications
for commercial contracts’ [2000] LMCLQ 540) who, as a member of the Law
Commission, made a major contribution to the drafting of the Bill as enacted.
He wrote (at 544):
‘The second test therefore uses a rebuttable presumption of intention. In
doing so, it copies the New Zealand Contracts (Privity) Act 1982, s. 4, which
has used the same approach. It is this rebuttable presumption that provides
the essential balance between sufficient certainty for contracting parties
and the flexibility required for the reform to deal fairly with a huge range
of different situations. The presumption is based on the idea that, if you
ask yourself, “When is it that parties are likely to have intended to confer
rights on a third party to enforce a term, albeit that they have not expressly
­conferred that right”, the answer will be: “Where the term purports to confer

228

M04_Boilerplate_Clauses_C.indd 228 07/09/2017 12:57

 Contracts (Rights of Third Parties) Act 1999

a benefit on an expressly identified third party.” That then sets up the

­presumption. But the presumption can be rebutted if, as a matter of ordi-
nary contractual interpretation, there is something else indicating that the
parties did not intend such a right to be given.’
[24] In the present case, […] the charterparties are indeed neutral in the sense
that they do not express any intention contrary to the entitlement of the bro-
kers to enforce the commission term.
[25] Thirdly, Mr Ashcroft submits that the parties’ mutual intention on the
proper construction of the contracts was to create a trust of a promise in
favour of the brokers—a trust enforceable against the owners at the suit of
the charterers as trustees. That being the proper construction of the contracts
by reference to the state of the law at the time when the 1999 Act came into
force, the very same contract wording did not, subsequently to that, evidence
a different mutual intention. Accordingly, the mutual intention evidenced by
the contracts was that the enforcement of the promise to pay commission
would be at the suit of the charterers who must be joined by the brokers as
co-claimants.
[29] What is the position arising from the contract itself following the coming
into force of the 1999 Act? As a matter of analysis of the underlying relation-
ship between the parties, it must be precisely the same. Thus, the charterer
is no less the trustee of the owners’ promise to pay the commission, having
regard to the fact that the charterer contracts for payment of the commission
on behalf of a non-contracting party. Indeed, the only thing that has changed is
the coming into force of the 1999 Act and the introduction of the statutory facil-
ity of a direct right of action for a non-contracting party on whom a contract
purports to confer a benefit.
[30] Accordingly, the argument advanced by the owners can only succeed if it
is to be inferred from the existence of the underlying trustee relationship that
it was the mutual intention of owners and charterers that the broker benefi-
ciary should not be entitled to avail himself of the facility of direct action by the
1999 Act.
[31] This proposition is, in my judgment, entirely unsustainable. The fact that
prior to the 1999 Act it would be the mutual intention that the only available
facility for enforcement would be deployed by the broker does not lead to the
conclusion that, once an additional statutory facility for enforcement had been
introduced, the broker would not be entitled to use it, but would instead be
confined to the use of the pre-existing procedure. Indeed, quite apart from
the complete lack of any logical basis for such an inference, the very cumber-
some and inconvenient nature of the procedure based on the trustee relation-
ship (described by Lord Wright as a ‘cumbrous fiction’) would point naturally
to the preferred use by the broker of the right to sue directly provided by the
1999 Act. Not only would that original procedure be inconvenient, but it might
involve risk that the broker would be prevented from recovering his commis-
sion, for example, in a case where the charterer had been dissolved in its place
of incorporation or where, in the absence of co-operation by the charterer,
proceedings had to be served on it outside the jurisdiction and service could
not be effected. There are therefore very strong grounds pointing against any
mutual intention to confine the brokers to the old procedure and to deny them
the right to rely on the 1999 Act.
[32] I therefore reject the third ground relied upon by Nisshin. In so doing
I reach the same conclusion as the arbitrators.
[33] It follows that Cleaves are entitled to enforce the commission clauses in
their own right by reason of s 1 of the 1999 Act.

229

M04_Boilerplate_Clauses_C.indd 229 07/09/2017 12:57

 Contracts (Rights of Third Parties) Act 1999

Laemthong International Lines Co Ltd v Artis [2005] EWCA Civ 519,

[2005] 23 All ER (Comm) 167)
In this case, involving a letter of indemnity (to simplify the complicated set
of facts), the indemnifier agreed to indemnify, inter alia, a party’s ‘agents’.
On the facts of the case the ship owners argued they were agents and
therefore entitled to enforce the indemnity against the indemnifier. The
Court of Appeal held that there was nothing in the letter of indemnity to
indicate that the parties to it did not intend it to be enforceable by a third
party.

Avraamides v Colwill [2006] EWCA Civ 1533, [2006] All ER (D) 167 (Nov)
In this case the issue of whether the claimants were expressly identified
(for the purposes of the 1999 Act, s 1(3)) in an agreement came under
consideration by the court.
The claimants contracted with a building company for two bathrooms to
be built. The work was not carried out satisfactorily. The assets and good-
will of the company were transferred by an agreement to the defendants
(the company being left with no assets) and there was nothing left to pay
the claimants.
The key wording from the agreement was: ‘The purchasers (sic) under-
takes to complete outstanding customer orders taking into account
any deposits paid by customers as at 31 March 2003, and to pay in the
normal course of time any liabilities properly incurred by the company as
at 31 March 2003. The Colwill loan account after adjustment to be trans-
ferred on by the partnership’.
The court relied on the word ‘express’ in C(RTP)A, s 1(3). The court held
that the use of the word ‘express’ did not allow a process of construc-
tion or implication and that although ‘customers’ were identified in the
first part of the quoted extract from the agreement as beneficiaries, as far
as the second part of the extract was concerned, it held that there was
not sufficient precision in the phrase ‘to pay in the normal course of time
any liabilities properly incurred by the company as at 31 March 2003’ to
identify the customers (claimants), and could include a large number of
unidentified classes (see in particular para 19 of the judgment).

230

M04_Boilerplate_Clauses_C.indd 230 07/09/2017 12:57

 Costs and expenses

Purpose of the clause

Costs
The word ‘costs’ usually refers only to legal fees. The convention is that each
party in negotiating and preparing a commercial agreement usually bears its
own legal costs. Accordingly, it is often thought not necessary to include a
clause on this point.
The parties can, and may, wish to negotiate a different arrangement. If so,
then the agreement should contain a clause to state specifically what cost the
one party will bear of the other.
Property leases and investment agreements sometimes provide that the lessee
or investee will pay the legal costs of the landlord or investor in connection
with the drafting and negotiation of the contract. These are perhaps the most
common exceptions to the normal arrangement that each party bears its own
legal costs. There is, however, nothing to stop the parties agreeing that one
of them will bear the other party’s legal costs; this is a matter for commercial
negotiation.
Boilerplate language stating that each party is to bear its own legal costs is
probably most useful in situations where there is a long-established practice
that one party bears all costs, as, eg, in the case of property leases. If each
party is to bear its own costs then a clause such as in Precedent 1 might be
appropriate.
The meaning of ‘costs’ as relating only to legal costs may be limited to where
parties are represented by lawyers who will understand this limited use. It is
also possible that the meaning may be simply how the supplier of goods or
services refers to the amount that it charges for the provision of those goods
and/or services.

Expenses

Expenses are a slightly different category to costs, and references to expenses

are often intended to cover expenditure involved in interactions with
governmental and regulatory authorities, such as registrations, renewals of
registrations and application costs.

231

M04_Boilerplate_Clauses_C.indd 231 07/09/2017 12:57

 Costs and expenses

A second meaning for expenses is sometimes found in agreements where

a person is providing services to another party (eg under a consultancy
agreement) or where the person is an employee. In this sense expenses means
those items of direct expenditure that the person incurs in providing the
services (eg cost of transport, hotel bills, materials, obtaining the services of
third parties and the like).

Drafting issues

• Is the default position to apply? Ie each party will be responsible for their own
costs and expenses?
• If so, is it necessary to specify what costs and expenses? If there might be any
doubt about particular types of costs or expenses, it might be convenient
to specify them;
• If not,
• Who is to be responsible for costs and expenses?
• What costs and expenses is a party to be specifically responsible for? Is a party
to be responsible for all the costs and expenses or specific ones?
• When are the costs and expenses to be paid? Are the costs and expenses to
be paid as they arise or are they to be paid at the same time and in the
same manner as other sums due under the agreement (as specified in
the Payments clause)?
• What are the consequences if a party responsible for costs and expenses does
not pay?

Location in the agreement

The Boilerplate section of an agreement will usually contain a default Costs

and expenses clause.

Linkage and use

Although the default position might be that each party is responsible for their
own costs and expenses, the following are some of the common situations
where one party might be responsible for another party’s costs and expenses:
• the purchaser of a business or business assets;
• a lessee will be responsible for the costs of negotiation, drafting and
granting of a lease;
• a sponsor of a research project will often be responsible for the payment
of the fees in filing, and prosecuting, a patent application;

232

M04_Boilerplate_Clauses_C.indd 232 07/09/2017 12:57

 Costs and expenses

• a company seeking funds from investors will be responsible for the costs
of negotiation and drafting of the investment documentation and the
transfer of the funds; or
• on formation of a company, the newly-formed company will often be
responsible for the costs incurred by the persons who incorporated it.

Sample precedent material

Precedent 1—Costs clause

Each Party shall bear its own legal costs and other costs and expenses
arising in connection with the drafting, negotiation, execution [and regis-
tration] of this agreement.

Precedent 2—Costs clause

Each of the parties shall pay the costs and expenses incurred by it in con-
nection with this agreement.

Precedent 3—Reimbursement of costs – company formation agreement

Each of the parties will take such steps as lie within his power to pro-
cure that the Company reimburses AB in respect of all reasonable costs
and expenses incurred by him in connection with the formation of the
Company [and that the Company reimburses AB and CD in respect of all
reasonable costs and expenses incurred by them respectively in connec-
tion with the preparation of this agreement].

Precedent 4—Reimbursement of costs – mortgage deed

The Mortgagor shall pay to the Mortgagee or to its order on demand all
costs and expenses whatever (including, without limitation, legal costs,
registration fees, VAT and stamp duties) incurred by the Mortgagee in
connection with the negotiation, preparation, completion, registration and
perfection of this Mortgage and the maintenance, protection and enforce-
ment of the security created by or intended to be created by or pursuant
to this Mortgage or any of the Mortgagee’s rights whatever under this
Mortgage.

Precedent 5—Parties to pay own costs – assets sale

The parties shall pay their own costs in connection with the negotiation,
preparation and implementation of this agreement or any agreement inci-
dental to or referred to in this agreement and the assignments of all the
properties and assets hereby agreed to be sold and not transferable by
delivery together with any Land Registry fees and fees for registration of
assignments of industrial property rights and any licences required to be
obtained in connection with the assets.

233

M04_Boilerplate_Clauses_C.indd 233 07/09/2017 12:57

 Counterparts (or duplicates)

Purpose of the clause

Background
If each contracting party signs one copy of an agreement and then they
exchange these copies then this is a situation where the agreement is signed in
counterparts. The result is that each party keeps the copy signed by the other
party. The agreement is made at the time of exchange of the signed copies of
the contracts.
In the traditional practice, where clients are using solicitors, the exchange of
contract process is normally undertaken by the parties’ solicitors.
It is still fairly common to find clauses in contracts on the subject of
counterparts in some areas of practice (such as in domestic and commercial
conveyancing). Note that in some conveyancing transactions (such as the
granting of leases) the meaning of a counterpart is different; there is an
original version of the document and then duplicates (called ‘counterparts’)
are made. There is a presumption that the original is the authoritative version.

Commercial practice

Most commercial contracts are signed on a different basis to that described

above. Either:
• all parties are present at a signing ceremony where each party signs all the
original versions of the contract (and each party keeps an original signed
by all parties); or
• the agreement is signed at different times by the parties, with each party
signing all of the original versions of the contract and then passing all
the originals onto another party so that they can sign all the originals.
Once all parties have signed all the originals, the originals are distributed
amongst the parties, so that each keeps one or more original versions of
the signed agreement which is signed by all the parties; or
• there is one version of the agreement which is signed by all the parties in
one of the ways stated immediately above, and then certified copies are
circulated to all the parties. On the copies there will be a statement similar
to the following:

234

M04_Boilerplate_Clauses_C.indd 234 07/09/2017 12:57

 Counterparts (or duplicates)

‘this is certified to be a true copy of the original’

with a signature and a printed name of the person signing and/or of the
party certifying the copy. If a solicitor is acting for a party sometimes the
certification is made by that solicitor; or
• the parties use an electronic method, eg prepare or receive the final
version electronically and then, either
• sign the signature page with a manual signature and then send a
scanned copy of the signature page to the other party electronically
(for the other party to attach to the final version of an agreement); or
• sign the signature page with a manual signature and then return the
whole agreement including the scanned copy of the signature page
(either as one document or two documents) by electronic means;
• adopting either of the methods described in the previous bullet point but
signing the signature page before the final version of the agreement is
reached and then attaching the signature page to the agreement.
There are dangers to signing a signature page alone from the rest of the
agreement (whether at the time the final version is agreed or prior to the final
version being agreed). The dangers include attaching the signature page to the
‘wrong’ version of the agreement, whether by accident or design. For example:
• one party signs a signature page, scans it and then sends it alone without
the rest of the agreement to another party. The other party signs the
signature page it has received and returns it to the first party. But because
its electronic filing system is in a muddle or it simply cannot find the final
version of the agreement, it attaches the signature page to a version which
is not the final, agreed version. The first party has the final version of the
agreement and attaches its copy of the signature page to that version. But
the second party attaches its copy of the signature page of the version
of the agreement it has found. In the event of a dispute, there may be
argument about which was the final version, and a need to examine file
dates, modification dates and times of versions stored on the computers,
examination of emails with attachments for the circulations of drafts (if
any of these still exist if the dispute occurs several years after the parties
enter into the agreement);
• a variation on the above example: one party knowingly and deliberately
attaches the signature page to the wrong version of an agreement.
Perhaps at the last moment that party had to concede a point or agree
to some provision or commercial reality not in its favour and which is
not reflected in the final version, but in an earlier version. By doing so
this party may hope that at some time in the future it can use that earlier
version to its advantage against the other party. For example, by stating
or claiming some benefit or entitlement in its dealings with the other
party and hoping that the other party will not notice this. Consider this
situation: a party sells goods, and it agreed a lower purchase price. An
earlier version stated a higher price. After the agreement is signed, and

235

M04_Boilerplate_Clauses_C.indd 235 07/09/2017 12:57

 Counterparts (or duplicates)

an order is placed, then the party selling the goods might invoice the
accounts department of the other party claiming the higher price and
quoting from the agreement. Such subterfuge may not be brought to the
attention of the persons involved in negotiating the agreement for the
other party.
These examples illustrate the dangers of exchanging signed signatures
electronically without the rest of the agreement, and was highlighted by the
case of R (on the application of Mercury Tax Group) v HM Revenue and Customs
Commissioners [2008] EWHC 2721 (Admin), [2009] STC 743. Following the
case the Law Society issued guidance on signing of documents and provision
of documents electronically. Essentially the guidance states that documents
which are deeds or relate to the sale or other disposition of land should never
be signed other than as complete documents and the signature page should
never be signed separately from the rest of the document. For other types
of documents, the Law Society sets out suggested steps parties should take.
These are set out in the companion volume, Anderson and Warner, Drafting
and Negotiating Commercial Contracts (4th Edn, 2016) at 2.1), as well as in the
authors’ The Execution of Documents (3rd Edn, 2015, Law Society).
If one of these methods is used then there is no exchange of counterparts,
and it is suggested that a traditional ‘counterparts’ clause is unnecessary.
Precedent 1 refers also to ‘duplicates’ and therefore may be useful for
commercial contracts signed as described in this paragraph. However, such
clauses are often not included in modern commercial contracts.

Drafting issues

• Should a counterparts clause be used? Is it necessary or required that there

be more than one copy of an agreement recognised as an ‘original’ copy
(for regulatory, stamp duty purposes, company administrative or other
purposes)?
• If counterparts are to be used:
• do all copies need to be signed by all the parties?
• at what moment will the agreement be executed? Eg:
• on exchange;
• on delivery;
• sending in the post;
• when all counterparts have been signed by all the parties;
• ‘Original’. Is there a statement that each counterpart is an original?
• Facsimile. If a counterpart is signed and sent by facsimile, is this an
acceptable method of exchange? If so, should there be a requirement
that the original then be subsequently sent?

236

M04_Boilerplate_Clauses_C.indd 236 07/09/2017 12:57

 Counterparts (or duplicates)

Location in the agreement

A Counterparts clause will be located in the Boilerplate section of an agreement.

Sample precedent material

Precedent 1—Agreement in counterparts

This agreement may be executed in any number of counterparts or dupli-
cates, each of which shall be an original, and such counterparts or dupli-
cates shall together constitute one and the same agreement.

Precedent 2—Agreement in counterparts, alternative form

Each counterpart shall constitute an original of this agreement and all the
counterparts shall together be one and the same agreement.

Precedent 3—Deed in counterparts

This deed may be executed in any number of counterparts all of which
taken together shall constitute one and the same instrument. Any party
to this deed may enter into this deed by executing any such counterpart.

Precedent 4—Agreement in counterparts or facsimiles – no binding

agreement until all the parties have completed signed copies
This agreement may be executed in one or more parts by the parties on
separate counterpart or facsimile copies each of which when so executed
by any party shall be an original but all executed counterpart or facsimile
copies shall together when delivered constitute but one agreement. This
agreement shall not be completed delivered or dated until each party has
received counterpart or facsimile copies validly executed by all other par-
ties. The date of this agreement shall be the date in the United Kingdom
on which validly executed copies were received by all parties.

Precedent 5—Agreement in counterparts

This agreement may be executed in any number of counterparts and by
the parties on separate counterparts but shall not be effective until such
party has executed at least one counterpart. The expression ‘counterpart’
shall include any executed copy of this agreement transmitted by facsim-
ile. Each counterpart shall constitute an original of this agreement but all
the counterparts shall together constitute one and the same agreement.

Precedent 6—Version of agreement to prevail

The Parties can sign more than one copy of this Agreement. Each copy
which is signed by one or more of the parties shall be an original and
binding on all the parties to this Agreement. All of the signed copies shall
together constitute one and the same agreement. [In the event of a dis-
pute relating to or arising from the Agreement the signed copy that is held
by [name of party] shall be the authoritative version.]

237

M04_Boilerplate_Clauses_C.indd 237 07/09/2017 12:57

 Covenants

Purpose of the clause

Background
The traditional meaning of a ‘covenant’ is a promise made by deed (Rank
Xerox Ltd v Lane (Inspector of Taxes) [1979] 3 All ER 657 at 663; Hagee v Co-
operative Insurance Society [1991] NPC 92) with a secondary meaning whereby it
is applied to any promise or stipulation, whether under seal or not (Rank Xerox
Ltd v Lane (Inspector of Taxes) [1979] 3 All ER 657 at 659).
In some types of agreement covenants are frequently encountered. For
example in agreements relating to real property, where there are important
legal distinctions between positive and negative covenants. Covenants in this
sense are:
• contractual undertakings (which only affect the parties to the original
contract); and
• obligations that (in certain circumstances) may attach to the property and
bind persons who were not party to the original contract.

Modern practice (use in commercial agreements)

However, most clauses that are stated to be ‘covenants’ (those found in

contracts that are not concerned with real property) are in reality no more
than contractual undertakings. ‘Covenant’ is a word that in effect is saying
‘I am making a binding promise’. In this sense, the use of the word ‘covenant’
is a form of legal jargon.
English contract law takes a relatively strict view on privity of contract
(compared, say, with US law). In most cases, it will not be possible to make
contractual undertakings binding on anyone other than the parties to the
contract. Using the word ‘covenant’ in a contractual undertaking will not
change the position. At least within the UK, the only sure way to bind a person
to a contractual undertaking where the person is not a party to a contract is to
make them sign a document as a deed.
Sometimes the word ‘covenant’ appears to be used just to make a contractual
undertaking sound more solemn and important. Outside the field of real
property, a contract drafter wishing to draft contractual undertakings in

238

M04_Boilerplate_Clauses_C.indd 238 07/09/2017 12:57

 Covenants

plainer English may prefer to avoid the verb ‘covenants’ and use ‘undertakes’
(or just ‘shall’) instead (even in documents that the parties are to sign as
deeds). In addition to using plainer English, the contract drafter can also state
the consequences of not fulfilling the contract undertaking, eg:
‘Party A shall pay the Price for the Goods by the Date. If Party A fails to pay the
Price by the Date then Party B has the right to terminate this Agreement, and
Party A will not receive the Goods.’

In a commercial context, covenants are sometimes seen in employment

contracts. Typically, such clauses prohibit an employee from competing with
the employer (sometimes with an obligation not to disclose the trade secrets
and/or confidential information of the employer). These are sometimes
referred to as restrictive covenants. In other types of commercial agreement
(even those executed as deeds) the word is less commonly seen.

Drafting issues

• If a party wishes to use the word ‘covenant’, are there better alternatives? If the
agreement is a ‘mainstream’ commercial agreement, and depending on
the nature of the ‘promise’, should the parties instead use words such as:
• undertakes;
• represents;
• warrants.

Location in the agreement

When the word ‘covenant’ is used then it is likely that its inclusion will be
together with words such as ‘warrants’, ‘represents’ etc or in place of such
words. The word is also used in clauses dealing with exclusions and limitations
of liability.

Linkage and use

Conventionally, ‘covenants’ are found in the following types of transactions:

• transactions relating to land and mortgages;
• the sale or purchase of a business or the assets of a business, mergers and
acquisitions, transactions relating to loans, finance, debentures etc;
• employment contracts;
• assignments of property (including choses in action) normally by way of
a deed;
• documents relating to trusts and settlements.

239

M04_Boilerplate_Clauses_C.indd 239 07/09/2017 12:57

 Covenants

Sample precedent material

Precedent 1—Sample clause

Party A [undertakes to or covenants with] Party B that it shall not disclose
the Confidential Information to any person without Party B’s prior written
consent.

Precedent 2—Covenant to pay sums

The Chargor covenants with the Bank to pay the Secured Sums to the
Bank on demand on the due date for payment.

Precedent 3—Covenant to perform obligations

The Mortgagor covenants with the Bank to observe and perform the
restrictions and obligations set out below.

Precedent 4—Sample joint and several covenant

The Purchaser covenants with the Vendors jointly and as a separate
covenant with each of them that he will as from the date of this assign-
ment keep the Vendors their estates and property indemnified against
all claims, proceedings, costs, demands and expenses in respect of the
Lease.

Precedent 5—Sample restrictive covenants on sale of agricultural land

The Buyer covenants with the Seller, which expression for the purposes of
this covenant includes his successors in title and estate, that he will not,
during the period of 5 years from the date of the conveyance or transfer
of the Property under this agreement, permit any change of occupation of
the property of a nature that would result in a notification to the [Minister
of Agriculture, Fisheries and Food or the Intervention Board pursuant to
the Regulations] unless he has first obtained in favour of the Seller and his
personal representatives and estate a direct covenant from the incoming
occupier to the same effect as that contained in Clauses [no] and [no]
above.

Precedent 6—Sample restrictive covenants on sale of business

The Vendor covenants with the Purchaser:
1 not to solicit or approach customers of the Business in relation to the
sale of [specify] for [period] from completion;
2 not to accept orders from or otherwise deal with the customers of the
Business in relation to the sale of [specify] for [period] from comple-
tion;
3 not to be engaged or concerned directly or indirectly in a competing
business operating within [ ] miles of the Property for [period] from
completion;
4 not to solicit or employ the employees to be transferred for [period]
from completion;

240

M04_Boilerplate_Clauses_C.indd 240 07/09/2017 12:57

 Covenants

5 not to disclose confidential information held by the Vendor relating to

the Business.

Precedent 7—Sample restrictive covenants on sale of business – longer

form
1 With the object of assuring to the Purchaser the full value and benefit
of the Business as a going concern and as well after as before com-
pletion and so that each of the following sub-clauses of this clause
shall be deemed to constitute a separate agreement and shall be
construed independently of the others the Vendor covenants with
the Purchaser that he (whether alone or jointly with any other person,
firm or company and whether directly or indirectly and whether for his
own account or for the account of any other person, firm or company,
and whether as shareholder, participator, partner, promoter, director,
officer, agent, manager, employee or consultant of, in or to any other
person, firm or company) will not:
1.1 without the prior consent of the Purchaser at any time after
completion in any way indicate, suggest or publicise any con-
tinuing connection between the Vendor and the Business;
1.2 within [number] miles of the Business Premises during the
period of [specify] from the Completion Date be engaged or
concerned in any business which supplies goods and/or ser-
vices which are competitive with or of the type supplied by the
Business at the Completion Date.
2 Whilst the restrictions contained in Clause [1] are considered by the
parties to be reasonable in all the circumstances and as going no fur-
ther than is necessary for the purposes referred to in this agreement it
is agreed that if such restrictions shall taken together be adjudged to
be beyond what is reasonable in all the circumstances for the protec-
tion of the Business but would be adjudged reasonable if part or parts
of the wording thereof were deleted the said restrictions shall apply
with such words deleted.

241

M04_Boilerplate_Clauses_C.indd 241 07/09/2017 12:57

 Cumulative remedies

Purpose of the clause

Background—preventing argument that only one of a possible

range of remedies can be used
The use of the phrase ‘cumulative remedies’ is a convenient shorthand for
a clause which provides that a specific remedy or remedies available under a
contract are in addition to any other rights or remedies a party may have. Eg:
• a clause dealing with payments may state that a party may charge interest
on late payments; however, the party may also wish to terminate the
contract if payments are made persistently late (rather than just have the
right to charge interest); or
• (to take a different example) a clause may state that a party may terminate
the contract if the other party is in breach of contract, but the party may
also (or instead) wish to sue the other party for damages for breach of
contract.
In these examples, a Cumulative Remedies clause is intended to prevent the
party in breach from arguing:
• (in the first example) that the other party (ie the party not in breach)
can only charge interest for late payment, as it is its sole remedy for late
payment; and
• (in the second example) that its only remedy for breach of contract is to
terminate the agreement.

The inclusion of one is the exclusion of another (Expressio

unius est exclusio alterius)

Cumulative Remedies clauses are sometimes used for a slightly different reason,
namely to avoid the principle of construction known under the Latin title
expressio unius est exclusio alterius. If the contract expressly provides a remedy
in one situation, the court may infer that the same remedy is not available
in similar situations which are not mentioned. The application of this
principle of construction will depend on the view of the court as to status of
the agreement. If the court has before it a detailed and consistently drafted
agreement then it may apply the principle of construction (Shell UK Ltd v Total

242

M04_Boilerplate_Clauses_C.indd 242 07/09/2017 12:57

 Cumulative remedies

UK Ltd [2010] EWCA Civ 180, [2010] 3 All ER 793). However if the court
believes that a party has simply overlooked something, or if the intention
was not to exclude something, or the agreement is not well drafted or is a
collection of documents which are not entirely consistent, or the principle
does not reflect the commercial purpose of the clause, then the principle may
not apply (eg Aspen Insurance UK Ltd v Pectel Ltd [2008] EWHC 2804 (Comm);
Griffon LLC v Firodi Shipping Ltd [2013] EWHC 593 (Comm); National Grid v
Mayes [2001] UKHL 20, [2001] 1 WLR 864).
Eg, in a facilities management agreement a contractor is responsible for
maintaining the equipment. lighting, heating, air conditioning, etc. If there is
a provision that the client can terminate the agreement in the event of failure
on the part of the contractor to repair the office air conditioning within
24 hours, but there is no mention of a right to terminate in the event of a
failure to repair the office heating or lighting systems then the court might
interpret the words as impliedly not allowing the company to terminate the
contract if the heating or lighting is not repaired within 24 hours. Appropriate
‘cumulative remedy’ wording is likely to remove this risk.

Drafting issues
• Use of the word ‘cumulative’. The word ‘cumulative’ is sometimes used in such
clauses (see Precedent 1). This word may be thought rather imprecise, or
as lawyer’s shorthand. It may be better to use a phrase such as ‘in addition
to [other remedies]’ (see Precedent 4).
• Extent. Will a clause dealing with Cumulative Remedies appear
• together with wording dealing with specific remedies? or
• as a stand-alone provision, which applies to all the remedies available
to one or more of the parties under an agreement?
• Use of a ‘general’ cumulative remedy. If used, is it appropriate to include such
a clause if one of the parties wants a particular remedy for a particular
situation to be the only remedy available?
Eg a manufacturing agreement might provide that a manufacturing
party must produce a product to a very tight tolerance. However, the
manufacturer is unable to calibrate its machines to meet the requirements
of its customer. The manufacturer may not wish the customer to have
several remedies. A general cumulative remedies clause might not be
appropriate for the manufacturer and the manufacturer may wish to
ensure that one remedy is available to the customer (eg, cancellation and
not the right to sue for damages).
• What remedies should be included in a Cumulative Remedies clause? Should the
clause allow a party:
• access only to other remedies expressly provided for in the agreement;
and/or
• access to remedies which are available under general law.

243

M04_Boilerplate_Clauses_C.indd 243 07/09/2017 12:57

 Cumulative remedies

Location in the agreement

A general Cumulative Remedies clause is often located in the Boilerplate section

of an agreement. If a particular clause contains a remedy, then there might be
a specific Cumulative Remedies clause as well.

Linkage and use

Cumulative Remedies clauses are often included with the following type of
provisions:
• Main Commercial Provisions:
• a clause that defines the core obligations of the parties:
Eg, A software developer is commissioned to write software to an
agreed specification. The agreement provides that the parties will first
negotiate and agree the terms of the specification. If the parties fail
to agree the specification then the clause might give the right to one
or more of the parties to terminate. A Cumulative Remedies clause here
could indicate that a party can also consider other remedies;
• a payment provision, which specifies that a party who is required to
pay on a certain date, and fails to do so allows the supplier either not to
perform its side of the agreement and/or to terminate the agreement.
A Cumulative Remedies clause here could say that the supplier would
be free to use other remedies (such as to sue for damages or charge
interest).
• Secondary Commercial Provisions. A Termination provision will often include
different methods of terminating an agreement (depending on different
circumstances). A Cumulative Remedies clause is often included to indicate
clearly whether remedies to terminate are in lieu of other possible
remedies.
A drafter should consider a Cumulative Remedies clause together with clauses
which limit or restrict liability and with Entire agreement clauses. With clauses
that restrict or limit liability there is also normally a ‘sweep-up’ clause which
provides that other than provided for in the agreement the parties are not
responsible for indirect loss etc. Such a clause might impact on a Cumulative
Remedies clause if one or more of the parties wished to have particular
remedies to be available. It will be necessary to include wording to address
this situation.
Similarly, with an Entire agreement clause, if the parties had discussed or
negotiated specific remedies but had not included them in the agreement,
but were relying on a generic Cumulative Remedies clause, then the specific
remedies might be excluded. Again, specific wording would need inclusion.

244

M04_Boilerplate_Clauses_C.indd 244 07/09/2017 12:57

 Cumulative remedies

Sample precedent material

Precedent 1—General
The remedies provided in this agreement are cumulative and not exclu-
sive of any remedies provided by law.

Precedent 2—General
The remedies provided in this agreement are in addition to, and not exclu-
sive of, any remedies provided by law.

Precedent 3—One party only

Any remedy or right conferred upon the Purchaser for breach of this
agreement (including the right to rescission) shall be in addition to and
without prejudice to all other rights and remedies available to it.

Precedent 4—Both parties

Any remedy or right conferred upon any party for breach of this agree-
ment shall be in addition to and without prejudice to all other rights and
remedies available to it.

Precedent 5—Both parties

All rights granted to either of the parties shall be cumulative and no exer-
cise by either of the parties of any right under this agreement shall restrict
or prejudice the exercise of any other right granted by this agreement or
otherwise available to it.

Precedent 6—Specific remedy for one party

Without prejudice to any other right or remedy it may have, [Party A may
terminate this agreement…] or [Party A may charge interest …].

Precedent 7—Both parties

Any right or remedy to which either Party is or may become entitled
under this agreement or in consequence of the other’s conduct may be
enforced from time to time separately or concurrently with any right or
remedy given by this agreement or now or afterwards provided for and
arising by operation of law so that such rights and remedies are not
exclusive of the other or others but are cumulative. Any right or remedy
expressly included in any provision of this agreement shall not be con-
strued as limiting a Party’s rights or remedies under any other provision of
this agreement.

245

M04_Boilerplate_Clauses_C.indd 245 07/09/2017 12:57

 Currency

Purpose of the clause

Background
This provision specifies the currency a party is to use when making payments
under an agreement.

Meaning of ‘pounds’

If the agreement refers simply to ‘pounds’ then in order to determine whether

the currency is pounds sterling or some other currency it is necessary to
look at the proper law of the contract (Bonython v Commonwealth of Australia
[1951] AC 201, PC). In other words, if the proper law is English law, and the
contract refers to pounds, UK pounds sterling will normally be the currency
adopted. It appears that the use of a currency named as ‘pounds’ is restricted
to a few countries (such as Egypt, Lebanon), and countries within the UK and
Crown Dependencies (Guernsey, Jersey), the Isle of Man and Gibraltar.

If a currency provision is not specified

Where a party is required to make payment in a foreign currency, that party

is still required to make payment in full even if the pounds sterling value has
fallen by a large amount and the fall is unexpected (Multiservice Bookbinding
Ltd v Marden [1979] Ch 84).

Drafting issues

• Is a clause specifying a currency needed at all? If the agreement only involves

parties based in the United Kingdom and involves only the supply of
goods and services within the United Kingdom, then such a clause is not
necessary.
• In which currency are payments to be made? If a currency clause is required,
is the currency specified? And is the currency sufficiently identified?
For example, if the dollar is specified as the currency, which countries’

246

M04_Boilerplate_Clauses_C.indd 246 07/09/2017 12:57

 Currency

dollar is being referred to? The dollar is used in a number of countries in

addition to the United States of America (for example, Australia, Taiwan,
New Zealand, Singapore, Hong Kong and Canada). The clause should
identify the currency by relation to the country it belongs to avoid any
doubt. For example:
‘All sums due under this agreement shall be paid in Canadian dollars.’

or
‘All sums due under this agreement shall be paid in Singaporean dollars.’

• Is payment only permitted in the specified currency?

• What are the consequences if payment is made in the wrong currency,
such as in US dollars instead of the specified pounds sterling?
• Can the party receiving the payment refuse it?
• Will the party who receives the payment in the wrong currency but
cannot reject that payment, or chooses not to, have the right to charge
for its additional costs in converting the payment from the ‘wrong’
currency to the ‘right’ currency?
• How and when is the currency to be converted? Is a particular method of
exchanging and converting payments to be used? If payments are to
be received on particular dates, must the payment be made in time to
allow for conversion so that it reaches the account of the recipient of the
payment by the due date?
• Who is to bear the risk of the currency exchange rate changing from what it was at
the date of the agreement and when in fact payment is made? Eg:
• if there is no provision in the agreement, then the party paying will
face the fall (or benefit) of the currency rate changing; or
• that if the movement in currency rates is beyond a certain level, then
the paying party has to pay more; or
• that if the movement in currency rates is beyond a certain level, then
the parties to the agreement either:
• decide that the agreement is terminated; or
• agree to negotiate a new pricing structure.
Changing currency can also affect the party receiving payment, especially
if they have bought a large amount of materials at one currency rate, but
by the time payment is received in that currency the rate has worsened
so that they will receive much less when they convert the payment (after
conversion is made).

Location in the agreement

A currency provision usually forms part of a larger Payment clause.

247

M04_Boilerplate_Clauses_C.indd 247 07/09/2017 12:57

 Currency

Linkage and use

As stated above, a currency provision will be part of a Payment clause, but will
often be seen in:
• agency, distribution or licensing agreements, where payment can be made
in other currencies; or
• agreements involving buying materials either for manufacturing or resale
where the materials are sourced from overseas.

Sample precedent material

Precedent 1—Sample clause

All sums due under this agreement shall be paid in pounds sterling by
cheque made payable to ‘ABC Offshore Account’. In the case of sales
income received by the Company in a currency other than pounds ster-
ling, the royalty shall be calculated in the other currency and then con-
verted into equivalent pounds sterling at the buying rate of such other
currency quoted by [name] Bank plc at the close of business on the last
day of the quarterly period with respect to which the payment is made.

Precedent 2—Right of payee to specify currency for payments

For all sums due under this Agreement the Purchaser shall pay them to the
Seller in pounds sterling or in another currency as the Seller may specify
from time-to-time. [If the Seller requires the Purchaser to make any pay-
ments in a currency other than pounds sterling the Seller shall give prior
written notice [of no less than 14 days] to the Purchaser. [The notice shall
specify which payments shall be in a currency other than pounds sterling,
the currency in which the payment shall be made and [specify any other
conditions]]].

Precedent 3—If payment made in a currency other than the domestic

currency
All sums due under this agreement shall be paid in pounds sterling by
the Purchaser to the Seller. If the Purchaser shall not make a payment in
pounds sterling then Seller shall convert the payment into pounds sterling
at the buying rate of such other currency and quoted by [name of bank]
at [the date the payment is received by the Seller] (or) [the date that the
Seller shall make or request the conversion of the payment by [name of
bank]]. [If the amount in pounds sterling after conversion is less than the
amount stated as due in pounds sterling then the Purchaser shall, within
[14] days of receipt of a written notice from the Seller, pay any difference
as stated in the notice.]

248

M04_Boilerplate_Clauses_C.indd 248 07/09/2017 12:57

 Data protection

Purpose of the clause

Background
In the context of a commercial agreement, every person or organisation
who processes the personal data of others is likely to be subject to the Data
Protection Act 1998 (DPA 1998). However, for many commercial agreements,
the parties will not need to address any issues that arise under the DPA 1998,
in the agreement itself, if one or all parties will not be processing personal
data in order to fulfil one or more of its obligations under the agreement.
However, if one or all of the parties are involved in the processing of personal
data, then the other party(ies) will want re-assurance that the party(ies)
are doing so in accordance with the DPA 1998. The aim of this section is to
outline how a mainstream commercial agreement can contain a provision to
demonstrate that. If the parties wish to provide the detail of how one party will
process personal data, then a specialist agreement will be necessary, which is
outside the scope of this book.
A consideration of the requirements of the DPA 1998 is beyond the scope
of this book (in particular the requirements and duties on a person who
processes personal data (specifically the internal procedures and policies that
such a person has to have in place and must comply with), notification to the
Information Commissioner, handling subject access requests, exemptions
or a person wanting to transfer data outside of the European Economic
Area). However this section focuses on instances when some wording may be
necessary in a commercial agreement, particularly:
• When one party needs to process personal data as part of carrying out its obligations
under an agreement. If this is the case, the other party will want assurances
or undertakings that the first party is doing so in accordance with the
DPA 1998.
Eg, a company hires a consultant to carry out a survey of persons to
establish whether they are likely to buy the company’s product. The
consultant may obtain personal data from the persons surveyed but need
not pass that on to the company. In such a case the company may wish to
have reassurance that the consultant is complying with the DPA 1998. See
Precedents 1, 2, 3, 4 or 5.

249

M05_Boilerplate_Clauses_D.indd 249 07/09/2017 12:58

 Data protection

• When one party (first party) is processing personal data provided by the other party
(second party), and the first party is processing the personal data on behalf of the
second party. In such a situation the second party:
• will not only want assurances and undertakings that the first party is
processing data in accordance with the DPA 1998, but will want to
more specifically control how and what the first party is doing with the
personal data that the second party has provided; and
• may also want the first party to acknowledge or make a statement that
it is not a data controller for the purposes of the DPA 1998 (see below
for a definition of ‘data controller’).
Eg, a company has details of customers (individuals) who have bought its
products. It wishes to establish whether they are happy with the products
and hires a consultant to carry out research with the customers. The
company will pass on personal data of the customers to the consultant.
In addition to assurances and undertakings, the company may also want
to control how the consultant will use the personal data, eg only for the
purposes of the agreement, not to transport the data outside the EEA, not
to sub-contract processing of the personal data to a third party, etc. See
Precedent 6. (This example assumes that the company has the permission
of its customers to process the personal data of the customers in the way
envisaged by the example.)
From 25 May 2018, the EU General Data Protection Regulation (2016/679)
(GDPR) is due to come into force throughout the EU, which includes the
United Kingdom, despite the Brexit vote in June 2016. The GDPR introduces
major changes to the processing of personal data, most of which will not affect
the general type of provision within a mainstream commercial agreement,
which is the subject matter of this section. The meaning of personal data
under the GDPR is broadly similar to that under the DPA 1998 but:
• more types of data can amount to personal data and accordingly come
within the provisions of the GDPR (such as IP addresses); and
• sensitive personal data now includes genetic and biometric data if in
processing such data it can be used to identify an individual.
There are increased obligations on those who process personal data,
including a new ‘accountability’ principle, which requires a data controller
to demonstrate their compliance with the data protection principles (these
are similar to those found in the DPA 1998). The GDPR will require those
who process personal data to adhere to more detailed procedures, policies,
and record keeping to demonstrate how they are meeting the accountability
principle (on such matters as the purposes for processing personal data,
the categories of individuals and types of personal data processed, how long
personal data is retained, and a description of the technical, organisation
and security measures in place). The rights of data subjects are increased, so
that a limited form of a ‘right to be forgotten’ is introduced as well as ‘data
portability’ (ie that a person to whom the personal data relates has the right to
receive it ‘in structured, commonly used and machine-readable format’).

250

M05_Boilerplate_Clauses_D.indd 250 07/09/2017 12:58

 Data protection

Key terms

In order to deal with the commercial issues mentioned above, it is necessary

to understand some words and phrases that have particular meaning in the
DPA 1998. The equivalent meanings under the GDPR are set out in Statutory
definitions below.
The most important for the purposes of this section are:
• Personal data. Only if the data relates to one or more living individuals
will the DPA 1998 apply. Business or technical information (of a company
or other incorporated organisation) will not be subject to the DPA 1998.
(‘Personal data’ is ‘data which relate to a living individual who can be
identified: (a) from those data; or (b) from those data and other
information which is in the possession of, or is likely to come into the
possession of, the data controller’ (DPA 1998, s 1(1)). There is a further
definition for ‘sensitive personal data’, which includes such information as
a person’s racial or ethnic origin, political opinions, religious and similar
beliefs, physical and mental health or condition, sexual orientation etc
(DPA 1998, s 2).
• Data controller. A data controller is the person who determines the
purpose(s) for which and the manner in which any personal data is
processed (DPA 1998, s 1(1));
• Data processor. If someone is processing data on behalf of someone else
(other than an employee processing the data) then s/he is a data processor
(DPA 1998, s 1(1));
• Processing data in accordance with the data protection principles. A data
controller must comply with the eight data protection principles for the
data for which it is the data controller (DPA 1998, s 4(4)). The eight data
principles include that the data:
• is processed fairly and lawfully;
• is obtained for a lawful purpose;
• is accurate and up to date;
• is not kept for longer than necessary; and
• is not transferred outside the EEA (unless there are adequate levels of
protection), etc.
The data protection principle regarding ‘processing personal data
fairly and lawfully’ is subject to further requirements. These include:
(1) obtaining the consent of the data subject for the processing of the
personal data of the subject; or (2) that the processing of the personal
data of a data subject is necessary: (a) to perform a contract (of which the
data subject is a party); or (b) to enter into the contract (at the request
of the data subject); or (3) the processing is necessary in order for the
data controller to comply with legal obligations arising other than under

251

M05_Boilerplate_Clauses_D.indd 251 07/09/2017 12:58

 Data protection

contract. There are further requirements where the data is sensitive

personal data (DPA 1998, Schs 2 and 3).

Drafting issues

• Will a party be generating or processing personal data? If the agreement calls for
a party to generate or process personal data as part of fulfilling a specific
obligation under the agreement then the other party may wish to have an
assurance that the first party is doing so in accordance with the DPA 1998.
• Will one party be providing personal data to the other party to process on behalf
of the first? The first party will normally be acting as a data controller (see
Key terms above) as it will be controlling the way that the personal data is
processed on its behalf. The data controller remains responsible for its
processing to others (such as the Information Commissioner) and will
need to deal with subject access requests. Accordingly the data controller
will wish to know that the second party is storing, handling and processing
the personal data in a way that does not compromise the first party or
make the first party liable for breaches of the DPA 1998.
• Will a party who processes data on behalf of another party be acting as a data
controller or data processor? The obligations are greater under the DPA 1998
on a data controller than a data processor. Accordingly a person who
is only processing data in accordance with the instructions and to the
requirements of another person is unlikely to wish to be subject to the
requirements of the DPA 1998 as a data controller. Such a person is likely
to wish to have in an agreement an acknowledgment that it is not acting as
a data controller. However, in some contracts, both parties can be acting
as data controllers if they are taking their own decisions on how to process
the personal data. Each case will need examination to determine the
reality.

Location in the agreement

The location of a clause such as Precedent 6 is likely to be with Secondary
Commercial Provisions. Clauses that deal with statements, etc, that a party
will comply with the provisions of the DPA 1998 will often appear together
with clauses dealing with Warranties and other similar clauses (such as
representations, undertakings etc).

Linkage and use

See discussion above.

252

M05_Boilerplate_Clauses_D.indd 252 07/09/2017 12:58

 Data protection

Sample precedent material

Precedent 1—Short form–Statement that a party will comply with the

DPA 1998
[Party A] shall comply with the provisions of the Data Protection Act 1998
[and with the data protection principles set out in the Data Protection Act
1998].

Precedent 2—Short form–Statement that a party will comply with the

DPA 1998 and its replacement
[Party A] shall comply with the provisions of the Data Protection Act 1998
[and with the data protection principles set out in the Data Protection
Act 1998], and from the day that the General Data Protection Regulation
2016/679 is in force, [Party A] shall also comply with the provisions of the
Regulation [and with the data protection principles set out in Article 5 of
the Regulation].

Precedent 3—Short form–Statement that a party will comply with the

DPA 1998 (and its replacement) and other laws
[Party A] shall comply with the provisions of the [Data Protection Act
1998][General Data Protection Regulation 2016/679] and any other laws
and regulatory provisions and requirements which apply to [Party A] and
the obligations of [Party A] under this Agreement.

Precedent 4—Representation and undertaking that a party will comply

with the DPA 1998 (or its replacement)
[Party A] represents and undertakes that it shall comply with [all] the
provisions of the [Data Protection Act 1998][General Data Protection
Regulation 2016/679] (to the standard of at least, or in accordance
with the obligations imposed by, the data protection principles set out
in the [Data Protection Act 1998][ General Data Protection Regulation
2016/679].

Precedent 5—Longer form–Statement that a party will comply with the

DPA 1998 (or its replacement)
Where [Party B] processes and/or stores personal data (as defined under
the [Data Protection Act 1988] [General Data Protection Regulation
2016/679]) it shall:
(a) comply with the provisions of the [Data Protection Act 1988][General
Data Protection Regulation 2016/679]; and
(b) act only in accordance with the data protection principles set out in
the [Data Protection Act 1998] [General Data Protection Regulation
2016/679]; and
(c) apply relevant guidance issued by the Information Commissioner;
and

253

M05_Boilerplate_Clauses_D.indd 253 07/09/2017 12:58

 Data protection

(d) if it acts as a data controller (as defined in the [Data Protection Act
1998][General Data Protection Regulation 2016/679]) and at the date
of this Agreement, have a valid entry in the register maintained by the
Information Commissioner [as required under law][under the [Data
Protection Act 1998][General Data Protection Regulation 2016/679]].
After the date of this Agreement Party A shall maintain and renew the
registration for the period of this Agreement.

Precedent 6—Provision where one party processes data on behalf of

another

Data protection
1 The parties acknowledge and agree that in order for [Party B] to pro-
vide the Services:
(a) [Party A] shall supply data to [Party B] which is within the mean-
ing of ‘personal data’ (the ‘Party A Personal Data’) as defined
in the [Data Protection Act 1988][General Data Protection
Regulation 2016/679]; and
(b) [Party B] shall need to process the Party A Personal Data on
behalf of [Party A]; and
(c) [Party B] shall be a data processor (as defined by the [Data
Protection Act 1998][General Data Protection Regulation
2016/679]); and
(d) [Party A] shall be the data controller (as defined in the [Data
Protection Act 1998][General Data Protection Regulation
2016/679]).
2 [Party B] shall process and use the Party A Personal Data only for
the [Data Protection Purpose][purpose], in accordance with the provi-
sions of this Agreement and together with any [reasonable] instruc-
tions from [Party A].
3 [Party B] declares it shall, only to the extent necessary and only with
the necessary means required to perform the Services, process the
Party A Personal Data.
4 [Party B] shall not, except with the prior written permission of [Party
A]:
(a) transfer or process any of the Party A Personal Data outside of
the European Economic Area;
(b) sub-contract any of its obligations regarding or in relation to the
Party A Personal Data.
5 [Party B] shall employ such technical and organisation resources
and measures as are necessary to comply with its obligations under
the [Data Protection Act 1998][General Data Protection Regulation
2016/679] and to prevent any unlawful or unauthorised use or pro-

254

M05_Boilerplate_Clauses_D.indd 254 07/09/2017 12:58

 Data protection

cessing of the Party A Personal Data or against accidental loss or

destruction of, or damage to, personal data. Without prejudice to the
generality of the forgoing sentence, [Party B] shall also comply with
any reasonable instructions that [Party A] shall provide from time-to-
time. Within [ ] working days of the date of a written notice from [Party
A], [Party B] shall provide to [Party A] such details as are specified in
the notice regarding the technical and organisation resources used to
comply with its obligations under the Data Protection Act 1998.
[Note: the first sentence of this clause tracks the wording of 8th data
protection principle.]
6 Where a person makes a subject access request under the [Data
Protection Act 1998][General Data Protection Regulation 2016/679]
for any of the Party A Personal Data which relates to him or her and
which is held or processed by [Party B], [Party B] shall co-operate
to the extent necessary, and subject to the instructions and require-
ments of [Party A], in order for [Party A] to comply with its obliga-
tions under the [Data Protection Act 1998][General Data Protection
Regulation 2016/679].
7 Without prejudice to the provisions of [clause dealing with termina-
tion], on termination of this Agreement for any reason, [Party B]:
(a) shall stop processing the Party A Personal Data from the date of
termination or such other date as the [Party A] shall specify;
(b) shall return to [Party A] any of the Party A Personal Data (includ-
ing all copies in whatever form the copies are held) or at the
option of [Party A], [Party B] shall destroy the Party A Personal
Data and any copies.

Statutory definitions

The following words and phrases are defined in the GDPR:

Personal data: Art 4(1): ‘“personal data” means any information relating
to an identified or identifiable natural person (“data subject”); an identifi-
able natural person is one who can be identified, directly or indirectly, in
particular by reference to an identifier such as a name, an identification
number, location data, an online identifier or to one or more factors spe-
cific to the physical, physiological, genetic, mental, economic, cultural or
social identity of that natural person’.
Sensitive data: this is no longer a defined term, but Art 9 (with the head-
ing ‘processing of special categories of personal data’ states, at Art
9(1): ‘Processing of personal data revealing racial or ethnic origin, politi-
cal opinions, religious or philosophical beliefs, or trade union member-
ship, and the processing of genetic data, biometric data for the purpose
of uniquely identifying a natural person, data concerning health or data

255

M05_Boilerplate_Clauses_D.indd 255 07/09/2017 12:58

 Data protection

concerning a natural person’s sex life or sexual orientation shall be pro-

hibited.’
Data controller: Art 4(7) ‘“controller” means the natural or legal person,
public authority, agency or other body which, alone or jointly with others,
determines the purposes and means of the processing of personal data;
where the purposes and means of such processing are determined by
Union or Member State law, the controller or the specific criteria for its
nomination may be provided for by Union or Member State law’.
Data processor: Art 4(8) ‘“processor” means a natural or legal person,
public authority, agency or other body which processes personal data on
behalf of the controller’.
Processing data in accordance with the data protection principles:
Art 5: ‘1. Personal data shall be:
(a) processed lawfully, fairly and in a transparent manner in relation to
the data subject (“lawfulness, fairness and transparency”);
(b) collected for specified, explicit and legitimate purposes and not fur-
ther processed in a manner that is incompatible with those purposes;
further processing for archiving purposes in the public interest, sci-
entific or historical research purposes or statistical purposes shall, in
accordance with Article 89(1), not be considered to be incompatible
with the initial purposes (“purpose limitation”);
(c) adequate, relevant and limited to what is necessary in relation to the
purposes for which they are processed (“data minimisation”);
(d) accurate and, where necessary, kept up to date; every reasonable
step must be taken to ensure that personal data that are inaccurate,
having regard to the purposes for which they are processed, are
erased or rectified without delay (“accuracy”);
(e) kept in a form which permits identification of data subjects for no
longer than is necessary for the purposes for which the personal data
are processed; personal data may be stored for longer periods insofar
as the personal data will be processed solely for archiving purposes
in the public interest, scientific or historical research purposes or sta-
tistical purposes in accordance with Article 89(1) subject to imple-
mentation of the appropriate technical and organisational measures
required by this Regulation in order to safeguard the rights and free-
doms of the data subject (“storage limitation”);
(f) processed in a manner that ensures appropriate security of the per-
sonal data, including protection against unauthorised or unlawful pro-
cessing and against accidental loss, destruction or damage, using
appropriate technical or organisational measures (“integrity and con-
fidentiality”).
2. The controller shall be responsible for, and be able to demonstrate
compliance with, paragraph 1 (“accountability”).’

256

M05_Boilerplate_Clauses_D.indd 256 07/09/2017 12:58

 Date of agreement

Purpose of the clause

The ‘date of an agreement’ means the date on which the agreement is

executed (ie signed and, in the case of a deed, delivered):
• by all of the parties to the agreement; or
• if the parties sign on different dates, it is the date on which the last party
signs.
If the date on which the agreement is to start operating is different from
the meaning immediately above then the parties should make this clear,
conventionally by adding:
• a definition of ‘Commencement Date’; and
• an operative provision stating when the contract (or parts of the contract)
is to start operating (see Commencement date).

Drafting issues

• Agreement date stated at top of the agreement. By convention, the date of the
agreement is stated at the beginning of the agreement text, above the
names of the parties;
The exact words differ from precedent to precedent (see Precedents);
• Agreement date not typed in, but written in. By convention amongst English
lawyers, the date is left blank until all the parties to the agreement have
signed, and then it is written by hand. In some cases just the year is typed
in or just the month and year is typed in;
• If the parties’ solicitors are involved at this stage, they will usually
agree the date between them;
• If there is no doubt that the agreement will be executed on a particular
date, that date can be typed in, in advance. However, this runs the risk
that the agreement will not, in fact, be signed on that date. Misstating
the date of execution is bad practice and may amount to forgery
(Forgery and Counterfeiting Act 1981, s 9(1)(g));

257

M05_Boilerplate_Clauses_D.indd 257 07/09/2017 12:58

 Date of agreement

The above applies to conventionally signed agreements (ie where a person

puts a real signature on paper). If an agreement is prepared electronically,
and exchanged and commented on electronically, it may never in fact be
printed out onto paper and signed (with real pen signatures). It still may
be signed in the sense that the person signing will type their name in the
place for signatures. However, if the date is stated in a ‘date of agreement
clause’ and the date the parties signed is different, or each signs on a
different date, then the date in the ‘date of agreement’ clause may not
reflect when they signed. Such a practice should always be avoided (for the
reason stated in the previous paragraph). The alternative is not to record
within the agreement itself the date of the agreement, but the parties
should add wording to the agreement to reflect the fact that they are
signing the document other than through the use of real signatures. For
example, the date when the agreement is executed may be communicated
by the parties by an exchange of emails.
If the parties use digital signatures, the date when a party uses their digital
signature in applying it to the agreement will often include various data
such as the date, which will be embedded in the file containing the text
of the agreement.
• Where the agreement is not signed by all the parties on the same day. If the
agreement is not executed by all of the parties on the same date, the
agreement may be dated as follows:
• the date is inserted when the last party signs; or
• if the agreement is signed in counterparts, the agreement is dated
upon exchange of contracts (see Counterparts);
• Reasons for dating an agreement. There are additional reasons for dating an
agreement:
• so that it is possible to identify the particular agreement at a later
date, eg ‘the agreement between X and Y dated [date]’;
• so that provisions in the agreement may take effect by reference to
the date of the agreement, eg where a party needs to pay royalties on
each anniversary of the date of the agreement, or where a party may
not terminate an agreement until a certain period has elapsed since
the date of the agreement (such as a party not being able to terminate
before one year has passed after the date of the agreement);
• where there are several contracts concerned with the same subject
matter it may be essential to know the order in which they were made,
eg as in the case of conveyancing agreements relating to the same plot
of land or where there are several assignments of the same intellectual
property;
• where the agreement is signed in counterparts and the parties’
solicitors agree to date the versions in their possession, dating also
acts as a formal acknowledgment that the agreement has come into
existence (see Counterparts).

258

M05_Boilerplate_Clauses_D.indd 258 07/09/2017 12:58

 Date of agreement

Location in the agreement

The Date of agreement is placed at the top of the agreement in conventionally

drafted agreements.

Linkage and use

The Date of agreement date is normally linked to the:

• Main Commercial Provisions to indicate:
• when the core obligations are to commence:
eg: ‘The Supplier shall supply the Services on the date of this
agreement.’
eg: ‘The Manufacturer shall begin to manufacture the Products from
the date of this agreement.’
• when payment shall be made:
eg, The Customer shall make the Payment within 30 days of the date
of this agreement.
• Secondary Commercial Provisions, such as:
• the length of the agreement,
eg: ‘The agreement shall commence on the date of this agreement
and shall continue for a period of 12 months from and including the
date of this agreement.’
• when the agreement is to terminate;
• whether the agreement is to automatically renew, and/or whether a
notice must be given to prevent automatic renewal.
However, in many conventionally drafted agreements, even if the date of the
agreement and effective/commencement date are the same, a definition of
Commencement Date or Effective Date may still be used.

Sample precedent material

Precedent 1—Date of agreement

THIS AGREEMENT is made on the [day] day of [month] [year] BETWEEN:

Precedent 2—Date of agreement

THIS AGREEMENT dated [date] is made by and between:

Precedent 3—Date of agreement

THIS AGREEMENT is entered into on [date]

259

M05_Boilerplate_Clauses_D.indd 259 07/09/2017 12:58

 Date of agreement

Precedent 4—Date of agreement

Entered into on this [day] day of [month] [year]

Precedent 5—Date of agreement (US format)

This [type of agreement] (the ‘Agreement’) is entered into as of [date]
(‘Effective Date’).

260

M05_Boilerplate_Clauses_D.indd 260 07/09/2017 12:58

 Deeds

Purpose of the clause

Background
This section considers:
• when a document must be executed as a deed;
• some situations when parties may prefer to execute a document as a deed;
and
• the formalities for executing a document as a deed.

When must a deed be used?

Most contractual and commercial agreements do not need execution as deeds

under UK law. There are, however, some situations or documents (which may
or may not be a contract or commercial agreement, or be part of a commercial
agreement) where execution must be by deed. These include:
• documents that create powers of attorney, including documents that
contain powers of attorney as well as other provisions (Powers of Attorney
Act 1971, s 1);
• documents that convey or create a legal estate in land (Law of Property
Act 1925, s 52(1));
• where the mortgagee or chargee is to have the statutory power of sale
(Law of Property Act 1925, s 104);
• any mortgage or charge, whether of land or other property (Law of
Property Act 1925, s 109(1)); and
• various instruments to be registered under the Land Registration Act 2002
(and on specified forms) such as transfer of whole of a registered title
(Land Registration Act 2002, ss 18, 21 and 25(1) and Land Registration
Rules 2003, SI 2003/1417, rr 74, 75, 98 and 206–209).

261

M05_Boilerplate_Clauses_D.indd 261 07/09/2017 12:58

 Deeds

Situations when a deed is sometimes preferred

There is often a preference to execute a document as a deed (even though it is

not strictly necessary to do so) in the following situations:
• a deed is often used to amend a previous contract if the amendments
appear to be to the advantage of only one of the parties. This is often to
avoid doubt as to whether the amendment is binding. Particularly, if no
consideration is given for the amendment, it may not be legally binding
unless executed as a deed;
• a purchaser of a company will require the vendors to execute a deed in
which the vendors covenant with the company to indemnify the purchaser
against certain tax liabilities;
• a bank will normally require a guarantee of payments (which the bank has
previously advanced) to be given by deed, unless it is clear that the bank
is providing consideration, for instance, by refraining from exercising a
right to call in the overdraft;
• a deed is normally used for the release of security;
• the assignment of intellectual property (patents, copyright, designs,
trademarks, etc) is by convention made by deed (although most statutory
provisions relating to intellectual property only require that the assignment
is in writing and signed by the assignor or mortgagee);
• contracts with local authorities are often executed as deeds;
• a settlement of a dispute (eg a written agreement which records the
settlement the parties have reached, either before or after court
proceedings are commenced);
• a director resigning from a directorship.

Why deeds are sometimes preferred

The main advantages of executing an agreement as a deed are:

• No need for consideration. Contracts under hand are generally not legally
enforceable if consideration does not pass to or from the parties to the
contract. Sometimes a nominal consideration (eg £1) is inserted into the
contract to ensure that the contract does not fail for want of consideration.
By contrast, contracts executed as deeds generally will not fail for lack of
consideration. Parties sometimes execute their contracts as deeds to avoid
uncertainty as to whether:
• consideration has passed from one party (from the promisee) to the
other (Tweddle v Atkinson (1861) 1 B & s 393);
• the consideration is past consideration (Re MacArdle [1951] Ch 66);
• when a contract is amended, all the parties are providing consideration.
Eg, the changes may be all for the benefit of one party;

262

M05_Boilerplate_Clauses_D.indd 262 07/09/2017 12:58

 Deeds

• Extended limitation period. In most situations, a party to a contract has six

years to sue for breach of contract by another party. If the contract is
signed as a deed, then the limitation period is extended from six years to
12 years (Limitation Act 1980, s 5).

Varying a deed

It is not normally necessary to use a deed to vary another deed (Plymouth

Corpn v Harvey [1971] 1 All ER 623, [1971] 1 WLR 549; Mitas v Hyams [1951]
2 TLR 1215, CA). However, if there is any doubt about whether there is
consideration for the document amending the deed, the safest course is to
also execute the document varying the deed as a deed.

Formalities for executing deeds

The law concerning the formalities for executing a deed is now mainly
contained in:
• the Law of Property (Miscellaneous Provisions) Act 1989;
• the Companies Act 2006 (ss 44, 46);
• the Law of Property Act 1925 (s 72) (applying mainly to non-Companies
Act 2006 companies/bodies corporate);
• the Overseas Companies (Execution of Documents and Registration
of Charges) Regulations 2009, SI 2009/1917 (applying to non-UK
companies).
Note: the meaning of a ‘company’ below means a company formed or
regulated by the Companies Act 2006, including a private limited company,
public limited company, and company limited by guarantee (Companies Act
2006, ss 3 and 735). It also includes a limited liability partnership which, as far
as execution of documents is concerned, is governed by the same provisions
as a company (Limited Liability Partnerships (Application of Companies Act
2006) Regulations 2009, SI 2009/1804, reg 4), but references to director and
secretary are replaced by references to two members of the limited liability
partnership executing a document.

Requirements to create a deed

Use of a seal
• Individual: A seal is no longer required (Law of Property (Miscellaneous
Provisions) Act 1989, s 1(2)(b));
• company (formed or regulated by the Companies Act 2006): A seal does not have
to be used (but can be if the company so wishes) (s 45(1));

263

M05_Boilerplate_Clauses_D.indd 263 07/09/2017 12:58

 Deeds

• body corporate (not formed or regulated by the Companies Act 2006): A seal is still
required to execute a deed.

Stating it is a deed (individuals, companies, body corporate)

For a document to be a deed, it must state clearly that it is intended to be a
deed by:
• describing itself as a deed:
eg, commencing the document with the words ‘This deed…’;
• expressing itself to be signed or executed as a deed (eg, see Precedent 1);
or
• otherwise by being described as a type of document that must be executed
as a deed;
eg, if the document is described as a ‘power of attorney’ (Powers of
Attorney Act 1971, s 1) or a ‘lease’ which creates a legal estate of over
three years (Law of Property Act 1925, s 52).

Law of Property (Miscellaneous Provisions) Act 1989, s 1(2)(a)

The use of a seal alone will not meet the requirements of the Law of Property
(Miscellaneous Provisions) Act 1989, s 1(2)(a) to make a document a deed
(see Law of Property (Miscellaneous Provisions) Act 1989, s 1(2A)). One
of the ways of stating that an instrument is intended to be a deed indicated
immediately above must be used.

Execution
The document needs to be validly executed as a deed:
• by a person making it or a person authorised to execute in the name or on
behalf of that person;
• by one or more of the parties to the deed or a person authorised to execute
in the name or on behalf of the parties.

Execution formalities
The deed needs to be executed in the appropriate way. What this will mean
will depend on the type of real or legal person executing the deed. A deed
must also be delivered (see below). This applies whether the deed is being
executed by:
• the person making it,
• the parties to it, or
• a person executing in the name or on behalf of the person making it or
the parties to it (Law of Property (Miscellaneous Provisions) Act 1989,
s 1(2)(b), (4A); Companies Act 2006, ss 44(8), 46; Law of Property Act
1925, ss 71(1A), 74A(1)(a)).

264

M05_Boilerplate_Clauses_D.indd 264 07/09/2017 12:58

 Deeds

A ‘person’ is an individual, company, limited liability partnership,

corporation, etc as the case may be.
Where the word ‘sign’ is used, it includes an individual signing in the
name of the person or party on whose behalf he executes the documents
and making the person’s mark on the instrument: Law of Property
(Miscellaneous Provisions) Act 1989, s 1(4).

Execution by different types of person

Execution by an individual
In addition to the document making clear on the face of the document that
it is intended to be a deed by the person making the deed, it is possible to
execute the deed:
• by the individual signing the deed in the presence of a witness, who attests
the signature; or
• by the deed being signed in the individual’s presence and also in the
presence of two witnesses, with the witnesses both attesting the signature.
See the Law of Property (Miscellaneous Provisions) Act 1989, s 1(3).

Execution by a company, formed or regulated by the Companies Act 2006

In addition to the document making clear on the face of the document that
it is intended to be a deed by the person making the deed, a company can
execute a deed by:
• where a company does not have or use its common seal:
• a director and the company secretary;
• two directors; or
• one director in the presence of a witness,
signing the deed;
or
• where a company has and wishes to use its common seal then if the default
articles of association apply (Art 49 in the Companies (Model Articles)
Regulations 2008, SI 2008/3229, Sch 1) the seal is fixed and then:
• a director;
• the company secretary; or
• a person (previously authorised by the directors)
signing the deed.
See the Companies Act 2006, s 44(2), (3).

265

M05_Boilerplate_Clauses_D.indd 265 07/09/2017 12:58

 Deeds

Corporation (not formed or regulated by the Companies Act 2006)

A document is deemed to be duly executed in favour of a purchaser when
the seal of the corporation is affixed to the document in the presence of two
directors or one director (or equivalent, ie, a member of the governing body
of the corporation) and the clerk, secretary, or other permanent officer of the
corporation. Other than this method of execution, a deed will be executed
according to the method stated in the statute or royal charter (or other
incorporating document) of the corporation.

Foreign companies
For a company incorporated outside of Great Britain in order to execute
a deed:
• it can use any manner permitted by the laws of the territory in which
the company is incorporated for the execution of documents by such a
company; or
• by two persons signing the document who, in accordance with the laws of
the territory in which the company is incorporated, are acting under the
authority (express or implied) of that company.
See the Overseas Companies (Execution of Documents and Registration of
Charges) Regulations 2009, SI 2009/1917.

Delivery of deeds

For the valid execution of a deed, the deed not only needs to be signed in the
appropriate way but it must also be ‘delivered’ (Law of Property (Miscellaneous
Provisions) Act 1989, s 1(3)(b); Companies Act 2006, s 46; Law of Property Act
1925, s 74A(1)(b)).
For all types of companies and corporations, there is a presumption that an
instrument is delivered upon execution, unless a contrary intention is proved
(Companies Act 2006, s 46(2); Law of Property Act 1925, s 74A(2)). The
practical consequence of this presumption is that a company or corporation
that signs a document that contains wording such as ‘signed and delivered
as a deed’, will be (irrevocably) bound as soon as it signs the document (see
immediately below for more on this point).
In practice:
• deeds are either stated to be delivered upon signature; or
• delivery is not mentioned at all; or
• the parties or their lawyers agree a different date for delivery.
In the final case, the lawyers agree to date the document and then write the
date onto a physical copy of the deed (assuming that the deed is printed onto
paper and has real signatures).

266

M05_Boilerplate_Clauses_D.indd 266 07/09/2017 12:58

 Deeds

Sometimes, deeds are signed by a party and then, by arrangement, are held in
escrow by a solicitor, so that the deed only takes effect when the solicitor states
that the deed is released from escrow and delivered. This usually happens
when some condition has been met, eg in a contract of sale, when the contract
price reaches the bank account of the seller.
Deeds that have been delivered cannot be withdrawn (including those
delivered in escrow). The only exceptions are where it is impossible for the
condition of the escrow to be fulfilled or there is wording that clearly allows a
party to withdraw the deed at its discretion.
In consequence, a document executed as a deed is a different type of
document to one executed under hand in several ways, but perhaps the
concept of ‘delivery’ is the one most persons (even lawyers who do not have
any working knowledge of the law relating to deeds) have difficulty in grasping
or understanding its implications. For example, see Silver Queen Maritime Ltd v
Persia Petroleum Services plc [2010] EWHC 2867 QB, where the lawyer working
for a commercial law firm (who acted for the defendants) was unfamiliar with
the binding consequences of a document that contained the wording such as
that set out in Precedent 1 (see Case analysis below).
Many deeds will be simply ‘delivered’ upon execution and will start
operating immediately and not be subject to the fulfilment of a condition
or requirement. However, a deed that is subject to a condition is in a way
akin to a commercial agreement that contains a condition precedent; ie the
parties are bound by the agreement although the condition precedent is not
yet fulfilled or activated. As with a commercial agreement that contains a
condition precedent, for a deed a party that signs the deed will be bound by it
as soon as they sign (ie it is delivered as soon as they sign, unless there is clear
and strong evidence that it is not delivered on signature). If the deed contains
or is subject to a condition then the party who signed the deed cannot
recall or cancel the deed (or the intention to be bound) while they wait for
the condition to be fulfilled. If a party wishes to have control of the period
between signing a deed and its delivery, then the deed will need to include
wording that gives that party the power to recall or cancel the document at its
discretion.

Execution only of complete documents

Common practice nowadays is to circulate complete or parts of documents

electronically, which could involve one or more parties to a document signing
the signature page of the document separately to the rest of it (such as just
printing off the signature page, signing it and then just returning a scanned
copy, or signing the signature page in advance of agreement of the provisions
of the document and then attaching the signature to the final version of the
document).
The interpretation of the Law of Property (Miscellaneous Provisions) Act
1989, s 1(3) by a court (in R (on the application of Mercury Tax Group) v Revenue

267

M05_Boilerplate_Clauses_D.indd 267 07/09/2017 12:58

 Deeds

and Customs Commissioners [2008] EWHC 2721 (Admin), means that such
practices are never acceptable where a deed is involved.
Where a party must or wishes to sign a document as a deed:
• a party must only sign the document as a complete document; and
• where the document is circulated it must be circulated only as a complete
document; and
• a party must never sign the signature page separately to the rest of the deed
except as indicated in the next paragraph.
There is also guidance from the Law Society in England and Wales about how
the parties should circulate by electronic means, and sign particular types of,
document (see Drafting and Negotiating Commercial Contracts, 4th Edn, 2016,
for further details). Documents that are deeds or contracts relating to the
sale of land should never be circulated other than as complete documents.
However, receiving a document as a deed by email, does not mean that the
party must print on to paper the whole document. The party can print off
just the signature page, sign that, scan it, and then return by email the other
part of the deed and the scanned, signed, signature page (ie as two separate
files) together to the other party, according to the guidance. According to the
guidance such a practice would be sufficient to satisfy the interpretation of the
Law of Property (Miscellaneous Provisions) Act 1989, s 1(3) by the court.

Aspects particular to companies

• More than one capacity. Where a person is a director or secretary of more

than one company, and a document needs signing by those companies,
then the person needs to sign separately for each of the companies
(Companies Act 2006, s 44(6)).
Eg, a company (the Subsidiary) is entering into an agreement, but the
other party requires that the parent company of the Subsidiary (the
Parent) guarantees that the Subsidiary will perform its obligations. In this
case both the Parent and the Subsidiary are parties to the agreement.
If a director of the Subsidiary is also a director of the Parent, then the
director would have to sign the document twice, once in his capacity as
director of the Subsidiary, then separately in his capacity as director of the
Parent. The signature block should clearly indicate that there is a separate
signature for the Parent and for the Subsidiary, or if the director is signing
only once, then the signature block should state clearly that he is signing
both as a director for the Parent and also for the Subsidiary
• Where a director or secretary of a company is not an individual. Where a
document is to be signed by a director or secretary, and that director
or secretary is not an individual but a company, then the document can
be signed by an individual authorised by the director or secretary on its
behalf (Companies Act 2006, s 44(7)).

268

M05_Boilerplate_Clauses_D.indd 268 07/09/2017 12:58

 Deeds

• Documents in favour of a purchaser. A document in favour of a purchaser is

assumed to be executed when it is signed by a director and the company
secretary or by two directors. (‘Purchaser’ means a purchaser in good
faith for valuable consideration and includes a lessee, mortgagee, or other
person who for valuable consideration acquires an interest in property)
(Companies Act 2006, s 44(5)).

Drafting issues

The following are some of the key issues which need to be considered if a party
is contemplating signing a document as a deed:
• Must the party sign the document as a deed? See When must a deed be used?,
above;
• Is the situation, matter or transaction one where it is normal or expected
for a document to be signed as a deed? See Situations when a deed is
sometimes preferred, above;
• Are all the necessary persons included in the deed? Are all the persons who are
placed under an obligation or who are to be parties to the deed named in
the document?
• Does the document state clearly that it is intended to be a deed? See Stating it is a
deed, above;
• Is the person signing the deed signing in the correct capacity? If a person
(individual, company, body corporate) is signing on behalf of another
person, are they using the correct form for their status? Eg:
• if an individual is signing a deed on behalf of a company or body
corporate, the individual should be signing as an individual and
having their signature witnessed;
• if a company is signing on behalf of an individual, then the company
should be signing the document in that capacity, by having a director
and the company secretary or two directors or a director in the
presence of a witness signing the document;
• Where a deed is to be executed on behalf of a person, has sufficient authority been
given or seen? Although it is now specifically permitted for a deed to be
executed on behalf of a person, the other party to the deed or a person
receiving the deed may have concerns whether the person executing the
deed has been properly authorised.
It is suggested that:
• the deed should recite that the person signing has been authorised by
the person making the deed or the relevant party to the deed;
• the signature block clause should be adapted to state that the person
signing on behalf of the person making the deed or the relevant party
to the deed has been authorised to do so; and

269

M05_Boilerplate_Clauses_D.indd 269 07/09/2017 12:58

 Deeds

• that the person making the deed or the relevant party to the deed
should provide written authority (such as a power of attorney, board
resolution etc).

Location in the agreement

Concerning describing the instrument as a deed then:

• there will be an indication in the Date of the agreement clause that the
instrument is a deed; and/or
• there will be indication in the execution clause that the document is a
deed (usually that it is being ‘executed as a deed’) (see Agreeing to enter
and signing an agreement (execution and signature block clauses)).
Regarding execution of the deed, the appropriate wording will need to be
used depending on the status of the person signing the deed (and whether it
is delivered or not). See Agreeing to enter and signing an agreement (execution and
signature block clauses).

Linkage and use

See points raised under Purpose of the clause, above.

Sample precedent material

Precedent 1—Execution clause – agreement executed and delivered as a

deed (delivery when signed)
Executed and delivered as a deed by the parties.

Precedent 2—Execution clause – agreement executed as a deed

(delivery when deed dated)
Executed as a deed by the parties and delivered on the date of this agree-
ment.

Precedent 3—Alternative form (delivery when deed dated)

Executed as a deed by the parties and delivered when dated.

Precedent 4—Alternative form (delivery when deed dated)

Executed as a deed by the parties and delivered on the date which first
appears in this agreement.

Precedent 5—Execution clause – document executed by company as a

deed (delivery when signed)
Executed as a deed and delivered by [name of company] pursuant to a
resolution of its Board of Directors duly passed, a certified copy of which
was delivered upon the execution of this deed.

270

M05_Boilerplate_Clauses_D.indd 270 07/09/2017 12:58

 Deeds

Precedent 6—Alternative form (delivery when deed dated)

Executed as a deed [(but not delivered until the date hereof)] by [name of
company] and signed by [a director and the secretary or two directors].
Note: if only one director is signing then that director will need to sign
in the presence of a witness, who will need also to sign and add their
details.

Precedent 7—Alternative form (document executed by company as a

deed (delivery when signed)
Executed as a deed and delivered by [name of company] acting through
a [director and the secretary or two directors or a director] [on the date of
this agreement].
Note: if only one director is signing then that director will need to sign in
the presence of a witness, who will need also to sign and add their details.

Precedent 8—Execution clause – delayed delivery/escrow (delivery when

condition fulfilled, no explicit wording that not irrevocable)
[Signed and delivered as a deed by the above-named [executing party]
and placed in the hands of [custodian] of [address] to be delivered up
to the above-named [other executing party] [when the above-mentioned
sum of £… has been paid by [other executing party] to [custodian] as the
agent and on behalf of [executing party] or [specify]] in the presence of:
or
Signed and delivered in escrow as a deed on condition that the deed is
not to take effect [unless and] until [specify condition of escrow] in the
presence of:]

Precedent 9—Execution clause – delivery subject to a condition –

alternative form (no explicit wording that not irrevocable)
Executed as a deed and signed by [a director and the secretary or two
directors or a director] and delivered on a fulfilment to a condition set out
in Clause [no].
The clause in the condition could state:
This Deed shall only be delivered on fulfilment of the following condition
[set out the condition].

Precedent 10—Execution clause – delivery subject to a condition –

alternative wording – power of recall or cancellation
Executed as a deed and signed by [a director and the secretary or two
directors or a director] and delivered on a fulfilment to a condition set out
in Clause [no].
The clause in the condition could state:
This Deed shall only be delivered on fulfilment of the following condition
[set out the condition]. In the period between the signing of this Deed and

271

M05_Boilerplate_Clauses_D.indd 271 07/09/2017 12:58

 Deeds

the fulfilment [Party A] at its complete and unfettered discretion, shall be

able to recall and cancel this Deed by a notice sent in writing to [Party B].

Precedent 11—Delivery of documents free from escrow

[Party A] shall deliver to [Party B] fully executed copies free from any
escrow of all documents referred to in Clause [no] of this agreement.

Precedent 12—Assignment of rights free from escrow

On the payment by the Company to the Owner of the sum provided in
Clause [no] the Owner shall contemporaneously deliver to the Company
or its nominee unconditionally and free from any escrow the Assignment
of [the Copyrights] validly executed by the Owner.

272

M05_Boilerplate_Clauses_D.indd 272 07/09/2017 12:58

 Definitions

Purpose of the clause

Background
A definitions clause provides the meaning that certain words are to have
when used in an agreement. The layout and styling of a definitions clause (if
used at all) is a matter for personal preference. However, the aim is that the
definitions aid the user(s) of an agreement in understanding the meaning
and purpose of the agreement.

Reasons for the use of a definitions clause

The reasons for doing so are:

• to avoid repeating a long list of words or complex phrases in several places
in an agreement;
eg An agreement provides that particular rights and obligations affect
some of the intellectual property that a party owns or has rights over. If
the various types of intellectual property were set out each time a right
or obligation affected them then the sentence containing the types of
intellectual property would be unreadable (see the listing of the types of
intellectual property found in the precedent material under Intellectual
Property);
• to avoid ambiguity as to what is, or is not, meant when a particular word is
used. This is particularly important where a word is used in a sense
• other than its natural dictionary meaning, or
• where there are several dictionary meanings.
Eg, the word ‘person’ in its natural meaning usually means a human
being, but in a commercial agreement the meaning will also encompass
a corporation and a partnership. The Interpretation Act 1978, s 5, Sch 1,
includes a provision for the meaning of a person to include a ‘body
of persons corporate or incorporate’. But this meaning is only for the
purposes of an Act.

273

M05_Boilerplate_Clauses_D.indd 273 07/09/2017 12:58

 Definitions

Matters to avoid when defining or using a definitions clause

The parties to an agreement should avoid the following when using a

definition clause:
• Over defining. This means having a very complex or lengthy meaning for a
word, ie trying to describe or set out every circumstance. See, for example,
a precedent found in the Encyclopaedia of Forms and Precedents, Volume
19(2)(B), para 4064, where ‘control’ stretches to nearly 200 words:
‘means the possession, directly or indirectly, of the right or power to direct
or cause the direction of the management policies of a person either by
contract or through ownership of shares or securities carrying a majority
of the votes ordinarily exercisable by the holders of all such shares or
securities or through the ability to appoint the majority of the directors
or other governing officers of a person or through ownership of shares
or other securities which carry the right to receive the greater part of the
income of such person (if all its income were to be distributed) or the
right to receive the greater part of the assets of such person (if all its net
assets were to be distributed) or howsoever otherwise and “controlled”
shall be construed accordingly. A “change of control” when applied to
any party shall be deemed to have occurred if any person or persons who
control such party at the date of the execution of this agreement (or the
date such party becomes bound by this agreement if later) subsequently
cease to control it or if any person or persons acting together subsequently
acquire control of it’

The danger of such long definitions is that they fall subject to the legal
Latin maxim expressio unius est exclusio alterius (the expression of one thing
excludes another, see Cumulative Remedies). The fact that one situation or
factor is not defined might mean that a court would hold that it has been
deliberately excluded (see Seay v Eastwood [1976] 1 WLR 1117 at 1121).
However, it is not always possible to avoid long definitions. Eg, a definition
of intellectual property might include a large number of items because
‘intellectual property’ does not have one settled meaning, or the types of
intellectual property which are subject of the agreement might vary from
one agreement to another.
• defining more terms than are necessary. Eg:
• defining technical words when the meaning is understood by the
parties or the meaning is set by a recognised third party organisation;
or
• where the meaning is clear from the context of agreement, or
• defining words where there already exists a meaning defined by
legislation, such as:
‘month’ shall mean a calendar month (set out in the Interpretation
Act 1978); or
‘holding company’ or ‘subsidiary’ etc (set out in the Companies Act
2006)

274

M05_Boilerplate_Clauses_D.indd 274 07/09/2017 12:58

 Definitions

• including operative provisions in a definition. A definition should not include

any wording concerning the obligations a party is to perform or any
benefits it is to receive. That is, a definition should contain no more than
the meaning of a word or phrase.
Eg, a correctly used definition of ‘Services’ will state what services the
consultant will provide to a client, such as:
‘Services’ shall mean the provision of advice, assistance and a report

but an incorrectly used definition would include an operative provision,

and the definition might in consequence read:
‘Services’ shall mean the provision of advice, assistance and a report, which
the Consultant shall provide to the Client on the 31 December 2017.

• only referring to other definitions in a definition. If a definition consists of

no more than a compendium of other definitions, then the user of the
agreement will then have to refer to all of those other definitions in order
to understand that particular definition as well as its meaning in the
context of its use in the agreement itself.
None of these issues can, in themselves, make an agreement ineffective, but
they will all contribute to making the agreement less logical in its layout and
harder for users of the agreement to understand and interpret.

Other issues to consider when defining or using a definitions

clause

• Use of ‘Unless the context requires otherwise’ or ‘where the context so admits’. The
aim of these phrases is to cover the situation where there is a defined
word, but it is used somewhere in the agreement in a sense other than
its defined meaning. Sometimes the problem is that a party to, or user
of, the agreement may not be clear as to when a defined word is being
used ‘where the context requires otherwise’ or ‘where the context so
admits’ (see Blue Metal Industries Ltd v RW Dilley [1970] AC 827, [1969]
3 All ER 437, PC; Floor v Davis [1980] AC 695, PC and Oxonica Energy Ltd
v Neuftec Ltd [2009] EWCA Civ 668 and Case analysis below).
For example, if intellectual property is defined as meaning only patents
and use of the defined expression is with initial capitals (Intellectual
Property), then writing the expression in lower case might mean that
the use of the expression means something other than just patents. The
difficulty is in knowing whether the user will spot the difference and also
determining whether the drafter has not just made a mistake by failing to
use initial capitals.
The best solution, where the parties clearly wish a defined word to have a
sense other than its defined meaning, is to:
• clearly set out the meaning that it is to have in the part of the
agreement in which it will be used; or

275

M05_Boilerplate_Clauses_D.indd 275 07/09/2017 12:58

 Definitions

• create a separate definition just for the different meaning.

With each solution, the parties to, or the users of, the agreement will not
be in doubt as to the intended meaning.
• Whether the meaning of a defined word as set out in the agreement expresses
the intentions of the parties. If the parties to an agreement have used a
definition for a word or phrase then normally that definition will prevail.
If the parties negotiated their agreement on the basis that a word has
a particular meaning, but that meaning differs from the definition as
expressed in the agreement, they will normally be bound by the definition
and not by their shared meaning (eg Chartbrook Homes Ltd v Persimmon
Homes Ltd [2007] 1 All ER (Comm) 1083; JIS (1974) Ltd v MCP Investment
Nominees I Ltd [2003] EWCA Civ 721; T&N Ltd (In administration) v Royal
& Sun Alliance plc [2003] 2 All ER (Comm) 939).
It is possible for a court to depart from the defined meaning, but this
is likely to occur only when, in the context of the agreement and its
background, it is clear that ‘notwithstanding his chosen definition the
draftsman just must have meant something else by the use of the term’
(see City Inn (Jersey) Ltd v Ten Trinity Square Ltd [2008] EWCA Civ 156).
A court is likely to need strong and overwhelming reasons for so doing,
particularly if the document is prepared by lawyers. The extent to which it
is possible to do so is not clear (see Margerison v Bates [2008] EWHC 1211
(Ch), [2008] 3 EGLR 165). However it is likely to be slightly easier for a
judge to depart from the chosen definition if the agreement includes the
words ‘if the context otherwise requires’ (see Oxonica Energy Ltd v Neuftec
Ltd [2009] EWCA Civ 668, and Case analysis below).
A further issue is that many parties use standard templates for their
agreements and they do not carefully consider whether the wording
used in a definition accurately reflects the parties’ shared meaning for
the particular deal. The particular danger here is that definitions are
sometimes seen as being akin to boilerplate and therefore not needing
consideration. Consequently, their meaning may not be checked
against the precise meaning that one or more of the parties has for the
particular deal.
• Using the word ‘including’ in a definition. A definition may define a thing or
matter but may also state that it includes similar matters by using the word
‘including’, such as in the following definition:
‘IPR Agreements’ shall mean all agreements, options, understanding, and
other arrangements that relate wholly or partly to any of the Business IPRs
and/or the Intellectual Property Rights used or otherwise exploited in
connection with the Transferred Business including but not limited to, the
agreements set out in Schedule 3’.

Where used, the word ‘including’ will generally mean that the definition
is not self contained, and can include similar items that have the same
meaning as the defined term, in the context of the agreement (see Adelphi
(Estates) Ltd v Christie [1984] 1 EGLR 19).

276

M05_Boilerplate_Clauses_D.indd 276 07/09/2017 12:58

 Definitions

Drafting issues

When preparing or considering the wording of a definitions clause, a contract

drafter will wish to take account of the following matters:
• Location. In which part of the agreement should the definitions appear?
• Beginning. Near the beginning (after the Parties clause and the
Recitals): allowing the user to find the definitions easily;
• End. Near the end (before the boilerplate or in a schedule): allowing
the user to immediately read and deal with the key commercial
provisions, without getting bogged down in the detail of the
definitions. This layout method might be suited to the inexperienced
user of commercial agreements or where the definitions run over
several pages;
• Within the clause. In some agreements the meaning of a word is defined
within a particular clause. This is often because the defined word is
used only within that clause;
• Beginning and end. Where there are many definitions, the key
definitions are located at the beginning of the agreement while the
remainder are located near the end or in a schedule. This can avoid
the user of the agreement being overburdened by too many definitions
at the beginning before getting to the substantive provisions, and
being able to see the key definitions easily as well. This approach is
not recommended, as the user may need to keep going back and
forth between the parts containing the definitions in order to find the
definition the user is looking for;
• Recognition of a defined word. It is possible to indicate a defined word in a
number of ways:
• capitalising the first letter of a defined word: this will signal to anyone
reading a clause in the body of the agreement that a particular word
or term has a special defined meaning in that agreement.
One of the difficulties with this style is a practical one of remembering
to always capitalise a word as a defined word. If consistency is not
maintained, a drafter may type a defined word other than in its
capitalised form. In the event of a dispute a court may not treat it in its
defined meaning when called upon to interpret a clause containing
such a word.
(Tip: Nowadays most people will realise that word processing software
can carry out searches for all instances of a word or a phrase. However
it is also possible to carry out a search for all instances of a word in its
non-capitalised form only. For example, if ‘intellectual property’ is a
defined term, appearing as ‘Intellectual Property’ in the agreement,
then it is possible just to search for any instance of those words
that appear as ‘intellectual property’ and ignore all instances of
‘Intellectual Property’.)

277

M05_Boilerplate_Clauses_D.indd 277 07/09/2017 12:58

 Definitions

• using styling, such as making the word appear in bold or in italic,

sometimes in addition to capitalising the first letter of a defined word;
• highlighting the word by the use of characters such as ‘*’.
Either of the above approaches allow a user of an agreement to see
defined words more easily. However, for some users, having a section
of an agreement that contains a lot of defined words may be irritating
or distracting visually if those words are emboldened in the text.
• Who will be using the agreement? Who will be the audience for the agreement?
If the agreement is likely to be made with:
• a person who is not experienced in dealing with conventionally
drafted commercial agreements; or
• a consumer,
then a drafter may need to consider using a different layout or more
explanation.
• Organisation of definitions grouped together. There are two conventional
methods:
• the definitions are sorted into alphabetical order: the advantage
of this method is that a definition can be found easily in the list of
definitions;
• the definitions are arranged in the order in which the defined words
appear in the agreement: this is a more traditional method of setting
out definitions and is probably only suitable for short agreements.
• Laying out a definitions clause. There are two conventional methods of
laying out a definitions clause:
• Columns. The first column has the defined word and the second
column contains the definition (see Precedent 1);
With word processing software, it is possible to use the table feature.
The defined word and its definition will always be kept together on
one row. New entries can be entered in any order, and then easily
sorted into alphabetical order.
• Continuous paragraphs. In this method the word is followed by its
definition (see Precedent 2);
Some word processing software can sort paragraphs, or a one-column
table can be used to sort definitions alphabetically, if they are entered
in this way;
• Introductory wording in a definition clause. Definitions clauses are often
introduced with a sentence to indicate that the words defined are to have
particular meanings as set out below the sentence (see Precedent 3).

278

M05_Boilerplate_Clauses_D.indd 278 07/09/2017 12:58

 Definitions

Sample precedent material

Precedent 1—Columns

Commencement Date shall mean 1 January 2018.

Parties shall mean [Party A] and [Party B], and ‘Party’
shall mean either one of them.
Territory shall mean France, United Kingdom and Italy.

Precedent 2—Continuous paragraphs

‘Parties’ shall mean [Party A] and [Party B], and ‘Party’ shall mean either
one of them.
‘Commencement Date’ shall mean 1 January 2018.
‘Territory’ shall mean France, United Kingdom and Italy.

Precedent 3—Introductory wording (before start of list of defined words)

In this agreement the following words and expressions shall have the fol-
lowing meanings:
[then list definitions, as in Precedent 1 or Precedent 2]

Precedent 4—Introductory wording (before start of list of defined words)

– alternative
In this agreement the following words and phrases shall have the mean-
ings set out below, unless the context requires otherwise:
[then list definitions, as in Precedent 1 or Precedent 2]

Case analysis

Oxonica Energy Ltd v Neuftec Ltd [2009] EWCA Civ 668

(The factual background to this case is set out below.)
1 This case could easily be held as being example of:
(a) the need to check the meaning of defined words (eg whether
they cover the facts of a deal, or whether the meaning is what is
intended by the parties, etc); or
(b) how the courts will interpret the provisions of a modern com-
mercial agreement to ascertain the meaning; or
(c) being an example of poor quality drafting (not only on how
wording in the agreement was used but also whether a ‘sanity
check’ was undertaken).

279

M05_Boilerplate_Clauses_D.indd 279 07/09/2017 12:58

 Definitions

2 The court applied the now famous words (at least among lawyers) of
Lord Hoffmann in Investors Compensation Scheme v West Bromwich
Building Society [1997] UKHL 2, [1998] 1 WLR 896 at 912–913:
‘the ascertainment of the meaning which the document would convey to
a reasonable person having all the background knowledge which would
reasonably have been available to the parties in the situation in which they
were at the time of the contract.’

3 This exercise, the court noted, was more difficult if:

‘it is apparent to the reader that the draftsman of the document was inept
or did not fully understand the legal background – as was the case here’,
from para 11 of the judgment.

4 In constructing the meaning of a contract the judgment also relied

on the guidance given in another case (Mitsui Construction Co Ltd
v A-G of Hong Kong (1986) 33 BLR 14) that poor drafting itself pro-
vides:
‘no reason to depart from the fundamental rule of construction of
contractual documents that the intention of the parties must be
ascertained from the language that they have used interpreted in the light
of the relevant factual situation in which the contract was made. But the
poorer the quality of the drafting, the less willing the court should be to
be driven by semantic niceties to attribute to the parties an improbable
and unbusinesslike intention, if the language used, whatever it may lack
in precision, is reasonably capable of an interpretation which attributes to
the parties an intention to make provision for contingencies inherent in the
work contracted for on a sensible and businesslike basis’.

5 Because of the poor quality of the drafting and the ambiguity in the
meaning of a definition, the court felt able to in effect rewrite part of
the contract to arrive at a meaning in keeping with good business
sense and ignore the meaning and the use of a defined term alto-
gether:
‘Initially I felt uncomfortable with ignoring the closing words “or Licensed
Patent” in the definition of Licensed Products for the purposes of deciding
what was royalty bearing. But in the end, I think that has to be done to
make rational sense of this appallingly drafted document. At least the
draftsman recognised that his definitions might not apply if the context
otherwise required, and in this instance context requires just that.’

6 In this case the failure to consider carefully the definitions used had a
clear financial impact on the amount one party would need to pay in
royalties (and which the other parties expected to receive).

Factual background to case

1 The defendant filed a patent application for technology it had devel-
oped. The application was filed under the Patent Co-operation Treaty.
2 The defendant wished to exploit the technology and granted, to sim-
plify the facts, an exclusive patent and know-how licence to a spin-
out company of Oxford University, the claimant.

280

M05_Boilerplate_Clauses_D.indd 280 07/09/2017 12:58

 Definitions

3 The licence agreement provided that the claimant would pay royal-
ties to the defendant on the sale of ‘Licensed Products’. The defined
meaning of ‘Licensed Products’ was:
‘any product, process or use falling within the scope of claims in the
Licensed Application or Licensed Patent’.

4 After the signing of the patent and know-how licence agreement the
defendant’s patent applications proceeded through the application
processes in a number of countries. The patents granted had claims
which where narrower than those of the patent applications. (A claim
is ‘a definition in words of the invention you want to protect’ and as
set out in a patent application.)
5 The claimant took over research and its scientists developed a
commercial product (Envirox), made sales and paid royalties to the
defendant. It then developed a further product (Envirox 2) which was
outside the claims of the patents granted, at least in Europe. The
claimant refused to pay any royalties on Envirox 2.
6 However, Envirox 2 fell within the claims of the PCT application (but
not that of the granted patents).
7 Therefore the dispute between the parties and the decision in the
case fell on the precise meaning of the definition quoted above. The
judgment of the court noted that the section of the agreement con-
taining definitions (including the one quoted above in paragraph 3 of
this factual background), started with the phrase ‘unless the context
otherwise requires’, which meant that in different context a definition
could have different meanings.
8 The court noted that interpreting the quoted definition could lead to
three possible results:
(a) any product covered by the claims of the PCT patent applica-
tion (ie the widest claims); or
(b) any product covered by the claims of a PCT patent application
or a patent and therefore could be a later patent claim wider
than the claim of an application; or
(c) any product covered by the claims of a national application
when and if it superseded the PCT application, and if in turn
the national application was superseded by a granted patent,
then the claims of the granted patent. In effect the words “as the
case may be” would be added to the quoted definition above,
and the royalty payable would be dependent on the particular
patent position in each country.
9 The claimant argued that the third result applied, so that in a particu-
lar territory if a national patent with a narrower claim superseded a
PCT application, royalties would be paid only on a product that fell
within that narrower claim.

281

M05_Boilerplate_Clauses_D.indd 281 07/09/2017 12:58

 Definitions

10 The claimant further argued that if first or second results applied it

would have to pay royalties on products that did not have any patent
protection where they were sold, and such a position would not make
any business sense (and the claimant would face competition from
others who would not be paying royalties). If the first result was cor-
rect, then the phrase ‘or Licensed Patent’ in the quoted definition
would make no sense. The claimant argued that to apply this result
would mean that the court was rewriting the contract for the parties,
which it is not normally permissible for a court to do.
11 The defendant argued that the claimant was not only getting a patent
licence but also a worldwide licence to the defendant’s know-how
and a world-wide non-competition clause. There was no reason in
logic or business sense why royalties should be confined to the scope
of the patents or patent applications at any one place or time. It was
reasonable, it was argued, that the claimant payment of royalties
should reflect that it was getting the benefit of the defendant’s know-
how rather than leave the claimant free of all royalty if it could find a
way around a narrowed patent claim. Also the defendant argued that
the third result above would be difficult to deal with, as with every
sale it would have to consider the patent position in the country con-
cerned, involving not only accountants but also an examination of the
state of the patent or patent application locally.
12 The court decided that the first result was the correct approach to
take. The court found that ‘it offends one’s business sense’ that the
claimant could use the defendant’s know-how without making a pay-
ment for it in every country where there was no patent or a restricted
patent (ie a patent whose claims were narrower than the know-how).
While the claimant may have to compete with third parties in those
countries where there was no patent or who got around the patent (if
the patent was restricted), those third parties would have to develop
their own know-how. The court, in interpreting the provisions of the
agreement, found that the know-how to be provided by the defend-
ant was significant and valuable.
13 The claimant’s argument that the first result would mean that the
words ‘or Licensed Patents’ would have no meaning was rejected.
However the court found that the words at the start of the definition
section of the agreement stated that the defined terms would have
the meanings given ‘except where the context otherwise requires’.
The court distinguished the two primary purposes of the patent and
know-how licence:
(a) to license all and any patents and know-how; and
(b) to provide for the payment of royalties.
14 The contexts of licensing and payment were different. For licensing it
was essential that the claimant got everything so that all applications
and patents should be licensed. But for payments, it was not neces-

282

M05_Boilerplate_Clauses_D.indd 282 07/09/2017 12:58

 Definitions

sary to tie payment to what was being licensed. The court noted that
payments not only covered the licensed patents but know-how and
the non-competition clause. Therefore in the context of the payment
of royalties the alternative of ‘or Licensed Patent’ should be read
as not being applicable and in this context it makes no sense or an
unreasonable sense. The court was initially not comfortable with dis-
regarding the phrase ‘or Licensed Patent’ in the definition of Licensed
Products for deciding what was royalty bearing, but it was necessary
to do so to make rational sense of an ‘appallingly drafted document’.

283

M05_Boilerplate_Clauses_D.indd 283 07/09/2017 12:58

 Deposits and part payments

Purpose of the clause

Background
In consumer transactions, everyone is familiar with the practice of ‘putting
down a deposit’. Deposits are often used:
• to reserve items that are purchased at a later date, or in circumstances
where a supplier must incur costs before it can supply goods or services
(eg, a tailor who orders cloth to make a suit; a builder who needs to
buy materials before being able to start building). If the customer fails
subsequently to purchase the item, the deposit is kept by the tradesperson;
• as a sum paid by a tenant to a landlord as a security against damage
to the landlord’s property. There is long-established case law as to the
circumstances when a landlord must return or can forfeit a deposit (as
well as now statutory provision for the protection of deposits for assured
tenancies).
The courts have found ways round the strict wording of contracts, when
deciding whether deposits must be returned. This section will consider some
of the drafting issues that arise in relation to deposits, particularly in the
context of commercial (ie non-consumer) transactions.

Deposits and part payment distinguished

Use of a deposit
A deposit serves the dual purpose of:
• going against the price for the goods or services if the transaction for
them is completed; and
• acting as a guarantee that the buyer means business (it must be ‘earnest
money’) (Soper v Arnold (1889) 14 App CAS 429; Linggi Plantations Ltd v
Jagatheesa [1972] 1 MLJ 89 PC; Griffon Shipping LLC v Firodi Shipping Ltd
[2013] EWHC 593 (Comm)).
The general position is that if the buyer fails to pay the rest of the price or
accept the subject matter of the contract the supplier may repudiate the
contract and the deposit is forfeited to the supplier (eg see Hall v Burnell

284

M05_Boilerplate_Clauses_D.indd 284 07/09/2017 12:58

 Deposits and part payments

[1911] 2 Ch 551). The converse is also true, that if the supplier fails to fulfil
its obligations (eg deliver goods, provide title to the goods etc) then the buyer
may repudiate the contract and recover the deposit (eg see Alexander v Webber
[1922] 1 KB 642).

The distinction between a deposit and a part payment

It is possible to distinguish a deposit from a part payment in the following way:
• the payer of the deposit, in the absence of agreement to the contrary,
generally cannot recover it (Howe v Smith (1884) 27 Ch D 89, CA; Omar v
El Wakil [2001] EWCA Civ 1090);
• but the payer of a part payment, in the absence of agreement to the
contrary, can generally recover it (Mayson v Clouet [1924] AC 980; Dies v
British International Mining Corpn [1939] 1 KB 724; Hillel v Christoforides
(1991) 63 P & CR 301).

Points about deposits

Whether the party who has received a deposit is allowed to retain or must
repay it will depend on the following points:
• a court may order the return of a deposit under its equitable jurisdiction,
ie, if it is inequitable for the seller to retain the deposit (Stockloser v
Johnson [1954] 1 QB 476, [1954] 1 All ER 630, CA; see bullet point below
concerning Workers Trust and Merchant Bank Ltd v Dojap Investments Ltd
[1993] AC 573);
• if a deposit is paid in stages, and not all of the stage payments are made, it
may be possible to sue for the balance of the deposit that is due (Hinton v
Sparkes (1867) LR 3 CP 161, 166 ff) or all of the deposit if the deposit is not
paid at all (Griffon Shipping LLC v Firodi Shipping Ltd [2013] EWHC 593
(Comm));
• whether a deposit, while fulfilling its functions as being ‘earnest
moneys’, must also be reasonable (importing an element of
objectivity as to the amount demanded or paid, outside of the views
or practices of a particular party) is not entirely clear (Workers Trust
and Merchant Bank Ltd v Dojap Investments Ltd [1993] AC 573; Amble
Assets LLP (in administration) v Longbenton Foods Ltd (in administration)
[2011] EWHC 3774 (Ch), [2012] 1 All ER (Comm) 764). In Workers
Trust this appeared to be the case. So that in the latter case, the
defendants paid a deposit of 60%. On the facts of the case the deposit
was not unreasonable (given it was a distressed sale of equipment, and
there were alternative buyers who could pay in cleared funds). The judge
also found as persuasive that the parties were agreeing to the provisions
of a commercial agreement and that the parties should be held to their
agreement. However, this was only a preliminary hearing and not a
decision based on a full trial of the issues;

285

M05_Boilerplate_Clauses_D.indd 285 07/09/2017 12:58

 Deposits and part payments

• in a later case (Cadogan Petroleum Holdings Ltd v Global Process Systems

LLC [2013] EWHC 214 (Comm)) the court found that the rules
regarding penalties did not apply if the amount of the deposit is excessive
(‘penal’), although the court did retain equitable jurisdiction to grant
forfeiture of a deposit if the party retaining the deposit had engaged in
fraud, sharp practice or unconscionable conduct (Galbraith v Mitchenall
Estates Ltd [1965] 2 QB 473), although the deposit may exceed the actual
amount of damages that the party who wishes to retain the deposit has
suffered (Griffon Shipping LLC v Firodi Shipping Ltd [2013] EWHC 593
(Comm));
• a deposit paid before the parties have entered into a binding contract
is recoverable (such as one paid while the parties are negotiating the
provisions of an agreement) (see Chillingworth v Esche [1924] 1 Ch 97);
• the receiver of an amount may need to repay in particular instances, such
as purchase of an interest in real property (Law of Property Act 1925,
s 49(2)), a debtor-creditor relationship (under the Consumer Credit Act
1974, s 100, if the loss sustained by the creditor is less than the amount
of one half of the total price or there is an unfair relationship based on
certain factors) or in a consumer transaction (Consumer Rights Act 2015).
Consideration of these are outside the scope of this book, except as noted
below.

Part payment
If the advance payment is a ‘part payment’ rather than a deposit, and
the contract is terminated; the payer of the part payment may be able
to recover some or all of it, even if the contract was terminated because of
the customer’s default. However, this will depend on the provisions of
the agreement (Cadogan Petroleum Holdings Ltd v Global Process Systems
LLC [2013] EWHC 214 (Comm)). In this case the sale of a gas plant was
to be paid for in instalments, and the seller was to retain title until all the
instalments were paid. The judge held that the instalments were not a deposit
and the rules relating to deposits did not apply. The judge also held that the
instalments were contractually agreed amounts to be paid at particular times,
and since they were not paid on a breach of contract the rules relating to
penalties also did not apply.
Whether a part-payment is returnable will depend on whether the payment
is conditional or unconditional upon performance of the contract (Griffon
Shipping LLC v Firodi Shipping Ltd [2013] EWHC 593 (Comm); Cadogan
Petroleum Holdings Ltd v Global Process Systems LLC [2013] EWHC 214 (Comm)).
If unconditional then the receiver of the part-payment can retain it.
The tradesman would, however, be able to counterclaim for any loss he had
suffered (Dies v British and International Mining and Finance Corpn Ltd [1939]
1 KB 724). In other words, it seems that to retain a ‘part payment’ one must
prove one’s loss, unlike the position with deposits.

286

M05_Boilerplate_Clauses_D.indd 286 07/09/2017 12:58

 Deposits and part payments

The problem in distinguishing a deposit from a part payment

It is not always easy to ascertain whether an advance payment made by a
customer/party is a part payment or a deposit. The fact that the seller usually
returns the advance payment if the buyer refuses, whether rightly or wrongly,
to accept delivery is not conclusive and the payment may nevertheless be a
deposit. There is also the separate issue that can arise where a supplier sues for
the entire contract price. For many contracts, there is a requirement to pay in
stages and for some stages to be paid in advance.
To avoid uncertainty the parties should use clear wording as to the status of any
advance payment, and clearly indicate what is to happen if the contract does
not proceed (eg the party making the advance payment wishes to withdraw,
the other party fails to perform some obligation, etc).

Drafting issues

• Purpose of advance payment. What is the purpose of the advance payment? Eg:
• is it a means to show that the purchaser of the good or service is in
earnest? Or
• is it to enable the supplier to pay for materials that it needs to perform
the contract?
• Can the supplier retain the advance payment? If there is a default by the
purchaser, can the supplier retain the advance payment?
• in what circumstances can the supplier retain it?
• can the supplier retain all of it?
• does the supplier need to prove that it has suffered loss equal to at
least the amount of the advance payment?
• If there is only partial performance? What is to happen if some, but not all,
of the contract is performed? For example, if a contract concerns the
manufacture of goods but not all the goods are manufactured or for
some other reason the manufacturer fails to fulfil its obligations? Is the
purchaser entitled to receive the uncompleted goods?
• Deposits. If the parties wish to make the advance payment a deposit:
• at what amount is it to be set? (If set unjustifiably high, the court
might consider it to be a penalty, and order its refund in full (see the
summary of law, above).
• is retention of the deposit the supplier’s only remedy if the purchaser
fails to complete the contract? That is, will there be wording to
indicate that it is without prejudice to the other rights and remedies
specified in the contract or available under law?

287

M05_Boilerplate_Clauses_D.indd 287 07/09/2017 12:58

 Deposits and part payments

Location in the agreement

The Main Commercial Provisions section is often the location of a deposit or

part payment clause, for example within the Payment clause or other clauses
that deal with defining the price.

Linkage and use

Although many of the issues to be dealt with will concern the price and
payment, the consequence of a non-payment of a part payment or failure to
carry out obligations by any party will involve considerations concerning:
• Consequences of termination;
• Termination;
• Exemptions;
• Warranties (if any given about part payments etc).

Consumer law

A deposit or part payment may in certain circumstances be unfair, if there is:

‘A term which has the object or effect of permitting the trader to retain sums
paid by the consumer where the consumer decides not to conclude or perform
the contract, without providing for the consumer to receive compensation of an
equivalent amount from the trader where the trader is the party cancelling the
contract.’ (Consumer Rights Act 2015, Sch 2, para 4).

This paragraph of the Consumer Rights Act 2015, Sch 2, makes it clear that a
payment by the consumer which is retained by a supplier is in itself not unfair.
It is only unfair where an equivalent remedy is not provided to the consumer
where the supplier cancels the contract. What is perhaps less clear is, where
a payment is made and the supplier uses some or all of it to buy materials
etc so that it can perform the contract, and the consumer then refuses to
perform the contract but the supplier does not provide an equivalent remedy
as specified in Sch 2, para 4, whether, in these circumstances, the holding of
the advance payment/deposit is unfair.

Sample precedent material

Precedent 1—Deposit
[Party A] shall pay to [Party B] a deposit of £[ ] forthwith on signature of
this agreement. If [Party A] fails to pay the balance of the Contract Price
by [date] or seeks to terminate the Order, [Party B] may retain all of the
deposit. [[Party A] acknowledges that the amount of the deposit is rea-
sonable and that it is reasonable for [Party B] to retain all of the deposit

288

M05_Boilerplate_Clauses_D.indd 288 07/09/2017 12:58

 Deposits and part payments

in the event of [Party A]’s default, bearing in mind [Party B]’s anticipated
costs and expenses.]

Precedent 2—Deposit
Where the Customer places a firm order for Goods to be ordered from a
manufacturer, a non-returnable deposit of one-third of the contract price
will be required from the Customer. [If the Company agrees to refund all
or part of the deposit for any reason:
(a) the refund will be by credit note or cheque at the discretion of the
Company; and
(b) the Company will be entitled to retain 10% of the contract price to
cover expenses.]

Precedent 3—Receipt of deposit as part payment

Received by [Party A] the sum of £[ ] being a preliminary deposit and part
payment on the purchase of [ ] by [Party B] from [Party A].

Precedent 4—Deposit as part payment – sale conditions

The Purchaser shall pay to the Vendor’s solicitors as [stakeholders or
agents] the sum of £… by way of deposit and in part payment of the said
purchase price pending completion (‘the Deposit’).

Precedent 5—Share option price not to be part payment

The option itself will cost £[ ]. This sum is non-refundable and shall not
in any circumstances be or be deemed to be a part payment of the sub-
scription price for any shares.

Precedent 6—Appropriation of part payment – loan agreement

In the case of a partial payment, the Lender may appropriate such pay-
ment towards such of the obligations of the Borrower or the Guarantor
under this agreement as the Lender may decide. Any such appropriation
shall override any appropriation made by the Borrower or the Guarantor.

Precedent 7—Refund of advance payment – supplier’s warranty

In the event of cancellation of the agreement we shall immediately remit to
the Customer any sum paid by him and/or the value of any part exchange
which we allowed in either case by way of advance payment.

Precedent 8—Refund of advance payment – consumer rental agreement

We reserve the right to refuse to enter into this agreement without stating
a reason. In that event, we shall refund to you any amount you have paid
us by way of advance payment.

Precedent 9—Deposit
When you place your order we may require that you pay a deposit before
we will accept your order. The purpose of the deposit is to show your
firm commitment to ordering [specify]. The deposit will also be used by

289

M05_Boilerplate_Clauses_D.indd 289 07/09/2017 12:58

 Deposits and part payments

us to purchase materials and other supplies in order to fulfil your order.

Once we have accepted your order you will not normally be able to cancel
the order. If you do cancel your order after we accept it, we will normally
retain the deposit you have paid to us and in addition you will need to pay
any costs and other losses we reasonably incur because of our cancella-
tion over and above the value of the deposit. If the amount of your costs
and other losses are less than the value of the deposit then we will refund
the difference.
If we cancel the contract between you and us then we will pay any costs
or other losses that you reasonably incur because of our cancellation.

Precedent 10—Provision within payment clause for the payment of a

deposit
1. [Party A] requires payment of the Fee for the Services it provides to be
made in two ways, either:
1.1 at the time [Party A] completes carrying out the Services, or
1.2 by way of a staged payments: requiring:
2.1.1 that [Party B] makes payment of a deposit, comprising […]% of
the Fee, before [Party A] commences performing the Services,
and
2.2.2 payment of the balance of the Fee when [Party A] completes
carrying out the Services or the payment of the balance of the
Fee in a number of fixed payments.
3. [Party B] shall make payment of the Fee to [Party A] in the way specified
by Clause 1.1 or Clause 1.2 as indicated on the [estimate OR quotation
OR order form OR [as required]].
4. All amounts stated, whether orally or in writing, are exclusive of VAT,
which will be added at the rate currently in force.

290

M05_Boilerplate_Clauses_D.indd 290 07/09/2017 12:58

 Disclaimers

Purpose of the clause

A contracting party will sometimes include wording in a contract stating that

it disclaims responsibility for a particular fact or state of affairs. Typically,
disclaimers appear next to warranties, as they often seek to exclude warranties
that might otherwise be implied into the contract.
Eg, in a contract for the sale of goods, the contract might state that the
supplier disclaims any express or implied terms of satisfactory quality or fitness
for purpose (such as those implied by the Sale of Goods Act 1979, s 14) or
that any terms, warranties etc are only those that are found in the agreement,
eg wording such as the following type of disclaimer (although the word
‘disclaimer’ itself is not used):
‘4.1 The warranty, obligations and liabilities of seller, and the rights and remedies
of buyer set forth in the agreement
are exclusive and are in lieu of and buyer hereby waives and releases
all other warranties, obligations, representations or liabilities, express or implied,
arising by law, in contract, civil liability or in tort, or otherwise,
including but not limited to
a) any implied warranty of merchantability [satisfactory quality under the Sales
of Goods Act 1979] or of fitness for a particular purpose, and
b) any other obligation or liability on the part of seller to anyone of any nature
whatsoever by reason of the design, manufacture, sale, repair, lease or use of the
aircraft or related products and services delivered or rendered hereunder or
otherwise.’
(reformatted to improve readability, and considered in Air Transworld Ltd v
Bombardier In [2012] EWHC 243 (Comm), see Exemption clauses).
A disclaimer of this kind is distinguishable from an exemption (exclusion
or limitation of liability) clause. In the above example, the disclaimer seeks
to prevent a condition or warranty arising that the goods were of satisfactory
quality or fit for any purpose stated by the purchaser (ie the conditions that
are implied by the Sale of Goods Act 1979, s 14)
But if the seller provides a warranty, an exemption clause in the same contract
would seek to exclude or limit the liability the supplier has for breach of that
warranty. The exemption clause does not deny that the warranty exists, but
attempts to limit its application.

291

M05_Boilerplate_Clauses_D.indd 291 07/09/2017 12:58

 Disclaimers

See further Exemptions. Sometimes, though, the wording in a clause of

an agreement will use the word ‘disclaimer’, but in the same sense as an
exemption clause.

Drafting issues

• Is the purpose of the wording disclaimer to stop:

• legal liability arising (whether express or implied)?
• some statement, representation or action being effective? Or
• some statement, representation, action or warranty being relied on?
If so, then in effect a disclaimer is being created.

Location in the agreement

Any disclaimers used in the sense meant in this section normally appear with
a Warranty clause.

Linkage and use

The word ‘disclaimer’ itself is often not used, but other words are, such as:
• ‘admits’;
• ‘acknowledge’;
• ‘agree’;
• ‘acknowledge and agree’;
• ‘makes’, etc.
They are more often used to create the disclaimer. But the choice of wording
for this type of issue is unlikely to be determinative, as in the wording quoted
above, where ‘disclaimer’ or any of the words mentioned immediately above
are not used. The key words used are ‘waives and releases’, but in the context
of the clause (and the other clauses relating to it):
• it is clear that the only warranties etc offered are those which the seller
provides (in exchange for those implied etc by law);
• the only warranties are those found elsewhere in the agreement; and
• there is an exclusion of liability also found elsewhere in the agreement.
(See Air Transworld Ltd v Bombardier In [2012] EWHC 243 (Comm), (see
Exemption clauses)). Without clear wording it may not be immediately obvious
whether the wording used is to limit or exclude liability or to prevent the
liability arising in the first place.

292

M05_Boilerplate_Clauses_D.indd 292 07/09/2017 12:58

 Disclaimers

Sample precedent material

Precedent 1—Disclaimer in patent and know-how licence

1 Each of the Licensee and the Owner acknowledges that, in entering
into this agreement, it does not do so in reliance on any representa-
tion, warranty or other provision except as expressly provided in this
agreement, and any conditions, warranties or other terms implied by
statute or common law are excluded from this agreement to the full-
est extent permitted by law.
2 Without limiting the scope of Clause 1, the Owner does not give any
warranty, representation or undertaking:
(a) as to the efficacy or usefulness of the Patents or Know-how; or
(b) that any of the Patents is or will be valid or subsisting or (in the
case of an application) will proceed to grant; or
(c) that the use of any of the Patents or Know-how, the manufac-
ture, sale or use of the Licensed Products or the exercise of any
of the rights granted under this agreement will not infringe any
other intellectual property or other rights of any other person; or
(d) that the Know-how or any other information communicated
by the Owner to the Licensee under or in connection with this
agreement will produce Licensed Products of satisfactory qual-
ity or fit for the purpose for which the Licensee intended;
(e) as imposing any obligation on the Owner to bring or prosecute
actions or proceedings against third parties for infringement or
to defend any action or proceedings for revocation of any of the
Patents; or
(f) as imposing any liability on the Owner in the event that any third
party supplies Licensed Products to customers located in the
Territory.

Precedent 2—Disclaimer
The Purchaser admits that:
(a) the assets agreed to be sold have been inspected by him or on his
behalf; and
(b) he has entered into this agreement on the basis of such inspection
and not in reliance on any representation, warranty or statement
written or oral made by or on behalf of the Vendor other than replies
to written enquiries and other statements given in writing by the
Vendor’s solicitors to the Purchaser’s solicitors.

293

M05_Boilerplate_Clauses_D.indd 293 07/09/2017 12:58

 Entire and final agreement and
acknowledgment of non-reliance

Purpose of the clause

Background
A contract may be formed between two parties by:
• one written document; or
• a number of documents (including letters and other written terms) taken
together; or
• oral statements; or
• a mixture of oral statements and written documents.
It is therefore essential, particularly where there has been a period of
negotiation leading up to the contract, that the parties are quite clear as to
what constitutes the provisions of their agreement. They should also be clear
about whether the contract should consist of the final written agreement
alone or should also include:
• other documents (eg sales literature containing technical specifications
for goods being sold); or
• any statements made by either party, which may have induced the other to
enter the contract; or
• any other contractual documentation.
In the absence of an express provision, it will generally be a matter of
interpretation whether a document forms part of the contract and whether a
statement by a party is to be regarded as a contractual term or a representation
or as a statement having no legal effect.
A court may apply the so-called ‘parol evidence’ rule to exclude such
statements and documents from the contract, or the courts may find there is
an actionable misrepresentation or a collateral contract. In this area, it seems
that the courts have some flexibility as to which ‘principles of construction’ are
to be applied. The contract drafter may wish to try to avoid such uncertainties
by including an ‘entire agreement’ or ‘whole agreement’ clause.

294

M06_Boilerplate_Clauses_E.indd 294 04/09/2017 08:19

 Entire and final agreement and acknowledgment of non-reliance

Purpose of entire agreement and non-reliance clause

Generally, it is in the interests of all parties that all the applicable terms
and conditions are stated in one place. There is no legal difficulty in having
a contract made up of both oral and written statements, and for written
statements not to be contained in the one document. Not doing so can cause
problems in proving, in the event of dispute, whether a particular statement
is a term of the contract at all, and also deciding which statement is the one
that is a provision of a contract, particularly if there are several statements all
dealing with the same issue.
The principal aim of an ‘entire agreement’ or ‘whole agreement’ clause is to
state that all the terms and conditions of a contract are contained within a
written agreement between the parties to the contract (eg Inntrepreneur Pub v
East Crown [2000] 2 Lloyd’s Rep 611). Most ‘entire agreement’ clauses aim to
fulfil two purposes:
• an exclusion of liability: the parties are excluding liability for any (prior)
agreements or representations not found in the agreement (that the
current agreement supersedes them); and
• (usually but not always) a statement of non reliance: the parties are stating that
they are only relying on the representations and warranties found in the
current agreement (and are not relying on pre-contract representations).
In consequence, such a clause attempts to exclude other documents or
statements from forming part of the contract. These might include, eg:
• statements made by a party’s sales representatives, which may have induced
the other party to enter into the contract; and/or
• statements provided or matters etc set out in documentation provided
during the course of pre-contract negotiations; and/or
• any documents such as sales literature or exchanges of correspondence
between the parties; and/or
• any prior agreements that the parties entered into.
Whilst, in the above examples, the seller might wish to exclude over-
enthusiastic statements from forming part of the contract, the purchaser
might well wish them to be included. Therefore, an entire agreement clause
should not be automatically included. A party might wish to include in the
contract warranties reflecting any statements made by the other party that
induced them to enter into the contract. As long as appropriate warranties are
included, that party might be content for the inclusion of an entire agreement
clause.
Entire agreement clauses have been considered effective by the courts in many
cases (see Watford Electronics v Sanderson CFL Ltd [2001] EWCA Civ 317),
and recent cases have spelled out the reach that an entire agreement clause
can have.

295

M06_Boilerplate_Clauses_E.indd 295 04/09/2017 08:19

 Entire and final agreement and acknowledgment of non-reliance

• An acknowledgment of non-reliance, such as

‘… and the parties confirm that they have not entered into this agreement
on the basis of any representations that are not expressly incorporated in
this agreement’

is effective to exclude any liability for pre-contract representation (see

EA Grimstead & Son Ltd v McGarrigan [1999] All ER (D) 1163, CA;
Watford Electronics v Sanderson CFL Ltd [2001] EWCA Civ 317, [2001]
2 All ER (Comm) 596). These cases did not require that the wording of
such a clause as above must explicitly exclude liability for pre-contract
representation (as the earlier case of Thomas Witter Ltd v TBB Industries
[1996] 2 All ER 573 appeared to suggest).
• However, it is now clear that a failure to use such ‘non-reliance’ wording
is likely to permit a claim concerning pre-contract misrepresentation (see
BSkyB Ltd v HP Enterprise Services UK Ltd [2010] EWHC 86 (TCC)). Also
a failure to clearly indicate that liability for pre-contract representation
is excluded is likely to mean that such liability is not excluded. An entire
agreement clause such as the first part of Precedent 1:
‘This agreement contains the whole agreement between the Parties [in
respect of (subject matter of agreement)] and supersedes and replaces
any prior written or oral agreements, representations or understandings
between them [relating to such subject matter]’

will be limited to identifying the provisions of the contract and not be

sufficient to exclude pre-contract representations (Deepak Fertilisers &
Petrochemicals Ltd v Davy McKee (London) Ltd [1999] 1 All ER (Comm) 69;
BSkyB Ltd v HP Enterprise Services UK Ltd [2010] EWHC 86 (TCC)).
• If a party wished to exclude liability for pre-contract liability then an entire
agreement clause must use clear words to do so (BSkyB Ltd v HP Enterprise
Services UK Ltd [2010] EWHC 86 (TCC); Axa Sun Life plc v Campbell Martin
Ltd [2011] EWCA Civ 133).
• An acknowledgment of non-reliance will, in effect, stop any consideration
of whether there is liability for representations that are subject to
consideration under the Misrepresentation Act 1967, because the parties
are stating they are not relying on pre-contract representations.
• It may not be necessary to state that an entire agreement does not exclude
liability for fraud. Following Thomas Witter Ltd v TBB Industries it was
thought necessary, for an entire agreement clause to be effective (or more
likely to be effective), to include wording such as that set out in Precedent
2 (‘However, nothing in this agreement purports to exclude liability
for any fraudulent statement or act’). However, following cases such as
Granville Oil & Chemicals Ltd Davies Turner & Co Ltd [2003] EWCA Civ
570 and HIH Casualty & General Insurance Ltd v Chase Manhattan Bank
[2003] UKHL 6 it may no longer be strictly necessary (although many
agreements prepared by commercial lawyers now include such wording
by default).

296

M06_Boilerplate_Clauses_E.indd 296 04/09/2017 08:19

 Entire and final agreement and acknowledgment of non-reliance

• Whether the agreement under consideration is the whole agreement. For

example, a collateral agreement may not be excluded when wording such
as ‘[t]his Contract represents the entire agreement of the parties hereto
and supersedes all previous negotiations, statements or agreements
whether written or oral’ are used. The quoted words were considered in
Ryanair Ltd v SR Technics Ireland Ltd [2007] EWHC 3089 (QB) and it was
held that a collateral agreement was not a previous agreement, after the
judge looked at the admissible background and found that the parties had
proceeded on the basis that the collateral agreement would be honoured.
The entire agreement meant the agreement that contained the quoted
clause and the collateral contract.
• Following from the previous point, another agreement may not be
excluded if it is part of a package of agreements or is not inconsistent
with the subject matter of the agreement under scrutiny by the court (see
Cheverny Consulting Ltd v Whitehad Mann Ltd [2007] EWHC 3130 (Ch);
Satyam Computer Services Ltd v Upaid Systems Ltd [2008] EWCA Civ 487
(where wording similar to Precedent 1 was in use).
• An entire agreement clause can cover breaches of collateral warranties,
implied terms based on usage and contracts or agreements made by conduct
(eg Exxonmobil Sales and Supply Corpn v Texaco Ltd [2003] EWHC 1964
(Comm); SERE Holdings Ltd v Volkswagen Group UK Ltd [2004] EWHC 1551
(Ch)).

Drafting issues

• Is the agreement to be limited only to its written terms? If:

• there has been an extensive course of dealing between the parties
before; or
• particular statements or representations (whether oral or in writing)
are relevant or need to be incorporated in the present agreement,
then a ‘general’ entire agreement clause will not be appropriate.
Eg, if the parties have entered into a series of agreements, which are
all linked to the same deal (eg asset purchase agreement, assignments
of intellectual and real property, novation agreements, etc), statements,
representations, etc made in one agreement might be relevant to another
agreement.
• What is to be included in the entire agreement clause? It should be made explicit
where the entire agreement clause will deal with the following subjects:
• prior written agreements;
• prior oral agreements;
• prior agreements made by conduct;

297

M06_Boilerplate_Clauses_E.indd 297 04/09/2017 08:19

 Entire and final agreement and acknowledgment of non-reliance

• representations;
• breach of collateral warranties;
• promises;
• conditions;
• implied terms based on usage and custom;
• other agreements, side letters etc which are related to the same
transaction.
• Do the parties wish to exclude all or some pre-contract representations? An
acknowledgment of non-reliance is likely to be effective (such as in
Precedent 1), and it may be necessary to use very clear wording. However,
this may not be the intention of the parties, or may need additional
wording to identify any specific representations that one or more of the
parties do wish to rely on, such as adding to the end of Precedent 1:
‘except for the representations set out in Schedule [ ]’.

• Are the schedules or attachments to an agreement included within the entire

agreement clause? Reference may need to be made in an entire agreement
clause to any schedules or attachments added to the agreement for the
sake of completeness or to avoid any uncertainty. An entire agreement
clause might start as set out in Precedent 3.
• An entire agreement clause should not seek to avoid liability for fraud.

Location in the agreement

An Entire agreement clause will usually be located in the Boilerplate section of

an agreement.

Linkage and use

An Entire agreement clause is one of the most important ‘boilerplate’ clauses,
as it effectively controls which documents and statements are part of an
agreement. As can be seen, these clauses have received extensive and critical
scrutiny by the courts in recent years.
An Entire agreement clause cannot be considered in isolation, as it can impact
particularly on clauses dealing with warranties, limitation and exclusion of
liability and indemnities.
Another aspect that will need consideration is an administrative issue, that of
handling and analysis of the various documentation generated and statements
made during the negotiation and drafting of an agreement. For routine types
of agreements this may be of little importance. For substantial transactions
there may be many documents generated during the course of negotiations,

298

M06_Boilerplate_Clauses_E.indd 298 04/09/2017 08:19

 Entire and final agreement and acknowledgment of non-reliance

as well as meetings and discussions held. One or more of the parties may wish
that some of those documents and the records or notes of such meetings and
discussions are included in an agreement. Unless there is a formal process to
document which of those documents and records are to be included or part
of the agreement, an Entire agreement may exclude them. For example, as the
negotiations proceed one party requiring that the documents and records are
included in a Warranties clause or disclosure letter.
Although an Entire agreement clause may appear (by convention) with other
boilerplate language, it is far from standard and routine wording to include
in a contract. Each element (as described under Purpose of entire agreement and
non-reliance clause) will need separate consideration.

Sample precedent material

Precedent 1—Short form

This agreement contains the whole agreement between the Parties [in
respect of (subject matter of agreement)] and supersedes any prior writ-
ten or oral agreement between them [relating to that subject matter] and
the parties confirm that they have not entered into this agreement on the
basis of any representations that are not expressly incorporated in this
agreement.

Precedent 2—Longer form

This agreement contains the whole agreement between the Parties [in
respect of (subject matter of agreement)] and supersedes and replaces
any prior written or oral agreements, representations or understandings
between them [relating to such subject matter]. The parties confirm that
they have not entered into this agreement on the basis of any representa-
tion that is not expressly incorporated into this agreement.
Without limiting the generality of the foregoing, neither party shall have
any remedy in respect of any untrue statement made to that party upon
which it may have relied in entering into this agreement, and a party’s only
remedy is for breach of contract. However, nothing in this agreement pur-
ports to exclude liability for any fraudulent statement or act.

Precedent 3—Including schedule

This agreement, including its Schedules, contains the whole agreement.

Consumer issues

Particular care needs to be taken concerning the inclusion of an Entire

agreement clause in a consumer contract. See in particular the Consumer
Rights Act 2015, Sch 2, para 17, which lists, among the terms which may be
regarded as unfair, terms having the object or effect of limiting the seller’s

299

M06_Boilerplate_Clauses_E.indd 299 04/09/2017 08:19

 Entire and final agreement and acknowledgment of non-reliance

or supplier’s obligation to respect commitments undertaken by its agents or

making its commitments subject to compliance with a particular formality.
Guidance issued by the Competition and Markets Authority does not
explicitly state that an entire agreement clause is completely contrary to the
Consumer Rights Act 2015 (Unfair Terms – Main Guidance, CMA37, CMA).
The reasoning of the CMA is that consumers do rely on what is said to them,
particularly if they are induced to enter into a contract on what is said to them
by an employee or an agent of a business. Even if an entire agreement clause
is not used for unfair means, it lessens the incentive for the trader to use care
in the pre-contract statements it makes or its agents make. The CMA’s view
is that while an entire agreement clause promotes certainty, it has the effect
of lessening the remedies available to consumers when they have relied on
pre-contract misrepresentations to enter into a contract. Consequently the
use of an entire agreement clause, which then disclaims liability for such
statements, has the potential for bad faith. The CMA guidance does indicate
that a statement in a contract that the written provisions are the terms and
conditions of a binding agreement can be included, as long as accompanied
with an appropriate warning (such as that document is binding document,
that the consumer should it read it carefully and ensure it contains all that
s/he wants to include etc). Perhaps the practical consequence of using an
entire agreement clause in a consumer contract is to avoid wording that seeks
to exclude liability for pre-contract misrepresentations (such as the second
sentence of the first paragraph in Precedent 2).

Case analysis

Thomas Witter Ltd v TBP Industries Ltd [1996] 2 All ER 573

1 In this case the judge held that a clause seeking to exclude liability for
pre-contractual misrepresentations was ineffective.
2 The case involved a dispute over a contract for the sale of a carpet
manufacturing business. The seller had provided management
accounts to the buyer prior to entering into the contract of sale. The
buyer subsequently alleged that the accounts misrepresented the
financial position of the business. The contract included a provision in
a fairly standard form, which read as follows:
‘This agreement sets forth the entire agreement and understanding
between the parties or any of them in connection with the Business and
the sale and purchase described herein. In particular, but without prejudice
to the generality of the foregoing, the Purchaser acknowledges that it has
not been induced to enter into this agreement by any representation or
warranty other than the statements contained or referred to in Schedule 6.’

3 It is convenient to quote the following paragraphs from Jacob J’s

judgment:
‘The defendants say this [the above-quoted clause] prevents any liability
for misrepresentation… The first thing to do is to construe the clause. …

300

M06_Boilerplate_Clauses_E.indd 300 04/09/2017 08:19

 Entire and final agreement and acknowledgment of non-reliance

in my judgment the first sentence does not operate to exclude remedies

for pre-contractual misrepresentations. It simply does not say it does. If
it said, for instance, “The vendor [should be ‘purchaser’?] agrees that he
will have no remedy in respect of any untrue statement made to him upon
which he relied in entering this contract, and that his only remedies can
be for breach of contract” the clause would probably have done the job.
Then if he is sold a pup, he will have no remedy unless it is a contractually
warranted pup… Unless it is manifestly made clear that a purchaser has
agreed only to have a remedy for breach of warranty I am not disposed
to think that a contractual term said to have this effect by a roundabout
route does indeed do so. In other words, if a clause is to have the effect
of excluding or reducing remedies for damaging untrue statements then
the party seeking that protection cannot be mealy-mouthed in his clause.
He must bring it home that he is limiting his liability for falsehoods he may
have told.’

4 The judge went on to analyse the second sentence of the clause

(an acknowledgment of non reliance), which referred to Schedule 6,
which contained a warranty that (in effect) the disclosure letter was
not misleading. He made a number of comments about this sentence
including the following:
‘…To my mind, if [this clause is] intended to exclude liability for
misrepresentation if that misrepresentation has become a warranty of the
agreement, they are ineffective. Section 1 of the Misrepresentation Act
1967 specifically deals with this… I think that where a man has been sold
a pup, even if it is a warranted pup, there is nothing, unless the contract
expressly says so, [preventing] the man also treating it as a misrepresented
pup, if that was indeed the case. What he relied on is a question of fact.’

5 The judge went on to consider the ‘academic’ question of whether

the second sentence of the clause would be effective to exclude mis-
representations of fact that were not set out in Schedule 6 (see the
wording of the clause, above):
‘Would the second sentence preclude the purchaser from saying he had
relied upon this? I rather doubt it. Again, the point of exclusion of liability
is not made explicit. It is perfectly possible to read the clause as doing no
more than attempting to set out such representations as the purchaser
thinks he was relying on at the time…’

6 The judge next considered the effect of the Misrepresentation Act

1967, s 3, as substituted by the Unfair Contract Terms Act 1977,
s 8, and in particular whether the exclusion was reasonable. He con-
cluded that because the clause did not specifically exclude fraudu-
lent misrepresentation the width of the clause was too great and it
was therefore unreasonable and unenforceable.
7 Following the decisions of EA Grimstead & Son Ltd v McGarrigan
[1999] All ER (D) 1163, CA and Watford Electronics v Sanderson
CFL Ltd [2001] EWCA Civ 317, [2001] 2 All ER (Comm) 596, the
judge’s view that the acknowledgment of non-reliance by itself was
not sufficient without additional wording excluding liability is no
longer likely to be correct. But this case is still included to indicate
how judicial views can change.

301

M06_Boilerplate_Clauses_E.indd 301 04/09/2017 08:19

 Entire and final agreement and acknowledgment of non-reliance

Deepak Fertilisers & Petrochemicals Ltd v Davy McKee (London) Ltd

[1999] 1 All ER (Comm) 69
1 The entire agreement clause in this case read:
‘This contract comprises the entire agreement between the parties, as
detailed in the various Articles and Annexures and there are not any
agreements, understandings, promises or conditions, oral or written,
expressed or implied, concerning the subject matter which are not merged
into this contract and superseded hereby. This contract may be amended
in the future only in writing executed by the parties.’

2 The Court of Appeal agreed with the judge at first instance that this
entire clause excluded liability in respect of collateral warranty (but
not misrepresentations):
‘34. As to [the entire agreement clause] Rix J was plainly correct to
hold that this excluded liability in respect of collateral warranty. The
combination of the opening words, coupled with ‘and there are not any
agreements, understandings or promises oral or written’ clearly covers
such a warranty. [Counsel for the first defendant] also submits they cover
misrepresentations; furthermore, he submits that it is highly technical to
draw a distinction between misrepresentations and collateral warranties
based on the self same representations. But we do not think the opening
words themselves exclude misrepresentations and they cannot be
brought within the specific words. In our judgment the judge was right on
his construction of art 10.16.’

Inntreppreneur Pub Co v East Crown Ltd [2000] 2 Lloyd’s Rep 611

1 The entire agreement clauses in this case read:
‘Any variations of this Agreement which are agreed in correspondence
shall be incorporated in this Agreement where that correspondence
makes express reference to this Clause and the parties acknowledge that
this Agreement (with the incorporation of any such variations) constitutes
the entire Agreement between the parties’.

2 The court held that an entire agreement clause that denied a state-
ment of contractual force did not reduce the statement’s effect as a
misrepresentation:
‘An entire agreement provision does not preclude a claim in
misrepresentation, for the denial of contractual force to a statement cannot
affect the status of the statement as a misrepresentation. The same clause
in an agreement may contain both an entire agreement provision and a
further provision designed to exclude liability eg for misrepresentation or
breach of duty.’

Watford Electronics v Sanderson CFL Ltd [2001] EWCA Civ 317, [2001]
2 All ER (Comm) 596
1 A different approach to Thomas Witter Ltd v TBP Industries Ltd was
taken in interpreting an entire agreement clause. The entire agree-
ment clause was in similar terms (in essence) to that found in the
Witter case:

302

M06_Boilerplate_Clauses_E.indd 302 04/09/2017 08:19

 Entire and final agreement and acknowledgment of non-reliance

‘Entire Agreement. The parties agree that these terms and conditions
(together with any other terms and conditions incorporated in the Contract)
represent the entire agreement between the parties relating to the sale
and purchase of the Equipment and that no statement or representations
made by either party have been relied upon by the other in agreeing to
enter into the Contract.’

2 In this case, the court disagreed with the judge at first instance,
where that judge stated that an entire agreement clause is ‘one that
excludes liability rather than precludes liability from ever occurring’.
The Court of Appeal disagreed with this and indicated that an entire
agreement clause aims to prevent a party to whom a representation
was made from asserting that it relied upon it. The Court of Appeal
repeated passages from an earlier judgment of that court about the
effectiveness of an acknowledgement of non-reliance:
‘In my view an acknowledgment of non-reliance … is capable of operating
as an evidential estoppel. It is apt to prevent the party who has given the
acknowledgment [of non reliance] from asserting in subsequent litigation
against the party to whom it has been given that it is not true. That seems
to me to be a proper use of an acknowledgment of this nature, which, as
Mr Justice Jacob pointed out in the Thomas Witter case [Thomas Witter
Ltd v TBP Industries Ltd [1996] 2 All ER 573], has become a common
feature of professionally drawn commercial contracts.’

and
‘There are, as it seems to me, at least two good reasons why the courts
should not refuse to give effect to an acknowledgment of non-reliance in
a commercial contract between experienced parties of equal bargaining
power -a fortiori, where those parties have the benefit of professional
advice. First, it is reasonable to assume that the parties desire commercial
certainty. They want to order their affairs on the basis that the bargain
between them can be found within the document which they have signed.
They want to avoid the uncertainty of litigation based on allegations as to
the content of oral discussions at pre-contractual meetings. Second, it is
reasonable to assume that the price to be paid reflects the commercial
risk which each party – or, more usually, the purchaser – is willing to
accept. The risk is determined, in part at least, by the warranties which
the vendor is prepared to give. The tighter the warranties, the less the
risk and (in principle, at least) the greater the price the vendor will require
and which the purchaser will be prepared to pay. It is legitimate, and
commercially desirable, that both parties should be able to measure the
risk, and agree the price, on the basis of the warranties which have been
given and accepted.’

(Passages from EA Grimstead & Son Ltd v McGarrigan [1999] All ER

(D) 1163, CA.)
3 On the particular facts, the Court of Appeal held that just because the
entire agreement clause may not achieve its purpose does not mean
it is an exclusion clause to which the Misrepresentation Act 1967, s 3
applies: Watford Electronics v Sanderson CFL above at 604. In this
case the judge at first instance had disregarded the entire agreement
clause when examining the limitation of liability clauses.

303

M06_Boilerplate_Clauses_E.indd 303 04/09/2017 08:19

 Entire and final agreement and acknowledgment of non-reliance

4 What was necessary, according to the Court of Appeal, was that limi-
tation of liability and entire agreement clauses had to be interpreted
together and in context.
5 Where the Court of Appeal differs in this case from the judge in
Thomas Witter Ltd v TBP Industries Ltd is in the emphasis the Court
of Appeal placed on the parties being able to negotiate and decide on
the terms of a contract, and that the language used in the final agree-
ment fulfils those intentions. As the court stated:
‘The importance of the entire agreement clause in the present context –
and, in particular, the importance of the acknowledgment of non-reliance
which constitutes the second part of that clause – is that the first sentence
in [the limitation of liability clause, which reads ‘Neither [Sanderson CBL]
nor [Watford Electronics] shall be liable to the other for any claims for
indirect or consequential losses whether arising from negligence or
otherwise’] has to be construed on the basis that the parties intend that
their whole agreement is to be contained or incorporated in the document
which they have signed and on the basis that neither party has relied on any
pre-contract representation when signing that document. On that basis,
there is no reason why the parties should have intended, by the words
which they have used in the first sentence of the limit of liability clause, to
exclude liability for negligent pre-contract misrepresentation. Liability in
damages under the Misrepresentation Act 1967 can arise only where the
party who has suffered the damage has relied upon the representation.
Where both parties to the contract have acknowledged, in the document
itself, that they have not relied upon any pre-contract representation, it
would be bizarre (unless compelled to do so by the words which they have
used) to attribute to them an intention to exclude a liability which they
must have thought could never arise.’

BSkyB Ltd v HP Enterprise Services UK Ltd [2010] EWHC 86 (TCC)

1 In this case the entire agreement clause read:
‘… this Agreement and the Schedules shall together represent the entire
understanding and constitute the whole agreement between the parties
in relation to its subject matter and supersede any previous discussions,
correspondence, representations or agreement between the parties with
respect thereto notwithstanding the existence of any provision of any such
prior agreement that any rights or provisions of such prior agreement shall
survive its termination. The term “this Agreement” shall be construed
accordingly. This clause does not exclude liability of either party for
fraudulent misrepresentation.’

2 The judge held that the clause did not exclude liability for misrepre-
sentation, as the wording does not state that the misrepresentations
are of no legal effect, but only that they superseded and are not terms
of the contract.
3 In order for misrepresentations to have no effect, the wording used in
the clause would have needed to go further.
4 While the wording indicated above regarding superseding any previ-
ous discussions, correspondence, representations etc regarding the
subject matter of the agreement did not prevent other agreements or
collateral agreements having effect:

304

M06_Boilerplate_Clauses_E.indd 304 04/09/2017 08:19

 Entire and final agreement and acknowledgment of non-reliance

‘It did not supersede those mattes so far as there might be any liability for
misrepresentation based on them.’
5 The clause includes a reference to representation; but there is nothing
in the wording ‘that it is intended to take away a right to rely on mis-
representations’. If the entire agreement clause wished to exclude lia-
bility for negligent misrepresentation than clearer wording is needed
(which the above clause did not provide).

AXA Sun Life Services plc v Campbell Martin Ltd [2011] EWCA Civ 133
1 In this case the entire agreement clause stated:
‘This Agreement and the Schedules and documents referred to herein
constitute the entire agreement and understanding between you and us in
relation to the subject matter thereof. Without prejudice to any variation as
provided in clause 1.1, this Agreement shall supersede any prior promises,
agreements, representations, undertakings or implications whether made
orally or in writing between you and us relating to the subject matter of
this Agreement but this will not affect any obligations in any such prior
agreement which are expressed to continue after termination.’

2 The court held that words such as ‘supersede’ and ‘representations’

is not language that excludes liability for misrepresentation, but rather
is the language of defining contractual obligations.
3 A clause such as this did not reflect the fact that the parties had
reached agreement, that they had not made any representation nor
that they had relied on any representation.
4 To exclude liability for misrepresentation required the use of clear
wording:
‘[94] …nevertheless it seems to me that there are certain themes which
deserve recognition [from previous case law]. Among them is that the
exclusion of liability for misrepresentation has to be clearly stated. It can
be done by clauses which state the parties’ agreement that there have
been no representations made; or that there has been no reliance on any
representations; or by an express exclusion of liability for misrepresentation.
However, save in such contexts, and particularly where the word
“representations” takes its place alongside other words expressive of
contractual obligation, talk of the parties’ contract superseding such prior
agreement will not by itself absolve a party of misrepresentation where its
ingredients can be proved.
[95] I would therefore conclude that [above quoted clause] does not
exclude liability for misrepresentations of any kind. I see no reason to
distinguish between misrepresentations which do or do not relate to the
terms of the contract. I am not sure I know the difference between them.
Of course, I can see that in an obvious case, for instance “There is no
exclusion clause of any kind in my contract terms”, such a representation
could be said to relate to the terms of an agreement. However, almost any
representation which, if relied upon, alters the risk profile of an agreement,
might be said in some sense or other to relate to the terms of an agreement.
[96] In this context, I do not regard the [above quoted clause’s] language
of “relating to the subject matter of this Agreement” to be of much
if any assistance. That is not the same as “relating to the terms of this

305

M06_Boilerplate_Clauses_E.indd 305 04/09/2017 08:19

 Entire and final agreement and acknowledgment of non-reliance

Agreement”. It appears to be boilerplate wording. Plainly a representation

which has nothing to do with the parties’ agreement at all (such as a
misrepresentation about the weather) is neither here nor there.
[97] In sum, on issue 1, collateral warranties are excluded; implied terms
are not excluded; and I consider that misrepresentation as a whole is not
excluded.’

306

M06_Boilerplate_Clauses_E.indd 306 04/09/2017 08:19

 Exclusive, non-exclusive and sole

Purpose of the clause

Background
These words are most often seen in relation to:
• the appointment of agents and distributors; and
• the licensing of intellectual property rights.
Eg,
• a manufacturer may wish to appoint an agent to sell goods on behalf of
the manufacturer. The manufacturer may make the appointment on an
exclusive, non-exclusive or sole basis for a defined territory; or
• a patent owner may grant a licence to another person to exploit the patent
(ie develop products, and then make and sell them). The licence that the
patent owner can grant can be an exclusive, non-exclusive or sole licence,
defined in terms of the territory, the technical field or some activity.

Meaning of ‘exclusive’, ‘non-exclusive’ and ‘sole’

There are no standard definitions that automatically apply to the meaning of

these words when used in contracts. Generally the words have the following
meanings (there is, however, a minority view that there is not such a clear
distinction between ‘exclusive’ and ‘sole’). In cases of doubt, the drafter
should specifically define their meanings in the contract.
• Exclusive. The grant of exclusive rights means that the grantor of the rights
will not grant the same rights to any other person, nor will the grantor
directly exercise those rights.
Eg, the patent owner grants an exclusive licence under a patent to
manufacture and sell licensed products (an electronic safety product) in a
defined field (such as to doctors and hospitals) and in a particular territory
(UK); this means that only the licensee can carry out these activities. It
also means that the licensor cannot carry out these activities, nor grant
any other licences to anyone else under the patent to manufacture and
sell the licensed products in that same field and territory. But the patent

307

M06_Boilerplate_Clauses_E.indd 307 04/09/2017 08:19

 Exclusive, non-exclusive and sole

owner could grant a further exclusive licence in a different field (ie where
the field was care homes) and the territory was also the UK.
• Sole. The grant of sole rights usually means that the grantor of the rights
will not grant the same rights to any other person, but the grantor may
exercise those rights directly.
Eg, based on the above example, the patent owner could grant a sole
licence to manufacture and sell the electronic safety product in the field
of doctors and hospitals within the UK and the patent owner could also
do so, but the patent owner would not be able to grant a licence for others
to do so.
• Non-exclusive. The grant of non-exclusive rights does not restrict the
grantor from granting similar rights to third parties and/or exercising
those rights directly.
Eg, based on the above example, the patent owner could grant several
licences allowing several persons all to manufacture and sell the electronic
safety product to doctors and hospitals within the UK.

Statutory definitions

A number of statutory definitions are consistent with some of the above

definitions (see principally statutes relating to intellectual property; see
Statutory definitions below), but they only apply to the matters referred to in
the statutes. In the main, non-exclusive and sole are not defined in English
statutes.

Drafting issues

• Avoiding ambiguity. Although the three main intellectual property statutes

(those relating to copyright, trademarks and patents) all have a similar
meaning for ‘exclusive licence’, this meaning however:
• is only for matters relating to those statutes;
• may not be a meaning understood by one or more parties to a
transaction (particularly if they are not based in or familiar with the
UK legal system);
• may not be the meaning intended by one or more parties to a
transaction; and
• may not be appropriate or relevant to non-intellectual property
transactions.
Best practice suggests that the contract drafter should specify the exact
meaning of exclusive, non-exclusive or sole in an agreement (see
Precedent 1).

308

M06_Boilerplate_Clauses_E.indd 308 04/09/2017 08:19

 Exclusive, non-exclusive and sole

• Sole and exclusive licences. Sometimes exclusive licences are stated to be ‘sole
and exclusive licences’. This wording seems to be an American import. If
an exclusive licence is intended, it probably does no harm to call it a sole
and exclusive licence, and it may be useful when interpreting the contract
under foreign laws. But in contracts between English parties it is probably
better to avoid this phrase.
• Competition law issues. The grant of exclusive or sole rights is likely to
raise issues under EU, and possibly UK, competition laws. The parties
should obtain specialist advice in these areas when drafting agreements
containing the grant of such rights.
• Intellectual property issues. The grant of rights in relation to intellectual
property can raise complex law issues, on which the parties should obtain
specialist legal advice before entering into an agreement (for further
reading in this area see Anderson (Ed), Technology Transfer (3rd Edn,
2010, Bloomsbury Professional (4th edn in preparation)).
• Meaning of ‘exclusive’ for intellectual property statutes. The key point from the
statutes is that:
• all other persons; and
• the owner of the intellectual property
are excluded by the grant of the licence.
However, none of the three principal statutes relating to intellectual
property state that where a licensee is an ‘exclusive licensee’ that all the
rights in and under the intellectual property in question are licensed to
that licensee.
Therefore it is possible for there to be more than one exclusive licensee.
Eg, a licensor could license to several people the right to work the patent
if they were all licensed in different territories: Courtauld’s Application
[1956] RPC 208.
• Right to sub-license. The right to sub-license needs particular attention,
especially where the wording of the agreement does not deal with it.

Location in the agreement

Where the agreement primarily concerns, eg:

• the licensing of intellectual property, or
• the grant of an agency or distributorship,
wording concerning the grant of exclusive, non-exclusive or sole rights will be
found in the Main Commercial Provisions. This will often be the key operative
clause (eg see Precedents 2 and 3).

309

M06_Boilerplate_Clauses_E.indd 309 04/09/2017 08:19

 Exclusive, non-exclusive and sole

If it is necessary to define the meaning of ‘exclusive’, etc, the definition could

appear either in a clause in the Definitions section or with the Interpretation
clause.

Linkage and use

Intellectual property

The grant of an exclusive, non-exclusive or sole licence does not, by itself,

define adequately what can be done with licensed intellectual property. There
are other key aspects of licensing, which should be addressed:
• whether it is possible to sub-license rights;
• which of the ‘infringing acts’, defined by statute for the particular category
of intellectual property, the licensee is permitted to do;
eg, a patent might be licensed to enable the licensee to manufacture and
use a patented product but not to sell it (although this in practice would
be unlikely, but entirely possible).
Another example is where a person writes a novel, the rights to publish
in book form could be (non) exclusively licensed to one person, while
the rights to publish the novel in digital (e-book) form could be (non)
exclusively licensed to another, and so on;
• the territory in which the rights can be exploited;
• the length of time for which the rights are licensed;
• the field in which the rights can be used;
eg, the same patent could be licensed to one person for the field of
treatment of heart disease, while it could be licensed to another person
in the field of treatment of cancer (if the product, process, invention etc
covered by the patent permitted such application);
• in addition to the ‘usual’ issues such as those above, there are secondary
issues, which can directly impact the rights granted, such as:
• whether a licensee can sub-contract (as distinct from sub-license)
some of the rights granted to the licensee;
• whether a licensee can assign the licence to a third party.

Registering exclusive licences

Registering the licences with national intellectual property offices may be

desirable or necessary. Eg, in order for a patent licensee to recover damages
for an infringement of the patent, the licence needs registration (in the UK)
with the UK Patent Office in accordance with certain time limits (Patents Act
1977, s 68).

310

M06_Boilerplate_Clauses_E.indd 310 04/09/2017 08:19

 Exclusive, non-exclusive and sole

Extracts from legislation

Patents Act 1977, s 130(1)

‘“exclusive licence” means a licence from the proprietor, or an applicant for, a
patent conferring on the licensee, or on him and persons authorised by him, to
the exclusion of all other persons (including the proprietor or applicant), any
right in respect of the invention to which the patent or application relates, and
“exclusive licensee” and “non-exclusive licensee” shall be construed accordingly.’

Copyright, Designs and Patents Act 1988, s 92(1)

‘a licence in writing signed by or on behalf of the copyright owner authorising
the licensee to the exclusion of all other persons, including the person granting
the licence, to exercise a right which would otherwise be exercisable exclusively
by the copyright owner.’

Note: this is the only statutory definition that requires the licence to be in
writing (and signed) for the grant of exclusive use of a licence.
There are similar definitions in s 119D (Performers’ rights) and in s 225
(Design rights).

Trade Marks Act 1994, s 29(1)

‘In this Act an “exclusive licence” means a licence (whether general or limited)
authorising the licensee to the exclusion of all other persons, including the
person granting the licence, to use a registered trademark in the manner
authorised by the licence.
The expression “exclusive licensee” shall be construed accordingly.’

Capital Allowances Act 2001, s 466

466 Grant of licences

‘(1) The acquisition of a licence in respect of a patent is to be treated as the
purchase of patent rights.
(2) The grant of a licence in respect of a patent is to be treated as a sale of part
of patent rights.
(3) But the grant by a person entitled to patent rights of an exclusive licence
is to be treated as a sale of the whole of those rights.
(4) “Exclusive licence” means a licence to exercise those rights to the
exclusion of the grantor and all other persons for the period remaining
until the rights come to an end.’
(Corporation Tax Act 2009, s 921 is also expressed in almost exactly the same
fashion.)

311

M06_Boilerplate_Clauses_E.indd 311 04/09/2017 08:19

 Exclusive, non-exclusive and sole

Commission Regulation (EU) No 316/214 of 21 March

2014 on the application of Article 101(3) of the Treaty on
the Functioning of the European Union to categories of
technology transfer agreements

‘Article 1 – Definitions
1. For the purposes of this Regulation, the following definitions shall
apply:
…
(p) “exclusive licence” means a licence under which the licensor itself
is not permitted to produce on the basis of the licensed technology
rights and is not permitted to license the licensed technology rights
to third parties, in general or for a particular use or in a particular
territory;
(q) “exclusive territory” means a given territory within which only one
undertaking is allowed to produce the contract products , but where
it is nevertheless possible to allow another licensee to produce the
contract products within that territory only for a particular customer
where the second licence was granted in order to create an alternative
source of supply for that customer;
(r) “exclusive customer group” means a group of customers to which only
one party to the technology transfer agreement is allowed to actively
to sell the contract products produced with the licensed technology’.

Sample precedent material

Precedent 1—Meaning of ‘exclusive’ (for inclusion with an Interpretation

clause or as a Definition)
For the purposes of this Agreement, references to the grant of ‘exclusive’
rights shall mean that the person granting the rights shall neither grant the
same rights to any other person, nor exercise those rights directly [for as
long as this Agreement remains in force] [or to the extent that and for as
long as the Licensed Products are within subsisting claims of unexpired
Patents, or the Know-how is not public knowledge in the relevant coun-
try].

Precedent 2—Meaning of ‘sole’ (for inclusion with an Interpretation

clause or as a Definition)
For the purposes of this Agreement, references to the grant of ‘sole’ rights
shall mean that the person granting the rights
• shall not grant the same rights to any other person, but
• shall have the right to exercise those rights

312

M06_Boilerplate_Clauses_E.indd 312 04/09/2017 08:19

 Exclusive, non-exclusive and sole

[for as long as this Agreement remains in force] [or to the extent that and
for as long as the Licensed Products are within subsisting claims of unex-
pired Patents, or the Know-how is not public knowledge in the relevant
country]

Precedent 3—Grant of exclusive or non-exclusive or sole rights

The Owner hereby grants the Licensee, subject to the provisions of this
Agreement, [an exclusive or a sole or a non-exclusive] licence under
the Patents in the Territory, to manufacture, use and sell the Licensed
Products.

Precedent 4—Appointment of sole agent

The Principal hereby appoints the Agent, subject to the provisions of
this Agreement, to be its sole agent [during the Term] for the supply of
Products in the Territory.

Precedent 5—Appointment of non-exclusive agent (where the agent is a

small business (or non-experienced business person))
The Principal hereby appoints the Agent, subject to the provisions of this
Agreement, to be its non-exclusive agent [during the Term] for the supply
of Products in the Territory. The Principal shall have the right to appoint
other agents who will also be the Principal’s agents for the supply of
Products in the Territory in addition to and at the same time as the Agent.

313

M06_Boilerplate_Clauses_E.indd 313 04/09/2017 08:19

 Exemption clauses

Purpose of the clause

Background
Most commercial agreements include provisions that seek to limit or exclude
liability (together known as exemption clauses). Exemption clauses come in a
variety of shapes and sizes. Eg, they may seek to do the following:
• exclude obligations that might otherwise be implied into the contract
(eg implied warranties of fitness for purpose under the Sale of Goods Act
1979);
• allow a party unilaterally to vary its obligations under the contract (eg
allow the party to supply different goods or services to those that were
ordered);
• limit a party’s remedies in the event of another party’s breach of contract
(eg prevent the party not in breach from terminating the contract);
• impose severe restrictions on the circumstances in which a party may
exercise contractual remedies (eg in a contract for the sale of goods,
requiring claims for damaged goods to be made within a short period,
such as within seven days of delivery);
• limit liability to a specified sum of money (eg to no more than the price
paid by the purchaser);
• exclude liability for certain types of losses (eg indirect and consequential
losses);
• exclude liability altogether.

Interpretation of exemption clauses by the courts

The courts have considered exemption clauses extensively. The effectiveness

of such clauses and their use is also restricted by legislation. Detailed
consideration is outside the scope of this book; however, it is possible to make
the following brief points:
• the courts tend to look much more critically at exemption clauses than
they do at other types of contract clause, especially:

314

M06_Boilerplate_Clauses_E.indd 314 04/09/2017 08:19

 Exemption clauses

• where the contract is between a commercial company and consumer;

or
• where the clause seeks to exclude all liability even for serious breaches
of contract;
• the critical view of the courts has lessened in recent years, and they are
more ‘willing to recognise that parties to commercial contracts are entitled
to apportion the risk of loss as they see fit and that provisions which limit
or exclude liability must be construed in the same way as other terms’
(Tradigrain SA v Intertek Testing Services (ITS) Canada Ltd [2007] EWCA Civ
154); and ‘at least in commercial cases (now subject only to the impact,
if any, of the 1977 Act), words, even in exclusion clauses, mean what
they say and the parties will be held to the bargain into which they have
entered. Further, it is a matter of construction rather than law as to
whether liability for deliberate acts will be excluded, though of course the
wording must be clear’ (Frans Maas (UK) Ltd v Samsung Electronics (UK)
Ltd [2004] EWHC 1502 (Comm), [2005] 2 All ER (Comm) 783). See also
Bikam OOD v Adria Cable Sarl [2012] EWHC 621 (Comm);
• the law is more indulgent towards clauses limiting liability rather than
those excluding it completely (Ailsa Craig Fishing Co Ltd v Malvern Fishing
Co Ltd [1983] 1 All ER 101, HL; EE Caledonia Ltd v Orbit Valve plc [1995]
1 All ER 174, [1994] 1 WLR 1515, CA; see also Frans Maas (UK) Ltd v
Samsung Electronics (UK) Ltd [2004] EWHC 1502 (Comm), [2005] 2 All ER
(Comm) 783);
• the wording of an exemption clause is interpreted strictly, and if it does not
‘beyond the possibility of misunderstanding’ (see judgment of Denning LJ
in White v John Warrick & Co Ltd [1953] 2 All ER 1021, [1953] 1 WLR 1285,
CA) cover the type of liability that is the subject of the dispute, it will often
not be found to exempt such liability. The words used must be clear: ‘…the
general rule should be applied that if a party, otherwise liable, is to exclude
or limit his liability or to rely on an exemption, he must do so in clear
words; unclear words do not suffice; any ambiguity or lack of clarity must
be resolved against that party’ (Dairy Containers Ltd v Tasman Orient Line
CV [2004] UKPC 22). For example, if a party wishes to exclude conditions
implied by law (eg that goods are of satisfactory quality), then the wording
of the clause should normally specifically refer to conditions. But other
wording (without referring to ‘conditions’ at all) can be sufficient (such
as in Air Transworld Ltd v Bombardier In [2012] EWHC 243 (Comm), where
wording such as ‘all other …obligations ….express or implied, arising by
law’ did exclude conditions, see Case analysis below);
• if the wording is ambiguous or unclear, it is interpreted against the interest
of the party seeking to rely on it. Whilst this approach is taken to all types
of contract clause (see Contra proferentem) the approach is particularly
strict in the case of exclusion clauses. In Tai Hing Cotton Mill Ltd v Liu
Chong Hing Bank Ltd [1984] 1 Lloyd’s Rep 555, Judge Kingham said ‘Such
[limitation] clauses will of course be read contra proferentem and must be

315

M06_Boilerplate_Clauses_E.indd 315 04/09/2017 08:19

 Exemption clauses

clearly expressed, but there is no reason why they should be judged by the
specially exacting standards which are applied to exclusion [clauses]’;
• there is no absolute principle that an exemption clause cannot cover a
fundamental breach or a complete non-performance by a party of its
obligations (see Photo Production Ltd v Securior Transport Ltd [1980] 1 All
ER 556). It is possible to do so if the wording of the exemption clauses is
clear enough, even more so with a more ‘literal’ approach now adopted
by the most senior courts interpreting contracts, following cases such as
Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900, eg ‘where the parties
have used unambiguous language, the court must apply it’ and Arnold v
Britton [2015] UKSC 36.
Accordingly, very clear language is needed to overcome the strong
inclination of the courts to interpret the words in a way which does not
completely exclude a party’s liability. Eg, in a contract for the supply
of goods, if the supplier is to exclude liability for supplying completely
different goods to those ordered, this would need stating explicitly, using
words that might well be commercially off-putting to any purchaser:
‘We may supply you with completely different goods to those you have
ordered, or supply you with no goods at all, and we will have no liability
to you for doing so’. Language of this kind goes well beyond the typical
‘legal’ language of many exclusion clauses and is rarely encountered. It
may have the effect of making the contract merely a statement of intent
rather than a legally binding contract;
• an exemption clause will not relieve a party from liability for its own
negligence (or that of the party’s ‘servants’) unless this is stated specifically
or is clearly intended by implication (see Canada Steamship Lines Ltd v
R [1952] AC 192, [1952] 1 All ER 305, PC, a Canadian case, approved in
Gillespie Bros & Co Ltd v Roy Bowles Transport Ltd [1973] QB 400, [1973]
1 All ER 193, CA). If the exemption clause does not refer to negligence
it may nevertheless be interpreted as exempting liability for negligence
if the clause uses words that imply that negligence is covered. Eg, the
exemption clause might refer to ‘all losses however caused’ or ‘from any
cause whatsoever’. If the only possible basis of liability is negligence, it may
not be necessary to refer to negligence specifically;
• an exemption clause will only cover a repudiatory breach (a deliberate
breach by a party to a contract) with the use of the clearest words, even
more so where the deliberate breach is one which insurance is unlikely
to cover (see Internet Broadcasting Corpn Ltd (t/a NETTV) v MAR LLC (t/a
MARHedge) [2009] EWHC 844 (Ch), [2010] 1 All ER (Comm) 112. If
insurance is not available then (according to the judge in this case) it may
be necessary to use words such as ‘including deliberate repudiatory acts by
the Parties themselves’;
• an exemption clause that is intended to exclude a condition implied by
the Sale of Goods Act 1979 should use the word ‘condition’. Otherwise it is
necessary to use language that can only refer to a condition (see eg Wallis,

316

M06_Boilerplate_Clauses_E.indd 316 04/09/2017 08:19

 Exemption clauses

Son and Wells v Pratt and Haynes, HL [1911] AC 394, [1911-13] All ER Rep
989; KG Bominflot Bunkergesellschaft für Mineralole mbH & Co v Petroplus
Marketing AG (The Mercini Lady) [2010] EWCA Civ 1145, [2011] 2 All
ER (Comm) 522); Air Transworld Ltd v Bombardier In [2012] EWHC 243
(Comm);
• on public policy grounds a contracting party cannot exclude liability for its
own fraud in inducing the other party to enter into a contract (HIH Casualty
and General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6, [2003]
1 All ER (Comm) 349). Also, a party cannot exclude liability for its own
fraud during the course of the agreement (Frans Maas (UK) Ltd v Samsung
Electronics (UK) Ltd [2004] EWHC 1502 (Comm), [2005] 2 All ER (Comm)
783).
It may be possible to exclude the fraud or deceit of a party’s agent in
inducing a contract, but general wording will not be sufficient. Such an
intention ‘must be expressed in clear and unmistakable terms on the face
of the contract’ (HIH case, at para 16, although the House of Lords in
this case came to no final view on this point). It is possible to exclude
liability for the deliberate wrongdoing of a party’s agent arising from the
performance of the agreement (Frans Maas (UK) Ltd v Samsung Electronics
(UK) Ltd [2004] EWHC 1502 (Comm), [2005] 2 All ER (Comm) 783, see
Case analysis below). In this case it was held that the following wording,
as a matter of interpretation rather than law, was capable of covering
deliberate wrongdoing: ‘the Company’s liability howsoever arising and
notwithstanding that the cause of the damage be unexplained shall not
exceed…’

Statutory control of exemption clauses

Some of the main issues that need consideration when drafting exclusion or
‘limitation of liability’ clauses are as follows. This is only a brief summary; the
detailed provisions of these laws must be considered when attempting to draft
exemption clauses.

Unfair Contract Terms Act 1977 (UCTA 1977)

• A party cannot exclude or restrict liability, by a contract term or notice, for

death or personal injury caused by that party’s negligence (UCTA 1977,
s 2(1));
• for other loss or damage caused by negligence, any exclusion or restriction
of liability will not be effective unless it satisfies the requirement of
reasonableness (UCTA 1977, s 2(2));
• a party may not, among other things, exclude or restrict liability for breach
of contract if the contract is made on that party’s written standard terms of
business or the other party is a consumer unless the contract term satisfies
the requirement of reasonableness (UCTA 1977, s 3);

317

M06_Boilerplate_Clauses_E.indd 317 04/09/2017 08:19

 Exemption clauses

• it is not possible to exclude liability for breach of the implied term as to

title in contracts for the sale or supply of goods (ie the terms arising under
the Sale of Goods Act 1979 (as amended) and the Supply of Goods and
Services Act 1982 (as amended)) (UCTA 1977, s 6(1)).

Misrepresentation Act 1967

Contract terms that attempt to exclude or limit liability (or a party’s remedies)
for misrepresentations made before the contract was made are of no effect,
unless they satisfy the requirement of reasonableness as stated in the Unfair
Contract Terms Act 1977, s 11(1) (Misrepresentation Act 1968, s 3, as
substituted by UCTA 1977).

Drafting issues

Limiting or excluding liability

The following comments assume that the drafter’s objective is to limit or

exclude liability to the maximum extent possible.
• Check whether the statutory controls on limitation and exclusion of liability apply
at all.
• UCTA 1977 does not apply to some types of contracts, eg:
• contracts of insurance;
• contracts to the extent that they relate to the creation, transfer or
termination of an interest in intellectual property;
• contracts relating to the formation or dissolution of a company etc;
• any contract relating to the creation or transfer of securities or of
any right or interest in securities;
• contracts relating to the creation, transfer or termination of an
interest in land (UCTA 1977, s 1(2), Sch 1).
• contracts in respect of international sale of goods (UCTA 1977,
s 26).
• UCTA 1977 may also have limited application where the parties are
sophisticated commercial parties of equal bargaining position (see
JP Morgan Chase Bank v Springwell Navigation Corpn [2008] EWHC 1186
(Comm), [2008] All ER (D) 167 (Jun) paras 603–605 and Case analysis
below);
• Draft explicitly and precisely. Exemption clauses are not the place to engage
in ‘constructive ambiguity’. It is very important that the language is clear
and unambiguous. Liability clauses deal with technical legal subjects and
some legal language (eg references to negligence and breach of statutory

318

M06_Boilerplate_Clauses_E.indd 318 04/09/2017 08:19

 Exemption clauses

duty) may be inevitable. If it is the intention to exempt liability for what

were once called ‘fundamental’ breaches of contract, this should be stated
as explicitly and clearly as possible.
• Mention liability for negligence. If a party wishes to exclude or limit liability
for negligence, include in the exemption clause words such as:
‘The liability of [Party A] under or in connection with this Agreement,
whether in contract, tort, negligence, breach of statutory duty or otherwise,
shall be limited to…’
• Mention liability for deliberate (repudiatory) breach. If a party wishes to exclude
or limit liability for repudiatory breach, include in the exemption words
such as:
‘The liability of [Party A] under or in connection with this Agreement,
whether in contract, tort, negligence, breach of statutory duty or otherwise
(including repudiatory breach), shall be limited to…’
• Correlate level of liability and insurance. If the party limits liability to a set sum
(such as the price paid), this sum should bear a relationship to the amount
of insurance and resources available to that party. It may be assumed that
a supplier will normally carry insurance to meet liability in negligence for
damage to physical property, at least up to a specified amount.
In St Albans City and District Council v International Computers Ltd [1996]
4 All ER 481, CA, the level of liability was capped at £100,000 by ICL, but
their insurance policy was £50m. There is explicit provision for this in
UCTA 1977, s 11(4). Whether insurance is available will not by itself be a
determining factor as to the reasonableness of the exclusion clause, and
the guidelines found in UCTA 1977, Sch 2. See, for example, Overseas
Medical Supplies Ltd v Orient Transport Services Ltd [1999] 1 All ER (Comm)
981, [1999] 2 Lloyd’s Rep 273, CA, and Watford Electronics Ltd v Sanderson
CFL Ltd [2001] EWCA Civ 317, [2001] 1 All ER (Comm) 696.
• If a party is providing different things and/or services, consider separate exclusion
and/or limitation for each thing or service that party is providing. If the
agreement is to cover the provision of different things and/or services,
consider whether one limitation/exclusion of liability clause is suitable
for all the things/services being provided. An exclusion/limitation of
liability clause may have been drafted to cover the provision of one type of
service, but the agreement may cover other services, for which the clause
is not appropriate or suitable.
See Overseas Medical Supplies Ltd v Orient Transport Services Ltd [1999] 1 All
ER (Comm) 981, [1999] 2 Lloyd’s Rep 273, CA, where it was held that a
limitation of liability clause that limited liability for the delivery of items
was reasonable for a courier to include, but that those same limitations of
liability terms were not appropriate, and therefore unreasonable, where
the courier was also to effect insurance.
• Are any of the stated time limits within which a party is to act or notify in regard to
a breach by another party too short? See Granville Oil and Chemicals Ltd v Davis
Turner and Co Ltd [2003] EWCA Civ 570, [2003] 1 All ER (Comm) 819.

319

M06_Boilerplate_Clauses_E.indd 319 04/09/2017 08:19

 Exemption clauses

• Consider limitations of liability rather than complete exclusions. The reported

cases suggest that limitations of liability are interpreted less strictly than
total exclusions of liability. Moreover, it will generally be easier to satisfy
the test of ‘reasonableness’ under UCTA 1977 (eg ss 2(3) and 3) if liability
is limited to a reasonable amount rather than excluded entirely. What is a
reasonable amount will be subject to consideration on a case-by-case basis
by the courts, and (in the context of UCTA 1977) will take into account
ss 11, 24 (in Scotland) and Sch 2.
• Separate treatment of direct and consequential losses. It is fairly common in
contracts to deal separately with so-called ‘direct’ losses and ‘indirect’ or
‘consequential’ losses, and to seek to exclude all liability for the latter
types of loss. Whether such an exclusion would normally be regarded
as ‘reasonable’ under the Unfair Contract Terms Act 1977 is not clear.
It is also not entirely clear from reported cases where the boundary lies
between these different categories of loss. It is usual to include wording
to clarify what is meant by indirect and consequential losses. Best practice
might suggest that in order to ensure that a total exclusion of liability
for consequential or indirect loss is not considered unreasonable, a sum
should be set for which liability for direct losses will be met.
• Be very detailed about the loss that is to be excluded or limited.
• Offer something positive and exclude implied terms. A clause is more likely to
be reasonable if it offers some redress or remedy where there is a failure
to perform the contract or an obligation under the contract, rather than
one that merely excludes all liability. A clause that offers a reasonable but
limited ‘warranty’ and seeks to exclude all other liability may provide the
best solution for a party seeking a legally-enforceable exemption clause.
Eg in a contract to provide services, the service provider may provide
redress in the form that it will re-perform that part of the services which
are not in accordance with any specification or with what was agreed with
the client/customer.
• Include ‘safety valve’ wording. The most obvious example of this is that (in
appropriate cases) a clause dealing with the limitation or exclusion of
liability should state that the limitation or exclusion does not:
• apply to death or personal injury caused by negligence; and
• fraud.
Alternatively, include in the clause a more general statement that the
exemption does not apply where liability may not be excluded or limited
under applicable law. Eg, consider adding wording to the exclusion clause
to read:
‘Except to the extent that liability may not be so excluded under applicable
laws…’

• Make third-party indemnities clear. Indemnity clauses are sometimes drafted

very broadly, and it is not always clearly stated that they apply only to third-

320

M06_Boilerplate_Clauses_E.indd 320 04/09/2017 08:19

 Exemption clauses

party losses, and not losses suffered by the other party to the contract. It
may improve the chances of such a clause being upheld if this is made
clear. Generally, bear in mind that indemnity clauses may be caught by
the UCTA 1977, s 4 and are interpreted by the courts in a similar way to
exemption clauses.
• Where possible, do not contract on ‘standard’ terms. The best policy is for the
parties to negotiate and agree specific terms and conditions. This does not
often reflect the reality of modern commercial practice, whereby one party
will put forward their own terms and conditions and will only trade on
them and not entertain any changes (or only minor changes). A further
factor is that many contracts (even for high value standard items) are now
entered into via online contracting and the business trading that way may
not allow any other method of entering a contract with it.
The restrictions set out in UCTA 1977, s 3(1) apply ‘where one of [the
contracting parties] deals… on the other’s written standard terms
of business’. If the wording of the exemption clause was specifically
negotiated, s 3(1) will not apply (Fillite (Runcorn) Ltd v APV Pasilac Ltd
The Buyer, July 1995). However, there does not seem to be clear authority
on this point, and the UCTA 1977 appears to make no such requirement).
The meaning of ‘written standard terms of business’ is not defined or
explained in the UCTA 1977. The advantage (or disadvantage) of having
an agreement come within the meaning of a ‘written standard terms of
business’ is that, among other things, provisions that attempt to exclude
or limit liability are subject to a requirement of reasonableness. The cases
below indicate the different ways the courts have sought to address the
issue, not all of which are consistent or are necessarily based on earlier
decisions.
For example, even though some terms may have been negotiated and
agreed in an agreement, a contract may still be regarded as on written
standard terms (St Albans City and District Council v International Computers
Ltd [1996] 4 All ER 481, CA, both at first instance and at appeal). See the
definition provided in McCrone v Boots Farm Sales Ltd 1981 SLT 103 (Case
analysis below).
It appears that it will be a matter of fact and degree as to whether the
terms agreed were standard terms of the party putting them forward
(Salvage Association v CAP Financial Services Ltd [1995] FSR 654 at 674),
although it may be that if the exclusion or limitation of liability clause is
not amended, then the agreement may be considered to be standard.
In Watford Electronics Ltd v Sanderson CFL Ltd [2001] EWCA Civ 317,
[2001] 1 All ER (Comm) 696, [2001] IP & T 588 (although a case not
directly about the use of standard terms), the fact that standard terms
were used was not a deciding fact in whether the exclusion and limitation
of liability clauses were held to be unreasonable, and this case marks a
step back from the approach found in St Albans City and District Council v
International Computers Ltd above, and in particular South West Water Services

321

M06_Boilerplate_Clauses_E.indd 321 04/09/2017 08:19

 Exemption clauses

Ltd v International Computers Ltd [1999] BLR 420 (see also Case analysis
below). In the Watford Electronics case the court, in effect, appeared to be
stating that where parties are of equal strength or bargaining position,
they should be allowed to decide the terms for themselves. In the South
West Water case, although the concluded contract contained terms from
each party’s standard contracts, and the fact that there had been extensive
negotiations on terms and some changes to the limitations clauses (from
an ICL contract and including South West Water, it appears, putting its
own terms forward for exclusion and limitation of liability clauses), did
not save ICL from the finding that they had used standard terms.
Overseas Medical Supplies Ltd v Orient Transport Services Ltd [1999] 1 All ER
(Comm) 981, [1999] 2 Lloyd’s Rep 273, CA laid down some guidelines as
to whether terms provided by one party are standard terms:
• the degree to which the ‘standard terms’ are considered by the other
party as part of the process of agreeing the terms of the contract;
• the degree to which the ‘standard terms’ are imposed on the other
party by the party putting them forward;
• the relative bargaining power of the parties;
• the degree to which the party putting forward the ‘standard terms’
is prepared to entertain negotiations with regard to the terms of the
contract generally and the ‘standard terms’ in particular;
• the extent and nature of any agreed alterations to the ‘standard terms’
made as a result of the negotiations between the parties; and
• the extent and duration of the negotiations.
A simpler (or more stringent) test is that for a contract to be made on
standard terms a party needs to use those terms in almost all cases and
without alteration (other than filling details of the particular contract)
(Yuanda (UK) Co Ltd v WW Gear Construction Ltd [2010] EWHC 720 (TCC),
[2010] All ER (D) 157 (May). The only relevant factor from the list above
was the penultimate one, ie whether there was any significant difference
between the terms offered by a party and the terms of the contract actually
made. In the Yuanda case, there were two factual reasons why one party
had not dealt on the other party’s written standard terms of business. The
first was that material alterations were made to the standard terms, and
the second was that other contractors entering into contracts also did not
enter the contract on standard terms. In all cases, material changes were
made to the standard terms and conditions.
For terms to be ‘standard terms’ those terms must be used consistently
over a period for nearly all of the contracts a party enters into. However,
where the courts appear to differ is on the amount of change that needs
to be made to turn standard terms into non-standard terms:
• only minimal changes may be made (ie such as just entering the
names of the parties, the price) (such as in the Yuanda case); or

322

M06_Boilerplate_Clauses_E.indd 322 04/09/2017 08:19

 Exemption clauses

• more extensive changes can be made, such as the parties starting with
standard terms and negotiating these terms with only some provisions
remaining as originally proposed. In some cases, the terms that are not
changed would be sufficient to come within the meaning of standard
terms (Pegler v Wang [2000] BLR 218, Commercial Management v
Mitchell and Regorco [2016] EWHC 76 (TCC)).
For terms to be standard terms:
(a) it is not enough that a party only prefers to use them;
(b) the terms must be used as a matter of routine and are ‘intended to be
adopted or imposed without consideration or negotiation specific to
the individual case in which they were used’ (Hadley Design Associates v
City of Westminster [2003] EWHC 1617 (TCC));
(c) there must be proof that the ‘terms are invariably or at least usually
used by [a] party. It must be shown that either by practice or by express
statement a contracting party has adopted [the contract terms] as his
standard terms of business’ (British Fermentation Products Ltd v Compair
Reavell Ltd [1998] TCC 577);
(d) it is not enough that there is use of industry standard model terms
(particularly if they have been subject to extensive negotiation and
revision, and the parties have been represented by lawyers). In such
a case ‘it will require cogent evidence to raise even an arguable case
that the resulting contract is made on the written standard terms of
one of those parties. I recognise that it might, in theory, be possible to
demonstrate that one party to such negotiations has used the industry
standard form as the basis for a set of terms it treats as its own, and that
it will not in reality countenance substantive changes, but that would
be an uncommercial and highly unlikely approach’ (African Export-
Import Bank v Shebah Exploration & Production [2016] EWHC 311
(Comm)).
• Tightly define contractual obligations to state clearly the terms on which the
services or goods are being provided (separately from any wording excluding
or limiting liability). State clearly (and in detail) in a contract how a
supplier will provide goods and services as well as the limitations as to
what it is doing. Such wording should be clearly separate and distinct
from limitations and exclusions of liability wording. The aim is that the
supplier, by adding such wording, is preventing any obligations arising to
the client/customer in the first place, and therefore the supplier will not
need to have exclusion or limitation wording to cover it (see JP Morgan
Chase Bank v Springwell Navigation Corpn [2008] EWHC 1186 (Comm),
2008] All ER (D) 167 (Jun) at para 602, following IFE Fund SA v Goldman
Sachs International [2006] EWHC 2887 (Comm), [2006] All ER (D) 268
(Nov). For example,
• if providing a service, state that the service is subject to the co-operation
of the client/customer, or subject to any third party information being

323

M06_Boilerplate_Clauses_E.indd 323 04/09/2017 08:19

 Exemption clauses

accurate, or subject to a physical thing or place being in a particular

state or condition (ie making an assumption as to what that condition
is at the start of the contract);

• if providing goods, state that the implied condition of satisfactory

quality is subject to the purchaser using the goods in accordance with
a manual/guide, only using the goods for specific purposes (eg for
domestic purposes) and stating whether there are any ‘inherent’
faults (eg if there any manufacturing tolerances or statements that
indicate minor blemishes or variations are likely);

• if delivering goods, not committing to a firm delivery date, but stating

that it will attempt to deliver by a stated date (but cannot promise).

• Be aware that the exemption clause may be held to be invalid despite the most
careful drafting. The most a contract drafter can do is make an educated
guess as to the limits in amount and types of liability the court will find
acceptable and try to draft clear language to reflect these limits.

‘Reasonableness’

As to how the degree of reasonableness affects the effectiveness of a particular

limitation/exclusion of liability clause, the contract drafter, besides dealing
with the specific points raised above (which reflect ‘best practice’ as drawn
from specific cases), should consider the following points before including
and/or drafting such a clause. This mixture of points would appear to be the
broad range of factors which a court is likely to consider (see Overseas Medical
Supplies Ltd v Orient Transport Services Ltd [1999] 1 All ER (Comm) 981, [1999]
2 Lloyd’s Rep 273 at 276, 277):

• the way in which the relevant conditions came into being and are used is
generally relevant;

• the five guidelines as to reasonableness set out in UCTA 1977, Sch 2

(although UCTA 1977 indicates that these guidelines only apply to ss 6(3),
7(3) and 7(4), but also apply to s 3 of that Act (Stewart Gill Ltd v Horatio
Myer and Co Ltd [1992] QB 600 at 608));

• the strength of the bargaining positions of the parties relative to each

other, taking into account (amongst other things) alternative means by
which the customer’s requirements could have been met;

• whether the customer received an inducement to agree to the term, or in

accepting it had an opportunity of entering into a similar contract with
another person, but without having to accept a similar term;

• whether the customer knew or ought reasonably to have known of the

existence and extent of the term (having regard, among other things, to

324

M06_Boilerplate_Clauses_E.indd 324 04/09/2017 08:19

 Exemption clauses

any custom of the trade and any previous course of dealing between the
parties);
• where the term excludes or restricts any relevant liability if some condition
is not complied with, whether it was reasonable at the time of the contract
to expect that compliance with that condition would be practicable;
• whether the goods were manufactured, processed or adapted to the
special order of the customer.
In addition to the above, it is necessary also to consider the following points:
• the question of reasonableness must be assessed having regard to the
relevant clause viewed as a whole: it is not right to take any particular
part of the clause in isolation, although it must also be viewed as against a
breach of contract which is the subject of the case;
• the reality of the consent of the customer/client to the supplier’s clause
will be a significant consideration;
• in cases of limitation rather than exclusion of liability, the size of the limit
compared with other limits in widely-used standard terms may also be
relevant;
• while the availability of insurance to the supplier is relevant, it is by no
means a decisive factor; and
• the presence of a term allowing for an option to contract without the
limitation clause but with a price increase in lieu is important.
The contract drafter who is drawing up an agreement or using an existing
precedent for a party who will wish to rely on contract terms limiting or
excluding liability will need, it is suggested, to carry out a careful analysis of
the above points to ensure that contract terms will be effective (as far as one
is able to do so), especially as it will be the party relying on the contract terms
excluding or limiting liability who will have to show that they satisfied the
requirement of reasonableness (UCTA 1977, s 3).

Location in the agreement

Clauses regarding the limitation and exclusion of liability are normally

grouped with clauses that deal with warranties and indemnities in the
Secondary Commercial Provisions section of an Agreement.

Linkage and use

See discussion above.

325

M06_Boilerplate_Clauses_E.indd 325 04/09/2017 08:19

 Exemption clauses

Sample precedent material

Precedent 1—Short form – limitation of liability

To the extent permitted by law, and in circumstances where [Party A]
has not effectively excluded liability to [Party B] under or in connection
with this Agreement, the maximum limit of [Party A]’s liability to [Party B],
whether in contract, tort, negligence, breach of statutory duty or other-
wise shall be £[ ] in aggregate.

Precedent 2—Short form-exclusion of liability

Notwithstanding any other provision of this Agreement, no Party shall be
liable to any other Party to this Agreement in contract, tort, negligence,
breach of statutory duty or otherwise for any loss, damage, costs or
expenses of any nature whatsoever incurred or suffered by that other
Party or its Affiliates of an indirect or consequential nature including with-
out limitation any economic loss or other loss of turnover, profits, busi-
ness or goodwill.

Precedent 3—Limitation of liability and exclusion of indirect and

consequential losses
1 Except in the case of death or personal injury caused by [Party]’s neg-
ligence, [Party]’s liability under or in connection with this Agreement,
whether arising in contract, tort, negligence, breach of statutory duty
or otherwise, shall not exceed the sum of £1,000,000 (one million
pounds sterling).
2 Neither party shall be liable to the other party in contract, tort, neg-
ligence, breach of statutory duty or otherwise for any loss, damage,
costs or expenses of any nature whatsoever incurred or suffered by
that other party: (a) of an indirect or consequential nature; nor (b)
for any economic loss or other loss of turnover, profits, business or
goodwill.
3 Nothing in this agreement excludes liability for a Party’s fraud.

Precedent 4—Limitation of liability for defects after delivery

We will make good, by repair or the supply of a replacement, defects
which, under proper use, appear in the goods within a period of 12 cal-
endar months after the goods have been delivered and arise solely from
faulty design (other than a design made, furnished or specified by you
for which we have disclaimed responsibility in writing), materials or work-
manship: provided always that defective parts have been returned to us
if we shall have so required. We shall refund the cost of carriage on such
returned parts and the repaired or new parts will be delivered by us free of
charge as provided in Clause [no] (Delivery).
Our liability under this clause shall be in lieu of any warranty or condi-
tion implied by law as to the quality or fitness for any particular purpose
of the goods, and save as provided in this clause we shall not be under

326

M06_Boilerplate_Clauses_E.indd 326 04/09/2017 08:19

 Exemption clauses

any liability, whether in contract, tort or otherwise, in respect of defects

in goods delivered or for any injury (other than personal injury caused by
our negligence as defined in the Unfair Contract Terms Act 1977, s 1),
damage or loss resulting from such defects or from any work done in con-
nection therewith.

Case analysis

McCrone v Boots Farm Sales Ltd 1981 SLT 103

A definition of a standard contract was provided in this case:
‘A “standard form contract” cannot be confined to written contracts in which
both parties use standard forms. It is wide enough to include any contract,
whether wholly written or partly oral, which includes a set of fixed terms or
conditions which the proponer applies, without material variation, to contracts
of the kind in question’.

This definition was adopted in Salvage Association v CAP Financial

Services Ltd [1995] FSR 654.

Salvage Association v CAP Financial Services Ltd [1995] FSR 654 at 674
Consideration of standard terms. It would appear that in this case the fact
that one party had taken legal and other advice on the proposed terms,
and that changes were agreed, meant that the terms were not imposed on
that party who received the original standard terms from the other party.
In addition, the party putting forward the standard terms was prepared to
enter into meaningful negotiations on them, and these negotiations took
place over some length of time.

Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd [1983] 1 All ER 101
The judgment concerned the interpretation of exclusion and limitation of
liability clauses in a contract for the provision of security services, with the
limitation of liability clause stating:
‘[2f] If, pursuant to the provisions set out herein, any liability on the part of
the Company shall arise (whether under the express or implied terms of this
Contract, or at Common Law, or in any other way) to the customer for any loss
or damage of whatever nature arising out of or connected with the provision of,
or purported provision of, or failure in provision of, the services covered by this
Contract, such liability shall be limited to the payment by the Company by way
of damages of a sum…’

The House of Lords indicated that:

1 a limitation of liability clause, if it is to exclude liability for negligence,
must be clearly and unambiguously expressed;
2 a limitation of liability clause was not to be interpreted as rigidly and
strictly as an exclusion clause;
3 the clause reproduced above was adequate to cover a total as well as
a partial failure to perform services;

327

M06_Boilerplate_Clauses_E.indd 327 04/09/2017 08:19

 Exemption clauses

4 the validity of the clause was not affected, because it was to some
extent inconsistent with another clause (dealing with exclusion of lia-
bility for certain events);
It is worth reproducing the words of Lord Wilberforce where he succinctly
set out the position:
‘Whether a condition limiting liability is effective or not is a question of con-
struction of that condition in the context of the contract as a whole. If it is
to exclude liability for negligence, it must be most clearly and unambiguously
expressed, and, in such a contract as this, must be construed contra profer-
entem. I do not think that there is any doubt so far. But I venture to add one
further qualification, or at least clarification: one must not strive to create ambi-
guities by strained construction, as I think the appellants have striven to do.
The relevant words must be given, if possible, their natural, plain meaning.
Clauses of limitation are not regarded by the courts with the same hostility as
clauses of exclusion; this is because they must be related to other contractual
terms, in particular to the risks to which the defending party may be exposed,
the remuneration which he receives and possibly also the opportunity of the
other party to insure.
It is clear, on the findings of the Lord Ordinary (Wylie), that the respondents
were negligent as well as in material breach of their contractual obligations.
The negligence consisted in a total or partial failure to provide the service con-
tracted for […]. It is arguable, in my opinion, that the failure was not total, in
that some security against some risks was provided, though not that which
was necessary to prevent the actual damage which occurred. But I do not
think that it makes a difference as regards the applicability of the clause of limi-
tation whether this is right or not, and since their Lordships in the Inner House
were of opinion that the failure was total, I will proceed on the assumption that
this was so.
[…]
This clause is on the face of it clear. It refers to failure in provision of the ser-
vices covered by the contract. There is no warrant as a matter of construction
for reading ‘failure’ as meaning ‘partial failure’, ie as excluding ‘total failure’
and there is no warrant in authority for so reading the word as a matter of law…
The appellants tried to find an ambiguity in this clause in three ways.
(1) First they relied on the finding of the Lord Ordinary, with which the Inner
House generally agreed, that there was such an inconsistency between the
provisions of [the] condition […], excluding liability, and those of [clause] 2(f) as
to create uncertainty as to the meaning of the former [clause excluding liabil-
ity]. It was this inconsistency which led the courts below to conclude against
the validity of the exclusion clause. So it was argued the same inconsistency
and the doubts engendered by it must invalidate [clause] 2(f). But this is trans-
parently fallacious. Because cl A casts doubt on the meaning of cl B, it does
not follow at all that the converse is true and that cl B casts doubt on the
meaning of cl A. Clause B must be looked at on its own, and may turn out to be
perfectly clear…
(2) It was contended that the initial words “If, pursuant to the provisions set
out herein” are ambiguous and that their ambiguity invalidates the whole sub-
clause. But I accept on this the conclusion of Lord Dunpark that the words are
“open to construction” […] The possibility of construction of a clause does
not amount to ambiguity: that disappears after the court has pronounced the
meaning.’

328

M06_Boilerplate_Clauses_E.indd 328 04/09/2017 08:19

 Exemption clauses

South West Water Services Ltd v International Computers Ltd

[1999] BLR 420
In the South West Water case, the fact that the concluded contract con-
tained terms from each party’s standard contracts, and that there had
been extensive negotiations on terms and some changes to the limitations
clauses (from an ICL contract), did not save ICL from the finding that they
had used standard terms (including South West Water, it appears, putting
its own terms forward for exclusion and limitation of liability clauses). This
case is worth a little further consideration because of the amount of nego-
tiation over the terms, with both sides putting forward their own terms, as
the headnote to the case report makes clear:
‘The contract contained a variety of conditions, drawn from different sources:
the basic form was taken from the draft contract included in South West
Water’s invitation to tender. Attached to this were terms and conditions taken
from ICL’s standard forms, but heavily amended in line with South West
Water’s form of contract. The limitation of liability initially put forward by ICL
was rejected by South West Water in the negotiating session, and ICL pro-
posed another drawn from an internal precedent. This was accepted by South
West Water’s in-house lawyer…’

The detailed history of the negotiations and events that led to the litigation
is set out over 30 pages in the law report. However, it seems clear that if
this amount of negotiation does not lead to the conclusion that the con-
tract was not concluded on standard terms, it is difficult to see what will.

Watford Electronics Ltd v Sanderson CFL Ltd [2001] EWCA Civ 317,
[2001] 1 All ER (Comm) 696, [2001] IP & T 588
On the question of reasonableness, the starting point was with
UCTA 1977, s 11:
‘[31] In order to decide whether the relevant contract term was a fair and rea-
sonable one to be included having regard to the circumstances which were, or
ought reasonably to have been, known to or in the contemplation of the parties
when the contract was made it is necessary, as it seems to me, to determine,
first the scope and effect of that term as a matter of construction. It is neces-
sary to identify the nature of the liability which the term is seeking in order to
exclude or restrict. Whether or not a contract term satisfies the “requirement
of reasonableness” within the meaning of Section 11 of the Unfair Contract
Terms Act 1977 does not fall to be determined in isolation. It falls to be deter-
mined where a person is seeking to rely upon the term in order to exclude or
restrict his liability in some context to which the earlier provisions of the 1977
Act (or the provisions of s 3 of the Misrepresentation Act 1967) apply.’

The Court of Appeal overturned the decision of the judge in the

Technology and Construction Court, where the judge was held to have
misconstrued a limitation clause as simply being an exclusion clause,
where in fact it was a clause which for some liability excluded liability
and for other liability, limited it, and failed to take into account an ‘entire
agreement’ clause as an acknowledgment that the parties had not relied
on any pre-contractual representations.
Therefore, for any term, the court had to determine the scope and effect
of the term in question as a matter of construction, and identify the nature

329

M06_Boilerplate_Clauses_E.indd 329 04/09/2017 08:19

 Exemption clauses

of liability which the term was seeking to exclude or restrict. The Court
of Appeal found other contextual elements using guidelines in the Unfair
Contract Terms Act 1977, Sch 2.

Frans Maas (UK) Ltd v Samsung Electronics (UK) Ltd [2004] EWHC 1502
(Comm), [2005] 2 All ER (Comm) 783
This case concerned the storing of a large quantity of the defendant’s
mobile telephones at the claimant’s warehouse. The relationship was one
of bailment. The bailment was governed by the standard terms of British
International Freight Association. One provision (Clause 27(A)) stated:
‘27(A) Subject to clause 2(B) and 11(B) above and sub-clause (D) below the
Company’s liability howsoever arising and notwithstanding that the cause of
the loss or damage be unexplained shall not exceed … [the various limits set
out in sub-clauses (A) to (C)]
(D) By special arrangement agreed in writing, the Company may accept liabil-
ity in excess of the limits set out in Sub-Clauses (A) to (C) above upon the
Customer agreeing to pay the Company’s additional charges for accepting
such increased liability. Details of the Company’s additional charges will be
provided upon request.’

A large quantity of the defendant’s mobile telephones were stolen from

the warehouse. Because of the way the theft was organised it was
believed that an employee of the claimant in some way assisted in the
theft. The judge found that the claimant was vicariously liable for the wilful
default of the employee. The case turned on whether Clause 27(A) was
capable of limiting the liability of the claimant for the wrongdoing of its
employee.
It was held, as a matter of construction, that the words ‘howsoever aris-
ing’ in the clause above were capable of limiting liability not only for neg-
ligence but also deliberate wrongdoing of an employee, but would not
extend as far as covering the fraud of a party:
‘[138] It is true [that the words of the clause] are to be construed contra pro-
ferentem. It is further true that the wording is general; it does not in express
terms refer to negligence or wilful default or employee dishonesty or delib-
erate wrongdoing. None the less, on any natural reading, the wording of cl
27(A) is wide indeed. As already remarked, there was no or no serious dispute
that cl 27(A) entitled [the Claimant] to limit its liability in respect of the case of
negligence advanced against it. To my mind, the clause does not stop there.
As a matter of language, considered in isolation, I am amply satisfied that the
wording was capable of extending to cover deliberate wrongdoing. If that be
right, there is no good reason why, as a matter of language, the answer should
be any different when the deliberate wrongdoing is comprised of or includes
employee dishonesty; the words ‘howsoever arising’ are certainly broad
enough to encompass dishonesty on the part of employees for whom FM is or
may be vicariously liable.
[139] What of the wording in context? Here, as it seems to me, the argu-
ments are essentially one way. (i) The risk of employee wilful default is a
real, foreseeable, commonplace risk. (ii) Clause 27(A) is a limitation clause.
(iii) Both the nature of the clause and the commercial background against
which it is intended to operate, suggest that the parties intended cl 27(A) to
provide an uncomplicated safety net for [the claimant]; if, however, cl 27(A)

330

M06_Boilerplate_Clauses_E.indd 330 04/09/2017 08:19

 Exemption clauses

does not extend to the commonplace risk in question, then there would
be a significant hole in that safety net. These considerations lend powerful
support to the proposition that the parties intended the wording to mean
what it said; “howsoever arising” meant just that—cl 27(A) scooped up [the
claimant]’s liability, “howsoever arising”, including employee wilful default.
(iv) Nothing in the authorities to which I have referred tells against such an
approach. To the contrary, this approach to cl 27(A) is consistent with both
the Securicor and the Ailsa Craig cases; commercial contracts are not to
be artificially construed and liability even for deliberate wrongdoing can be
excluded, a fortiori limited, provided appropriate wording is used. While a
suggested limitation of liability for employee wilful default does require close
scrutiny, the [HIH Casualty and General Insurance Ltd v Chase Manhattan
Bank [2003] UKHL 6, [2003] 1 All ER (Comm) 349)] case underlines that, so
far as concerns deliberate wrongdoing in the course of performance of an
admittedly valid contract, the matter is one of construction. (v) I add this; in
practical terms, one or other party was to or would be well advised to insure
against the risk of employee wilful default; the party directly at risk was [the
defendant]; all other things being equal, it was likely to be better placed than
[the claimant] to do so. The above construction of cl 27(A) would mean that
the parties had addressed this risk and left it to [the defendant] to obtain
insurance (for losses above the limit)…’

JP Morgan Chase Bank v Springwell Navigation Corpn

[2008] EWHC 1186 (Comm)
This case, in essence, concerned whether the claimants were responsible
for (or indeed had provided any) investment advice to the defendants, and
whether the claimants would be liable for the defendant’s losses arising
from high-risk investments. The part of the judgment that is most relevant
to this section concerns whether a supplier can avoid liability arising at all
(ie by being under no obligation to the customer/client):
‘599. As is apparent from the documents themselves, they comprise various
types of clause. There is a small number of genuine exclusions clauses…. The
bulk of the terms, however, were not exclusion clauses but merely clauses
which defined the nature of the services which [the claimant] was rendering
to [the defendant] and which confirmed the basis on which the parties were
transacting business.
600. By section 2(2) of UCTA, a person cannot exclude or restrict his liability
for negligence (as a business liability) except insofar as the term or notice sat-
isfies the requirement of reasonableness. By section 13, this includes clauses
which make the liability or its enforcement subject to restrictive or onerous
conditions, or exclude or restrict any right or remedy in respect of the liability.
Section 3 of the Misrepresentation Act extends the ambit of the legislation to
clauses which purport to exclude liability for misrepresentation.
601. I accept [the claimant’s] submission that most of the provisions within the
contractual documentation do not fall within the scope of this legislation. There
is a clear distinction between clauses which exclude liability and clauses which
define the terms upon which the parties are conducting their business; in other
words, clauses which prevent an obligation from arising in the first place. In
Tudor Grange Holdings v Citibank, Sir Richard Scott, V-C stated that:
“The Act of 1977 is normally regarded as being aimed at exemption clauses
in the strict sense, that is to say, clauses in a contract which aim to cut down
prospective liability arising in the course of the performance of the contract in
which the exemption clause is contained.”

331

M06_Boilerplate_Clauses_E.indd 331 04/09/2017 08:19

 Exemption clauses

602. Thus terms which simply define the basis upon which services will be
rendered and confirm the basis upon which parties are transacting business
are not subject to section 2 of UCTA. Otherwise, every contract which con-
tains contractual terms defining the extent of each party’s obligations would
have to satisfy the requirement of reasonableness. A good example of this
approach is to be seen in IFE v Goldman Sachs where the claimants sought
to characterise all of the relevant terms, upon which reliance was placed, as
exclusion clauses and thus open to challenge under the legislation. However,
Toulson J concluded that they should not be characterised as a notice exclud-
ing or restricting a liability for negligence, “but more fundamentally as going to
the issue whether there was a relationship between the parties (amounting to
or equivalent to that of professional advisor and advisee) such as to make it
just and reasonable to impose the alleged duty of care”. The Court of Appeal,
as already indicated, took exactly the same approach, in characterising the
clauses as determining the basis of the relationship between the parties.’

Air Transworld Ltd v Bombardier In [2012] EWHC 243 (Comm)

1 The claimant purchased an aircraft from the defendant.
2 The claimant sought a declaration that it had validly rejected the air-
craft, and accordingly rescinded the contract between the parties, and
was therefore entitled to the return of the purchase price.
3 The claimant argued that the aircraft did not correspond with the
description and was unfit for purpose (within the meanings of Sale of
Goods Act 1979, ss 13, 14).
4 The defendant argued that the provisions of the contract excluded lia-
bility under the 1979 Act and the contract provided warranties instead.
The defendant argued that the aircraft did not breach those warranties.
5 The defendant also argued that the problems the claimant had with the
aircraft were the type of issues normally encountered with a new piece
of complex equipment, and therefore did not breach any term implied by
statute.
6 The exemption clauses read:
‘ARTICLE 4. GENERAL PROVISIONS
4.1 THE WARRANTY, OBLIGATIONS AND LIABILITIES OF SELLER AND
THE RIGHTS AND REMEDIES OF BUYER SET FORTH IN THE AGREEMENT
ARE EXCLUSIVE AND ARE IN LIEU OF AND BUYER HEREBY WAIVES AND
RELEASES ALL OTHER WARRANTIES, OBLIGATIONS, REPRESENTATIONS
OR LIABILITIES, EXPRESS OR IMPLIED, ARISING BY LAW, IN CONTRACT,
CIVIL LIABILITY OR IN TORT, OR OTHERWISE, INCLUDING BUT NOT
LIMITED TO A) ANY IMPLIED WARRANTY OF MERCHANTABILITY OR OF
FITNESS FOR A PARTICULAR PURPOSE, AND B) ANY OTHER OBLIGATION
OR LIABILITY ON THE PART OF SELLER TO ANYONE OF ANY NATURE
WHATSOEVER BY REASON OF THE DESIGN, MANUFACTURE, SALE,
REPAIR, LEASE OR USE OF THE AIRCRAFT OR RELATED PRODUCTS AND
SERVICES DELIVERED OR RENDERED HEREUNDER OR OTHERWISE.
4.2 SELLER SHALL NOT BE LIABLE FOR ANY INDIRECT, CONSEQUENTIAL,
SPECIAL, INCIDENTAL AND/OR PUNITIVE DAMAGES OF ANY KIND OR
NATURE UNDER ANY CIRCUMSTANCES OR, WITHOUT LIMITING THE
FOREGOING, FOR ANY LOST PROFITS OR ANY OTHER LOSSES OR

332

M06_Boilerplate_Clauses_E.indd 332 04/09/2017 08:19

 Exemption clauses

DAMAGES FOR OR ARISING OUT OF ANY LACK OR LOSS OF USE OF ANY

AIRCRAFT, ANY EQUIPMENT, ANY ACCESSORY OF ANY SPARE PART FOR
ANY REASON.
4.3 THE PARTIES HERETO HEREBY ACKNOWLEDGE AND AGREE THAT THE
LIMITED WARRANTIES AND THE LIMITATION OF LIABILITY PROVISIONS
CONTAINED HEREIN AND IN THE SPECIFICATION HAVE BEEN EXPRESSLY
AGREED TO IN CONSIDERATION OF THE PURCHASE PRICE AND OTHER
PROVISIONS OF THIS AGREEMENT. TO THE EXTENT APPLICABLE LAWS
DO NOT ALLOW THE LIMITATIONS SET OUT IN THIS ARTICLE 4, SUCH
LIMITATIONS SHALL NOT BE APPLIED OR INVOKED.’

7 The wording used in the above clauses does not refer to or mention
conditions at all. Although there is no mention of the word ‘condition’, the
wording in the first clause quoted above (‘all other … obligations … or
liabilities express or implied by law’) was held to include conditions:
‘29. No person reading this Article could be in any doubt that every promise
implied by law is excluded, in favour of the contractual promises set out in the
APA. It is right that there is no term which purports to exclude the buyer’s right
to reject the goods and recover the price, nor to the specific sections of the
Sale of Goods Act, but the words “all other… obligations… or liabilities express
or implied arising by law”, which the purchaser expressly waives, necessarily
include the conditions implied by the Sale of Goods Act. In my judgment these
are apt and precise words which are sufficiently clear to exclude those implied
conditions and the Article, by necessary inference does negative the applica-
tion of those implied conditions. The parties’ language is in my judgment fairly
susceptible of only one meaning […] There is no express reference to the word
“condition” but the language must necessarily be taken to refer to the implied
conditions of the Sale of Goods Act, because they are obligations and liabili-
ties “implied, arising by law”. Moreover, the illustration of the application of
this general provision in Article 4.1(B) covers any other obligation or liability
devolving on the seller, “of any nature whatsoever”, resulting from the design,
manufacture and sale of the aircraft. No buyer could be in any doubt as to the
extent of the rights he was getting and the limitation on the seller’s obligations.
What the buyer was to get was the Warranty found in the APA and its Appendix
in place of the terms implied by the Sale of Goods Act, whether conditions or
warranties.
30. Article 4.2 exempts the defendant seller from liability for consequential
losses and Article 4.3 reinforces Article 4.1 by saying that the limited warran-
ties and liabilities provided in the APA and Appendix A were expressly agreed
in the light of the agreed purchase price and the other provisions of the APA,
which must be intended primarily to refer to the Warranty in Article 15 of the
Appendix. The point is thus reinforced that the Warranty is given in substitution
for all other rights which might be implied by the Sale of Goods Act.
31. In my judgment therefore […], this is […] a case where the words used
do encompass contractual conditions implied by law and to adopt a differ-
ent construction would amount to a distortion of the words used. There is no
ambiguity in the clause. There is only one meaning which can fairly be given to
it. It is what the parties agreed and the parties […] subject to any application of
UCTA, should be kept to their bargain.’

333

M06_Boilerplate_Clauses_E.indd 333 04/09/2017 08:19

 Expiry and termination at will

Purpose of the clause

Some agreements are stated:

• to be for a fixed period. In such cases the parties will often intend that the
agreement will terminate automatically by expiry at the end of that period.
But it is better to state this rather than assume that this is implicit from the
fixed term;
• to allow a party to terminate the agreement on notice to the other party (ie without
specifying a cause, such as for breach or insolvency).
If the agreement is silent as to its length, a party or the parties may (in some
situations) be able to terminate it by giving reasonable notice (see eg Martin-
Baker Aircraft Co Ltd v Canadian Flight Equipment Ltd [1955] 2 QB 556, [1955]
2 All ER 722; Re Spenborough UDC’s Agreement [1968] Ch 139, [1968] 1 All
ER 959).
Accordingly it is always best to specify the length of the contract, to avoid such
uncertainties, or the circumstances when an agreement can terminate (eg if
the agreement is not for a fixed period then it will terminate when a party or
the parties have completed their obligations).

Drafting issues

• Does the agreement state that it is for a fixed period? If not expressly stated, is
the length of time that the agreement is to run clear from other provisions
in the agreement? Eg is it clearly stated:
• that a party needs to complete performance of work or tasks etc by a
certain date?
• that a party needs to provide its approval or confirm that the work etc
is completed?
Depending on the agreement, even such provisions may not be sufficiently
clear as to when an agreement is to terminate. Eg, a software development
agreement might provide that the software has to be written by a certain
date or is taken as having been completed by passing an approval stage
(or deemed to pass that stage). Other provisions (such as support) may

334

M06_Boilerplate_Clauses_E.indd 334 04/09/2017 08:19

 Expiry and termination at will

continue, but are defined as not having a specific end date (eg, they will
only terminate when the party paying for support stops paying).
• What happens at the end of the fixed period? Possible alternatives include:
• all of the provisions of the agreement terminate by expiry (see
Precedent 1);
• some of the provisions of the agreement terminate;
• the agreement terminates, but some provisions continue after
termination (see Consequences of Termination).
• Is termination by expiry made subject to other forms of termination? If the
agreement may terminate earlier than at the end of the fixed period,
should the clause indicating the fixed period be made subject to earlier
termination as provided elsewhere in the agreement? For example, if a
public relations consultant is hired to provide public relations services
for a fixed period of one year with payment of the consultant’s fee made
in monthly instalments, should it be possible for the public relations
consultant to terminate earlier than the fixed period if the client does not
pay one or more instalments or becomes insolvent? If the consultant is
allowed to do so then the clause indicating the fixed term should be made
subject to the other clauses.

Location in the agreement

Such a provision will normally be located:

• with other Termination provisions; or
• with a provision that states when the agreement commences.

Linkage and use

As indicated above, where an Expiry and termination at will provision is included
it must be integrated and be consistent with other Termination provisions.

Sample precedent material

Precedent 1—Termination by expiry

Subject to any earlier termination under Clause [no] [and Clause [no]]
below, this Agreement shall continue in force until the [ ] anniversary
of the Commencement Date when it shall terminate automatically by
expiry.

335

M06_Boilerplate_Clauses_E.indd 335 04/09/2017 08:19

 Expiry and termination at will

Precedent 2—Termination by expiry – alternative

This Agreement terminates automatically on the Termination Date[, unless
a Party terminates this Agreement in accordance with Clause [no] below.
Definition of Termination Date:
‘Termination Date’ shall mean [date].

336

M06_Boilerplate_Clauses_E.indd 336 04/09/2017 08:19

 Force majeure

Purpose of the clause

Background (common law doctrine of frustration, force

majeure and circumstances beyond a party’s control)
Where a contract:
• becomes impossible to perform; or
• because of some external event or situation, is capable of performance
only in a manner substantially different from the original intentions of the
parties,
then, in the absence of express provision by the parties, further performance
is likely to be subject to the common law doctrine of frustration. That is, in
such situations, a contract will terminate and the parties no longer need to
perform their obligations (and this will occur whether the parties wish this to
occur or not).
The types of situations where the doctrine of frustration has applied to a
contract include:
• where the contract is impossible to perform because of government
interference; or
• where the contract becomes illegal to perform; or
• where it is not possible to obtain any required permission or consent from
a governmental or regulatory authority;
• where there is an accidental destruction of the goods or other things that
are the subject matter of the contract; or
• where a person is physically unable to perform the contract (if the contract
is one of personal service).
In many Continental jurisdictions, a party will be automatically excused
performance of the contract if a force majeure situation such as those set out
above exists or occurs, but without there being a termination of the contract
(although the contract is often suspended). However, there is no equivalent
concept under English law.
Accordingly, there is need for a ‘force majeure’ clause in contracts under
English law:

337

M07_Boilerplate_Clauses_F.indd 337 07/09/2017 12:58

 Force majeure

• to define, more or less precisely, the circumstances in which a party to

a contract is excused from performing its contractual obligations, that
is where performance is hindered or made impossible by circumstances
beyond that party’s control; and also
• to indicate whether the contract is terminated, continues or is suspended.

Consequences of relying on the common law doctrine of

‘frustration’

If a force majeure clause is not included in an English law contract, then the
common law doctrine of ‘frustration’ of the contract may apply. Reliance on
this doctrine may be in neither party’s interests, for a number of reasons:
• the doctrine of frustration only operates where the frustrating
circumstances are not due to the fault of either party (see Denmark
Productions Ltd v Boscobel Productions Ltd [1969] 1 QB 699 at 725, [1968]
3 All ER 513, CA at 523, 533). However, it does not follow that in all
contracts any act of negligence will deprive a party of the defence of
frustration (see Joseph Constantine Steamship Line Ltd v Imperial Smelting
Corpn Ltd [1942] AC 154 at 166, 167, 179,195, 205, [1941] 2 All ER 165 at
173, 182, 193, 199, 200, HL);
• if the contract is frustrated:
• a party may be entitled to compensation for work done prior to
termination (unless the expenditure does not result in any benefit to
the other party); and
• a party may be able to retain any payments previously made under the
contract, but this will not always be commercially appropriate; and
• a party may no longer need to pay sums which the contract provides it
needs to make;
(the position is governed by the Law Reform (Frustrated Contracts) Act
1943);
• termination of the contract may not be in either party’s interests. They may
prefer merely to suspend the contract for the duration of the frustrating
event;
• because:
• there is no definite list of frustrating events, and
• the doctrine has developed on a case-by-case basis, and
• the doctrine is interpreted in a narrow way (Dais Contractors Ltd v
Fareham UDC [1956] AC 696)
it is not possible for a party to know whether any event will definitely be a
frustrating event, if a dispute reaches the court. To illustrate the difficulty

338

M07_Boilerplate_Clauses_F.indd 338 07/09/2017 12:58

 Force majeure

with the doctrine of frustration, for example, in The Super Servant Two
[1990] 1 Lloyd’s Rep 1, where the defendant was contracted to carry the
claimant’s oil rig in one of two barges, but that barge was destroyed due
to an accident, it was held the accident was not a frustrating event as the
defendant had chosen to use that barge.

Using ‘force majeure’ clauses

To avoid bringing the contract to an end under the law of frustration, most
contracts include a ‘force majeure’ clause, under which the parties expressly
agree:
• to exempt one of them or each other from performance of the contract
or liability for breach of contract where the failure to perform is due to
factors beyond that party’s control; but
• that the contract continues in force during this period; and
• that the contract is ‘re-activated’ if the ‘force majeure’ situation comes
to an end (unless the contract also provides for termination, see eg
Precedent 9).
Such clauses are effective provided that they are not uncertain in their terms.
Eg a provision that ‘the usual ‘force majeure’ clauses shall apply’ was void
for uncertainty (British Electrical and Associated Industries (Cardiff) Ltd v Patley
Pressings Ltd [1953] 1 All ER 94, [1953] 1 WLR 280).

Contents of a ‘force majeure’ clause

Typically, the clause will define what amounts to ‘force majeure’ (either in
general terms or with an exhaustive list of events) and provide that if ‘force
majeure’ prevents a party from performing its obligations under the contract:
• it is not to be liable or responsible for such performance; or
• the time or method of performance is to be varied or delayed; or
• the time or method or performance can be varied or delayed and then
subsequently terminated; or
• the contract is to be discharged with specified consequences.
The contract should define or state what are ‘force majeure’ events. If the
‘force majeure’ events are defined as events beyond the reasonable control
of a party, the parties should consider expanding the definition to include
disputes with employees and the acts or omissions of sub-contractors, as
these may not qualify as being beyond a party’s control (British Electrical and
Associated Industries (Cardiff) Ltd v Patley Pressings Ltd [1953] 1 All ER 94, [1953]
1 WLR 280).

339

M07_Boilerplate_Clauses_F.indd 339 07/09/2017 12:58

 Force majeure

‘Force majeure’ clauses are particularly useful in contracts that provide for a
long-term relationship between the parties or where the parties need to use
third parties (such as suppliers, sub-contractors, agents etc). In agreements
that record one single main transaction, eg most sale agreements, such a
clause may not be necessary.

Types of ‘force majeure’ clause

The ‘force majeure’ clauses found in commercial agreements generally either:

• set out a long list of events, which are deemed to be beyond the parties’
control (these often occur in older agreements and may contain references
to events such as an ‘act of God’), eg:
‘fire, flood, earthquake, windstorm or other natural disaster … civil
war, rebellion, revolution, insurrection, military or usurped power or
confiscation, nationalisation, requisition …’
The danger with using a long list of events is that it is subject to the (old
Latin) maxim expressio unius est exclusio alterius (the expression of one
thing excludes another) (see Definitions and also Drafting and Negotiating
Commercial Contracts (4th Edn, Bloomsbury Professional, 2016) at 6.5.16.1);
• merely refer to:
‘circumstances beyond the control of the parties’
or:
‘any event beyond the reasonable control of either party’;
• most commonly, list a few key events and then make a general sweeping
reference to events beyond the parties’ control, eg:
‘in the event of national emergency, war, or prohibitive governmental
regulations or if any other cause beyond the [reasonable] control of the
parties renders performance of the agreement impossible.’
It appears that wording in a force majeure clause indicating that
performance of an obligation is beyond the reasonable control of a party
will not cover the breach of contract by that other party. If one party is
prevented from performing its obligations under an agreement because
of a failure of the other party to perform its obligations (causing a breach
of contract), the first party will not be able to rely on a force majeure clause
(Ministry of Sound (Ireland) Ltd v World Online Ltd [2003] EWHC 2178
(Ch), [2003] 2 All ER (Comm) 823, paras 36, 38 and 39). Such a breach
of contract would not come within the meaning of a force majeure event.
The judge in this case said that if the force majeure ‘… did cover a case
in which one party was prevented from performing its part of the bargain
by the breach of the other party, its only effect would be to excuse the
innocent party from its obligation to perform, so that it would not be in
breach and could not be liable in damages; however, it did not necessarily
follow that it could recover payments due under the contract which
depended upon performance …’.

340

M07_Boilerplate_Clauses_F.indd 340 07/09/2017 12:58

 Force majeure

‘Beyond the control’ – labour disputes

Depending on the circumstances, the likelihood of industrial action by a

party’s employees affecting performance of the contract and the possible
difficulty of proving that this is beyond the control of that party, may need
consideration. Although in the non-state sector in the UK the level of strikes
is low, this is not necessarily true if one of the parties operates outside of the
UK. So that such events are covered by the ‘force majeure’ clause, events such
as ‘strike or lockout’ should be listed among the force majeure events and
(depending on one’s point of view) followed by such words as:
‘(other than a strike or lockout induced by the party so incapacitated)’

or:
‘(including strikes or lockouts involving a party’s own employees)’.

In many areas, what a party needs to provide under a contract is in fact done
by sub-contractors; the wording may need extending to the sub-contractors
that a party will use in performing its obligations with wording such as:
‘(other than a strike or lockout induced by the party or the party’s sub-contractor
so incapacitated)’

or:
‘(including strikes or lockouts involving a party’s, or the party’s sub-contractor,
own employees)’.

Where the party to which a force majeure event occurs is

responsible for its occurrence

The parties should also consider whether to include a provision that a party
which is subject to a force majeure event cannot benefit from a provision
excusing or delaying performance where it has instigated or initiated the force
majeure process. Eg, in Mamidoil-Jetoil Greek Petroleum Co SA v Okta Crude Oil
Refinery AD (No 2) [2003] EWCA Civ 1031, [2003] 2 All ER (Comm) 640) a
force majeure clause stated:
‘Neither party shall be responsible for damage caused by delay or failure to
perform in whole or part the stipulations of the present Agreement, when
such delay of (sic) failure is attributable to […] compliance with request of any
governmental or EC authority […] or other causes beyond the control of the
party affected[…]’

The Macedonian government issued letters to the defendant, which requested

the defendant not to perform the agreement between the claimant and
defendant. The defendant failed to perform the agreement, citing the force
majeure clause. It was found that the defendant instigated or initiated the
process of procuring the letters. The words ‘request of any governmental
or EC [(now EU)] authority’ had to be made independently of the party
that receives the request. In this case, the request from the Macedonian
government was not beyond the control of the defendant.

341

M07_Boilerplate_Clauses_F.indd 341 07/09/2017 12:58

 Force majeure

Effect of force majeure event

On the happening of a ‘force majeure’ event, a force majeure clause usually

provides that, eg:
‘… both parties will be released from their respective obligations’

or:
‘the obligations of the parties shall be suspended for so long as the force majeure
event renders performance of the agreement impossible’,

with additional wording, where appropriate, requiring that all money owing
under the agreement shall be paid immediately.

Temporary stoppage

It may be in the interests of one or both parties to keep the contract alive
where the event of stoppage is likely to be temporary, eg
• in a contract for a company to manufacture goods, the manufacturer
may need parts which it obtains from third parties. There may be a delay
in the supply of the parts, because of strike by a third party supplier,
or the parts are destroyed because the ship on which they are carried
is damaged or sinks. In such a case the customer of the manufacturer
may wish to have the option to terminate the contract (and have
someone else make the goods) or keep the contract alive and wait for a
further delivery of parts, as the time in sourcing another manufacturer,
negotiating with them and the price they charge may be less attractive
than simply waiting;
• in agency or franchise agreements, where the principal or franchisor
may wish to have the option either to terminate the contract and engage
another agent or franchisee or, if this is not feasible, to wait until the
obstruction ceases and hold the original party to the agreement.
The period during which the contract may be so kept alive is a matter for
negotiation, but it is often stated to be between six and twelve months, eg:
‘Provided that this clause shall only have effect at the discretion of [Party] except
when such event renders performance impossible for a continuous period of 6
calendar months.

A clause may also contain wording that during the period the party is prevented
from fulfilling its contractual obligation it should attempt to overcome the
event or situation causing the force majeure event:
‘… the party unable to fulfil its obligations shall immediately give notice of this to
the other party and shall do everything in its power to resume full performance
… If and when the period of such incapacity exceeds [6] months then this
agreement shall automatically terminate unless the parties first agree otherwise
in writing.’

342

M07_Boilerplate_Clauses_F.indd 342 07/09/2017 12:58

 Force majeure

The meaning of ‘beyond the (reasonable) control’

A force majeure provision will often contain wording (shown in italics below)
to capture any other event not considered by the parties at the time of the
agreement:
‘Neither party shall be liable for any default due to any act of God, war, strike,
lockout, industrial action, fire, flood, drought, tempest or other event beyond the
reasonable control of either party.’

When including this wording, the following points in particular need to be

considered:
• in a clause that contains a number of specific events (such as ‘fire’ etc as
in the above example), and which is followed by the phrase ‘or other event
beyond the reasonable control of either party’ (or equivalent) it is not only the
‘other event’ which is required to be beyond the reasonable control of a
party. All the specific events listed may be interpreted as requiring to be
beyond the reasonable control of the party (eg Sonat Offshore SA v Amerada
Hess Development [1988] 1 Lloyd’s Rep 145; Frontier International Shipping
Corp v Swissmarine Corpn Inc [2005] 1 Lloyd’s Rept 390), depending on the
specific wording used in the clause (Emeraldian Ltd Partnership v Wellmix
Shipping Ltd [2010] EWHC 1411 (Comm), [2011] 1 Lloyd’s Rep 301). If
a party wishes to only have ‘other events’ to be beyond the reasonable
control of a party but not specific events, then the specific instances
should be clearly separated out from the general circumstances (which is
made subject to the reasonable control of a party) (see Precedent 8);
• where a party wishes to rely on wording such as the above, then if there is
a dispute, that party will have to demonstrate that:
• its actions or the force majeure event fall within the words used in the
force majeure clause;
• it has carried out actions to avoid the force majeure event and also
mitigate the effects of the force majeure event (Channel Island Ferries
Ltd v Sealink UK Ltd [1998] Lloyd’s Rep 323);
• if a party has:
• made the force majeure event happen;
• asked someone else to create or make the force majeure event to
occur (Mamidoil-Jetoil Greek Petroleum Co SA v Okta Crude Oil Refinery
AD [2003] EWCA Civ 1031, [2003] 2 All ER (Comm) 640);
• breached the contract and that breach has resulted in a force majeure
event (Great Elephant Corp v Trafigura Beheer BV [2013] EWCA Civ
905),
then that party will not normally be able to rely on the wording in a force
majeure clause.

343

M07_Boilerplate_Clauses_F.indd 343 07/09/2017 12:58

 Force majeure

Drafting issues

When drafting a ‘force majeure’ clause, a contract drafter may need to

consider:
• Effect of a ‘force majeure’ event. What should be the effect of a ‘force majeure’
event? Eg:
• are the parties released from their respective obligations? or
• can the parties suspend or vary their obligations as long as the ‘force
majeure’ event renders performance impossible? or
• can the parties suspend performance and then have the ability to
terminate the agreement if performance cannot be resumed after a
certain period?
• Consequences of a ‘force majeure’ event. What should the consequences of a
‘force majeure’ event be? Eg:
• that any money owing under the agreement should be paid over
immediately? or
• that if the agreement is at an end then there is no further liability? or
• that some or all sums paid over before the parties have completed
performance should be returned? or
• that one party can retain a sum or be paid a sum for any expenses
incurred before the ‘force majeure’ event occurred? or
• that some clauses should continue in effect?
• Procedure to follow when ‘force majeure’ event occurs. What should be the
procedure to be followed if a ‘force majeure’ event occurs? Eg:
• that the party relying on the clause is to give notice of the fact to the
other?
• when and in within what timescale should such notice be given?
• Wording to be used
• if there is a long list of ‘force majeure’ events then a ‘force majeure’
clause could be held as including all the events which would be subject
to ‘force majeure’. Wording should be added to avoid this such as:
• ‘including but not limited to’;
• ‘without prejudice to the generality of this clause’;
• should only general wording be used concerning:
• the events that are covered, such as ‘circumstances beyond its
reasonable control’;
• the length of time a contract can be suspended ‘for a reasonable
time’;

344

M07_Boilerplate_Clauses_F.indd 344 07/09/2017 12:58

 Force majeure

• determining the length of time the ‘force majeure’ event has run,
such as ‘at the [complete] discretion of [name of party]’?
• Curing the force majeure event. Is the party subject to a force majeure event
required to take any steps to cure or resolve it?
• by outlining specific steps in particular circumstances?
• by using ‘reasonable’ endeavours etc?

Location in the agreement

A Force majeure clause will normally either:

• contain a definition of what constitutes ‘force majeure’ events and then
have a separate clause in Secondary Commercial Provisions setting out
the consequences of a ‘force majeure’ event arising; or
• be a (generally short) ‘force majeure’ clause in the Boilerplate section of
an agreement.

Linkage and use

A widely drafted Force majeure clause can impact on many other provisions of
an agreement (such as core provisions and Payment provisions). Also, a Force
majeure clause may be subject to scrutiny as to whether it is ‘reasonable’ for
the purposes of UCTA 1977. In other words, if it is drafted so widely that it
allows one party to be excused performance of its obligations without liability
it might be in effect an exclusion or liability limitation clause.

Sample precedent material

Precedent 1—Short form

Neither party shall be liable for any failure or delay in performance of
this agreement which is caused by circumstances beyond the reason-
able control of a party [including without limitation any labour disputes
between a party and its employees].

Precedent 2—Short form

Neither party shall be liable for any default due to any act of God, war,
strike, lockout, industrial action, fire, flood, drought, tempest or other
event beyond the reasonable control of either party.

Precedent 3—Short form – termination by either party

If this Agreement cannot be performed or its obligations fulfilled for
any reason beyond either party’s reasonable control for a continuous
period of 3 months then either party may, at its discretion, terminate this
Agreement by notice in writing at the end of this period.

345

M07_Boilerplate_Clauses_F.indd 345 07/09/2017 12:58

 Force majeure

Precedent 4—Short form – termination by either party

If any force majeure delays or prevents the performance of the obligations
of either party for a continuous period in excess of one month the party
not so affected may give notice to the affected party to terminate this
Agreement specifying the date (which shall not be less than 7 days after
the date on which the notice is given) on which termination will take effect.
Such a termination notice shall be irrevocable except with the consent of
both parties and upon termination the provisions of clause 14 apply.

Precedent 5—Short form – suspension of contract – immediate

repayment of money due
In the event of national emergency, war, prohibitive governmental regula-
tion or any other cause beyond the control of the parties (‘force majeure
event’) the obligations of the parties shall be suspended for so long as the
force majeure event renders performance of the agreement impossible
and upon the occurrence of a force majeure event all money then due to
[Party] shall be paid immediately.

Precedent 6—Short form – release at discretion of one party where

stoppage temporary
Both parties will be released from their respective obligations in the event
of national emergency, war, or prohibitive governmental regulations or if
any other cause beyond the [reasonable] control of the parties renders
performance of the Agreement impossible, whereupon:
(a) all money due to [principal] shall be paid immediately; and
(b) [agent] shall forthwith cease to carry on the Business.
Provided that this clause shall only have effect at the discretion of [princi-
pal] except when such event renders performance impossible for a con-
tinuous period of [12] calendar months.

Precedent 7—Short form – release at discretion of one party where

stoppage temporary
Subject to Clause [severance clause] below both parties shall be released
from their respective obligations in the event of national emergency, war
or prohibitive governmental regulations or if any other cause beyond the
control of the parties shall render performance of this agreement impos-
sible, Provided that this clause shall only have effect at the discretion
of [principal, franchisor or as the case may be] except when such event
renders performance impossible for a continuous period of [6] calendar
months.

Precedent 8—Short form – some specific events, and others beyond the
reasonable control of a party
Neither party shall be liable for any failure or delay in performance of this
agreement which is caused by :

346

M07_Boilerplate_Clauses_F.indd 346 07/09/2017 12:58

 Force majeure

1 strike or lockout (other than a strike or lockout induced by the party

(or the party’s sub-contractor) so incapacitated);
2 compliance with any request of any governmental, regulatory or EU
authority; or
3 any other circumstances which are beyond the reasonable control of
a party.

Precedent 9—Longer form – certain labour disputes excepted –

automatic termination after remedy period
1 If either party is prevented from fulfilling its obligations under this
agreement by reason of any supervening event beyond its control
including but not by way of limitation war, national emergency, flood,
earthquake, strike or lockout (other than a strike or lockout induced
by the party so incapacitated) the party unable to fulfil its obligations
shall immediately give notice of this to the other party and shall do
everything in its power to resume full performance.
2 Subject to Clause [1] above neither party shall be deemed to be in
breach of its obligations under this agreement.
3 If and when the period of such incapacity exceeds [6] months then
this agreement shall automatically terminate unless the parties first
agree otherwise in writing.

Precedent 10—Long form – supply agreement – temporary suspension

for either party where stoppage notified
1 Neither party will be liable for any delay in performing or failure to
perform any of its obligations under this agreement caused by events
beyond its reasonable control (‘Force Majeure Event’). [However any
delay or failure by a Sub-Contractor or supplier of the Contractor will
not relieve the Contractor from liability for delay or failures except
where that delay or failure is also beyond the reasonable control of
the Sub-Contractor or supplier concerned.]
2 The party claiming the Force Majeure Event will promptly notify the
other in writing of the reasons for the delay or stoppage (and the likely
duration) and will take all reasonable steps to overcome the delay or
stoppage.
3 If the party claiming the Force Majeure Event has complied with
Clause 2 its performance under this Agreement will be suspended for
the period that the Force Majeure Event continues and the party will
have an extension of time for performance which is reasonable [and
in any event equal to the period of delay or stoppage]. As regards
such delay or stoppage:
(a) any costs arising from the delay or stoppage will be borne by
the party incurring those costs;

347

M07_Boilerplate_Clauses_F.indd 347 07/09/2017 12:58

 Force majeure

(b) either party may, if the delay or stoppage continues for more
than [30] continuous days, terminate this agreement with im-
mediate effect on giving written notice to the other and neither
party will be liable to the other for such termination; and
(c) the party claiming the Force Majeure Event will take all neces-
sary steps to bring that event to a close or to find a solution
by which this agreement may be performed despite the Force
Majeure Event.
[4 So long as the Force Majeure Event continues the Customer may
contract with others for the supply of any items and/or services which
the Contractor fails to supply in accordance with the terms of this
agreement.]

Precedent 11—Long form – full definition of ‘event of force majeure’ –

contract for services – one party power to suspend
1 Definitions
(inter alia:)
‘Event of Force Majeure’ means an act of God including but not limited to
fire, flood, earthquake, windstorm or other natural disaster; act of any sov-
ereign including but not limited to war, invasion, act of foreign enemies,
hostilities (whether war be declared or not), civil war, rebellion, revolu-
tion, insurrection, military or usurped power or confiscation, nationalisa-
tion, requisition, destruction or damage to property by or under the order
of any government or public or local authority or imposition of govern-
ment sanction embargo or similar action; law, judgment, order, decree,
embargo, blockade, labour dispute including but not limited to strike,
lockout or boycott; interruption or failure of utility service including but not
limited to electric power, gas, water or telephone service; failure of the
transportation of any personnel equipment, machinery supply or material
required by [the Company] for (exploitation of agreement); breach of con-
tract by any essential personnel; any other matter or cause beyond the
control of [the Company].
(then:)
[no] Suspension of Term
[The Company] shall be entitled by notice to [person engaged] to suspend
the Term and the (performance of the agreement) if:
(inter alia:)
0.1 an Event of Force Majeure shall prevent [the Company] from (describe
performance of agreement)

348

M07_Boilerplate_Clauses_F.indd 348 07/09/2017 12:58

 Freedom of information

Purpose of the clause

Many commercial transactions have as one of the parties a governmental,

regulatory, academic or health service body or organisation. These types of
organisations are likely to come within the definition of a ‘public authority’
for the purposes of the Freedom of Information Act 2000 (FOIA). If an
organisation is a public authority, then any person who is not a party to the
agreement will have the right to make a request to that public authority to
release information held by it. FOIA applies to most types of information
held by a public authority, which can include information about commercial
agreements entered into by that public authority.
The statutory obligation to the release of information following a request from
a person is subject to certain exemptions and limitations. The most relevant,
as far as commercial agreements are concerned, are that the information:
• was obtained by the public authority from another person and its disclosure
would constitute an actionable breach of confidence (FOIA, s 41);
• constitutes a trade secret or would prejudice the commercial interests of a
person (FOIA, s 43);
• constitutes personal information (FOIA, s 40);
• will be published by the public authority (FOIA, s 22); or
• is subject to legal professional privilege (FOIA, s 42).
The first two exemptions would appear to permit a public authority to prevent
release of much, if not all, information about a commercial agreement.
Most commercial organisations are likely to wish to keep all details of their
contract with the public authority secret, particularly commercially sensitive
information, such as pricing, product or service specifications, technical
information etc, which is not publicly available or otherwise known. Often
this is for no other reason than its release might enable a competitor to use
that information either to improve its own goods and/or services or to gain a
competitive advantage over the other company.
On introduction of FOIA the approach of many public authorities to requests
for information about contracts was to cite confidentiality provisions or
the commercial exemption and thus block the release of all information
about a commercial agreement. However following several cases before the

349

M07_Boilerplate_Clauses_F.indd 349 07/09/2017 12:58

 Freedom of information

Information Tribunal and then the issuing of guidance by the Information

Commission on almost all parts of FOIA, such a broad brush approach is
unlikely to succeed. For public authorities and commercial organisations a
more nuanced view is necessary, based on the fact that a public authority is
likely to have to disclose most information requested of it. Consequently a
commercial organisation should look to protect only specific categories and
amounts of information that genuinely fall into an available exemption.

Some points to note

• A public authority has 20 working days to consider, and respond to, a

request (to confirm whether they hold the information and to release it).
• Exemptions are classified as ‘absolute’ or ‘partial’ exemptions. If of the
latter type, then a public authority needs first to decide whether the
exemption applies to the information. If the public authority decides
that the exemption does apply, then it must carry out an assessment as
to whether or not it is in the public interest to release or not to release
the information (there is guidance issued on applying the public interest
test in the Information Commissioner’s Freedom of Information Act
Awareness Guidance No 3, The Public Interest Test).
• Contract wording cannot override the obligation on a public authority
to make the decision of whether or not to release information (or to
prevent the release of the information if no exemption applies to that
information).
• Any decision about whether or not to release information has to be that of
the public authority, and a public authority cannot delegate that decision
to someone else (although it can consult with, and seek representations
from, third parties).
• A public authority will also include wholly owned subsidiaries of a public
authority (but does not cover a subsidiary in which, for example, the
public authority holds a majority or even 99.9%, of the shares.
• If a public authority decides not to release the information requested by
a person, then a person requesting its release can ask the public authority
to carry out an internal review, and thereafter ask the Information
Commissioner and then a Tribunal to consider whether the information
should be released.
• There is a separate disclosure regime for environmental information,
which is similar to that under the FOIA (Environmental Information)
Regulations 2004, SI 2004/3391).
• The person (which can include a business) requesting the information
from a public authority has only to provide limited information about
itself. In normal circumstances, the person does not need to reveal why the
information is requested. Eg a competitor of a commercial organisation

350

M07_Boilerplate_Clauses_F.indd 350 07/09/2017 12:58

 Freedom of information

can request a copy of the contract that the commercial organisation has
entered into with a public authority from that public authority.

Confidentiality and contracts

The relevant section (s 41) of FOIA states:

41.—(1) Information is exempt information if —
(a) it was obtained by the public authority from any other person (including
another public authority), and,
(b) the disclosure of the information to the public (otherwise than under this
Act) by the public authority holding it would constitute a breach of confidence
actionable by that or any other person.
A commercial organisation may wish to keep as much information as possible
regarding its contract, and sometimes its relationship, with a public authority
away from public scrutiny. This might include:
• treating the existence of the contract between the public authority and
the commercial party as confidential; and/or
• treating the identity of the commercial party as confidential; and/or
• treating all the provisions of the contract as confidential; and/or
• treating certain provisions as confidential.
Some of this information is unlikely to be exempt from disclosure in most
circumstances. For example, the name of the commercial organisation, or
some or all of the provisions of the agreement, is unlikely to be exempt from
disclosure as it would not contain information obtained by the public authority
from a third party. This is on the basis that a concluded contract contains
mutual obligations of the parties. Accordingly the contract between a public
authority and a commercial organisation is their joint (or jointly agreed)
document. The consequence of this is that any confidential information of
the commercial organisation contained in the contract would not be or no
longer be confidential information provided to the public authority. Although
the implication of the previous sentences might be that no information
which is included in a contract is classifiable as confidential; this is not so (see
Derry City Council v Information Commissioner (EA/2006/0014; 11 December
2006); Department of Health v ICO (EA/2008/0081, 18 November 2008) and
Information Commissioner Guidance: Information provided in confidence (s 41),
2015).
Technical and business information, although included in a contract, may still
remain as information provided by the commercial organisation and which
is obtained by a public authority from a third party. It may count as material
which is ‘in addition to the mutually agreed terms and obligations’ (from the
ICO Guidance, para 19). Pre-contract information supplied by a commercial
organisation is also likely to fulfil the requirements that it is information
supplied to a public authority.

351

M07_Boilerplate_Clauses_F.indd 351 07/09/2017 12:58

 Freedom of information

Just because the information provided by the commercial organisation is

marked as confidential, or provided under obligations of confidentiality, is not
enough to protect it from disclosure. At the time of a request for disclosure
the public authority will need to carry out its own assessment as to whether the
information is still confidential. Ideally, genuinely confidential information
should be placed in a separate schedule and the commercial organisation
be made aware that the information it has provided might be released (see
Information Commissioner Guidance: Information provided in confidence (s 41),
2015).

The existing law of confidence applies; ie the FOIA does not displace the
existing law regarding what information is confidential, or when and how
an obligation of confidentiality might arise (see Information Commissioner
Guidance Information Provided in Confidence (s 41), 2015). The analysis in
the guidance is based on the leading case of Coco v AN Clark (Engineers) Ltd
[1968] FSR 415 and the decisions made by the Information Tribunal and the
notices issued by the Information Commissioner. The detail of the guidance is
beyond the scope of this book (and is primarily of interest to those in a public
authority who have to decide whether the information requested by a third
party is confidential). However, one element of the test as to whether there is
an actionable breach of confidentiality in Coco was whether there is a detriment
to the confider of the information. The guidance indicates that in order for
a public authority to withhold confidential information from disclosure,
it must be able to explicitly show that there is a detriment to the confider’s
commercial interests (from the case of Higher Education Funding Council for
England v ICO & Guardian News and Media Ltd (EA/2009/0036, 13 January
2010)). The implication for a commercial organisation is that it might provide
genuinely confidential information, but it may still be disclosed if the public
authority’s analysis leads the public authority to decide that the commercial
interests of the commercial organisation are not adversely affected.

This exemption is an absolute exemption. Consequently a public authority

does not need to carry out an assessment as to whether it is in the public
interest to release or not to release the information. However the law
of confidence has its own public interest test, ie whether it is in the public
interest that confidential information should be made known to the public
(eg Hellewell v Chief Constable of Derbyshire [1995] 1 WLR 804) or in the interests
of public safety (eg W v Edgell [1990] 1 Ch 359). This will mean that the public
authority will still need to determine whether it is in the public interest to
release the confidential information of a commercial organisation. The
guidance provides examples of where it is generally appropriate not to disclose
confidential information of the confider, including the impact of disclosure
on the interests of the confider and the wider public interest in preserving the
principle of confidentiality. Where the confider is a commercial organisation
then the impact will equate normally to the commercial impact of releasing
the commercial organisation’s information in situations such as (see paras
88–100):

352

M07_Boilerplate_Clauses_F.indd 352 07/09/2017 12:58

 Freedom of information

• damaging the commercial organisation’s ability to compete or competitive

position;
• undermining the commercial organisation’s future negotiations with the
public authority (or other organisations);
• the adverse affect on the commercial organisation’s relationship with the
public authority (or other organisations).

Commercial interests and contracts

The relevant section (s 43) of FOIA states:
(1) Information is exempt information if it constitutes a trade secret.
(2) Information is exempt information if its disclosure under this Act would, or
would be likely to, prejudice the commercial interests of any person (including
the public authority holding it).

The FOIA does not define ‘trade secret’ (for which the existing law of
confidence is likely to apply). The guidance issued by the Information
Commissioner (Freedom of Information Act Awareness Guidance No 5: Commercial
Interests, 2008) envisages that it ‘…covers not only secret formulae or recipes,
but can also extend[s] to such matters as names of customers and the goods
they buy, or a company’s pricing structure, if these are not generally known
and are the source of a trading advantage’. The guidance indicates that
information about the design of equipment would amount to a trade secret
but details about the equipment’s state of repair would not (the latter would
not be ‘commercially sensitive’ as it does not generate profits), in effect
whether the information is for the purpose of trade. Other factors that may be
important in deciding if information will amount to a trade secret is whether
its release would harm the owner of the information or benefit rivals, and
whether the information is also publicly known and how easy is it for others to
discover or reproduce the information.
The other main part of the exemption – that the commercial interests of a
person are likely to be prejudiced – is more difficult to categorise or quantify.
The Information Commissioner and the Ministry of Justice have issued a
large body of guidance on this area (eg Freedom of Information Act Awareness
Guidance No 5: Commercial Interests, 2008). For example, the guidance notes
that information that relates to financial matters does not necessarily relate
to the commercial activity of a commercial organisation, and only the latter is
likely to come within the FOIA.
Types of information that can be caught by this exemption include:
information about a public authority’s own commercial activities, policy
development, policy implementation or procurement; the public authority’s
purchasing position, regulation (ie where the public authority has regulatory
functions) or private finance initiative/public private partnerships.
Specific types of business information that could particularly damage
commercial interests include: research and plans relating to a potentially

353

M07_Boilerplate_Clauses_F.indd 353 07/09/2017 12:58

 Freedom of information

new product; product manufacturing cost information; product sales forecast

information; strategic business plans, including for example, plans to enter,
develop or withdraw from a product or geographical market sector; marketing
plans, to promote a new or existing product; information relating to the
preparation of a competitive bid; information about the financial and business
viability of a company; information provided to a public authority in respect
of an application for a licence or as a requirement of a licence condition or
under a regulatory regime.

In addition to particular types of information, the Information Commissioner’s

guidance provides an indicative list of factors or questions which will assist
in determining whether there is prejudice to the commercial interests of a
person:

• Does the information (directly) relate to, or could it impact on, a

commercial activity?

• Is the commercial activity conducted in a competitive environment

whether for the public authority or the commercial organisation?

• Would there be damage to reputation or business confidence if the

information is released?

• Whose (or rather, anyone’s) commercial interests are affected?

• Is the information commercially sensitive?

• What is the likelihood of the prejudice being caused?

Under other guidance issued by the Information Commissioner the public

authority will need to provide an explanation (not speculation) on why the
commercial interests of a third party are likely to be prejudiced. The guidance
makes it clear that the views of the commercial organisation should be sought
(if it is possible to do so). However, just because the commercial organisation
believes its interests are prejudiced is not enough to prevent disclosure; it
must be the public authority’s decision whether to release or not release the
information. Ie, it is not enough that there is a mere assertion by an individual
or a company that its interests will be prejudiced (see Ministry of Justice,
Freedom of Information Guidance, Exemptions, Section 43 (‘Commercial
interests’), 14 May 2008, p 5, where John Connor Press Associates Ltd v The
Information Commissioner (EA/2005/0005), 25 January 2006 is cited in support
of this point).

As this is a qualified exemption, once the public authority has decided that
the exemption does apply, the public authority will still be under a duty to
determine whether it is in the public interest to release the information.

It seems, as a general point, that the commercial interest exemption is likely to

apply to very specific information (ie specific technical information or pricing
information etc), which is not in the public domain (see eg Decision Notice
FER0073984).

354

M07_Boilerplate_Clauses_F.indd 354 07/09/2017 12:58

 Freedom of information

For example:
• a commercial organisation may provide a range of pricing information
about its products to a public authority under a contract. The public
authority will need to carry out its own assessment as that if the information
is released it would impact on the ability of the commercial organisation
to successfully trade in a competitive environment, to pick one factor that
needs consideration;
• a commercial organisation might offer a special low price to a local
authority at the start of the contract. The release of that information may
impact on its ability to charge a higher price to other customers, and
therefore should not be released following a FOIA request.
However, if the request for the price information is made five years after the
commercial organisation and public authority enter into the contract, general
or specific price information may no longer bear any relation to the prices the
commercial organisation is charging for the same product or service (or the
commercial organisation may not even be providing the product or service
in question any longer or in the same way). In such circumstances the public
authority could release the information about the price, as there would be little
or no likelihood that the commercial interests of the commercial organisation
would be prejudiced.

Issues for a commercial party

There are perhaps two areas that need specific attention: one which will arise
before the contract with a public authority is signed, and the second after the
contract is signed:
• pre-contract:
• correctly identifying information or matters that are genuinely
confidential and/or affect the commercial interest of the commercial
party, and separating that information from other information, which
does not fall into these categories; and
• including provisions in the contract between the commercial party
and the public authority which requires the public authority to inform
the commercial party of a FOIA request from a third person, and
permits the commercial party to review the proposed information to
be released and to discuss the matter with the public authority; and
• post signing of the contract: following any request for disclosure of information
held by the public authority and prior to its disclosure, the commercial
party has the opportunity of considering what information is proposed to
be disclosed and discussing any issues with the public authority.
What information is released is not a decision that a commercial party can
control with contract wording. It is a decision that rests (or whose responsibility
rests) with the public authority, and which is subject to outside scrutiny (from
the Information Commissioner and the Tribunal Service/courts).

355

M07_Boilerplate_Clauses_F.indd 355 07/09/2017 12:58

 Freedom of information

Although a commercial organisation may have genuinely confidential

information that will also affect its commercial interests, it cannot in all
circumstances prevent persons other than the public authority seeing it. This
is because if a person makes a request for information, which is turned down
by the public authority, then if the person challenges that decision, and if the
challenge is progressed, officials at the Information Commissioner and then
at the Information Tribunal will see the information, so that they can form
their own view as to whether the public authority has to release it.

Issues for a public authority

For a public authority, the most important factor is likely to be that any
contract it enters into does not contain provisions that make it liable to be
in breach of any provision of the contract by complying with its obligations
under FOIA, or fetter its ability to decide on whether information is released.
This section only provides an outline of some of the key issues relevant to
FOIA. For a detailed outline (including consideration of the exemptions
relating to confidentiality and commercial interests and the guidance issued by
the information commissioner) see Technology Transfer (4th Edn, Bloomsbury
Professional, forthcoming).

Drafting issues

• Is the organisation a commercial party contracting with a public authority for

the purposes of FOIA? If not, then FOIA will not apply at all. FOIA does
not provide a definition of a ‘public authority’, but rather adopts a list
approach. That is, for an organisation to be a public authority it needs to
appear in a list of organisations set out in Sch 1 to FOIA or be designated
a public authority by the Secretary of State. A ‘public authority’ includes
the following types of organisations:
• government departments;
• local authorities (including county councils, the Greater London
Authority, fire and rescue authorities, waste disposal authorities and
so on);
• health-related organisations, such as primary care trusts, special health
authorities, NHS foundation trusts, NHS Trusts, persons providing
general medical or dental services;
• education-related organisations, such as universities, further
education colleges, etc;
• research and other types of councils and advisory groups (such as
the Engineering and Physical Sciences Research Council, Medical
Research Council).

356

M07_Boilerplate_Clauses_F.indd 356 07/09/2017 12:58

 Freedom of information

• Does the public authority have to consult with the commercial organisation about
the information that the public authority proposes to release? If the commercial
organisation is given such a right:
• does it have a right to receive a copy of the information that the public
authority proposes to disclose?
• does it have adequate time to consider the information and hold
discussions with the public authority?
• does it have the right to know whether the public authority has carried
out any analysis of whether of the potential exemptions apply?
• are there to be consequences if the public authority fails to consult
with the commercial organisation?
Precedent 1 provides example wording where a public authority has to
inform a commercial organisation about the information that a public
authority proposes to disclose together with an obligation on the public
authority to consult with the commercial organisation. As noted above,
a public authority cannot contractually agree to avoid its obligations
under FOIA; and consequently may be reluctant to agree to facing any
contractual penalties or other ramifications if it fails to fulfil its obligations
under a clause such as Precedent 2. Additionally, it may be hard to
adequately measure any losses that the commercial organisation has
suffered if information it did not wish released was released and used by
a competitor to underbid the commercial organisation for future work.
• Has the commercial party (and/or the public authority) carried out an analysis
of which information in the contractual document or relating to the contract is
genuinely confidential (or affects its commercial issues)? Given that simply
stating that all information about or relating to a contract cannot be
released is unlikely to work, the commercial organisation should consider
identifying, eg the following:
• pricing information (eg which is particularly for, or only on offer to,
the public authority);
• costing information (eg what are the costs of manufacturing or
supplying goods, or the costs of obtaining or providing its services);
• information about the goods or services that are not in the public
domain (eg product specification, technical information and know-
how);
• information about how it markets, sells and promotes its (new or
existing) products and/or services;
• information about its plans for carrying on its activities in a particular
market (whether to enter a market, withdraw from a market etc).
• Will the commercial organisation and public authority separate out the information
that is genuinely confidential or genuinely harms the commercial interests of the
commercial organisation, and which is likely to be subject to an exemption from

357

M07_Boilerplate_Clauses_F.indd 357 07/09/2017 12:58

 Freedom of information

release from other information? The parties should discuss and decide what
information falls into one of the exemptions. If the parties can:
• separate out the information that they consider falls into one of the
exemptions;
• place that information into a schedule; and
• write down why they consider the information falls into one of the
exemptions,
then if there is any request for that information at a later date, the public
authority can more easily justify why the applicable exemption applies.
See Precedent 3.
Eg, a commercial organisation offers a product to a public authority at a
special price (which is only available to the public authority and is very
different from the price at which the commercial organisation normally
sells such a product to the general public). The commercial organisation
operates in a highly competitive environment. If the pricing information
is placed in a schedule, together with the reasons why it will damage
its commercial interest if made public, then the parties to the contract
can demonstrate why it should not be released following a request. Ie
releasing the information to a competitor who makes a FOIA request
might enable the competitor to underbid the commercial organisation
for other contracts from other public authorities.

Location in the agreement

As one exemption under FOIA relates to confidential information, then the

public authority may require that it will not be in breach of its obligations of
confidentiality if it releases the information provided to it by a commercial
organisation under obligations of confidentiality. Wording can be added
to the list of situations where the public authority will not be in breach of
its obligations of confidentiality (see Precedent 1 for example wording).
Otherwise, depending on the extent of the wording necessary, Precedents 2,
3 and 4 would appear as stand-alone clauses in the Secondary Commercial
Provisions section of an Agreement, usually in close proximity to the
confidentiality provisions.

Linkage and use

See above.

358

M07_Boilerplate_Clauses_F.indd 358 07/09/2017 12:58

 Freedom of information

Sample precedent material

Precedent 1—Additional exception to obligation of confidentiality

The above obligations of confidentiality shall not apply to any Information
which the Receiving Party can show by written records:
(a) was known to the Receiving Party before the Information was
imparted by the Disclosing Party; or
(b) is in or subsequently comes into the public domain (through no fault
on the Receiving Party’s part); or
(c) is received by the Receiving Party without restriction on disclosure or
use from a third party lawfully entitled to make the disclosure to the
Receiving Party without such restrictions; or
(d) is developed by any of the Receiving Party’s employees who have
not had any direct or indirect access to, or use or knowledge of, the
Information imparted by the Disclosing Party; or
(e) is required to be disclosed in order for the Receiving Party to comply
with a statutory or legal obligation, including, but not limited to,
releasing information under the Freedom of Information Act 2000 or
the Environmental Information Regulations 2004.

Precedent 2—Right of commercial party to be consulted

1 If [Party A] receives a request from a person (‘Requesting Party’)
under the Freedom of Information Act 2000 (the ‘Act’) for the release
of information held by [Party A] (‘Requested Information’), and
(a) [Party A] has decided to release all or some of the Requested
Information; and
(b) some or all of the Requested Information requested contains:
(i) information provided or supplied by [Party B] to [Party A]
which concerns or is related to this Agreement; or
(ii) information of [Party A] which concerns, is provided or
supplied under or relates to this Agreement
then the following provisions of this Clause [no] shall apply.
2 [As soon as [Party A] has decided to release the Requested
Information to the Requesting Party][within one working day of
[Party A] having decided to release the Requested Information to the
Requesting Party] [Party A] shall inform [Party B] of:
(a) the date when the Requesting Party made her or his request;
(b) a description of the Requested Information;
(c) that part of the Requested Information which is information pro-
vided or supplied by [Party B] to [Party A];

359

M07_Boilerplate_Clauses_F.indd 359 07/09/2017 12:58

 Freedom of information

(d) that part of the Requested Information which is information of

[Party A] which concerns, is provided or supplied under or re-
lates to this Agreement;
(e) the date when [Party A] is proposing to supply the Requested
Information to the Requesting Party;
(f) any discussions, evaluation(s), meetings etc which [Party A] has
had concerning which of any of the available exemptions avail-
able under the Act might apply to the Requested Information
as well as details of what (if any) of the Requested Information
[Party A] has decided not to release because it believes that one
of the exemptions available under the Act apply (together with
details of which specific exemption they believe applies and the
written reasons for its application); and
(g) the name (and contact details) of the Requesting Party (where
[Party A] is [lawfully] able to provide such information to [Party
B]).
3 [Party A] shall [use reasonable endeavours][use its best endeavours]:
(a) to discuss with [Party B] the Requested Information that [Party
A] wishes to release to the Requesting Party;
(b) to consider any representations that [Party B] wishes to make
in relation to the Requested Information that [Party A] wishes to
release to the Requesting Party.
4 [Party A] shall [use reasonable endeavours to][use its best endeavours
to] supply a copy of the Requested Information it wishes to release to
the Requesting Party at least [five] working days prior to the date it
will release that information.

Precedent 3—No liability for public authority if it discloses information in

fulfilling its obligations under the Act
[Party A] recognises and declares that [Party B]:
1 is a public authority for the purposes of the Freedom of Information
Act 2000 (the ‘Act’);
2 is under a duty to release information held by [Party B] following a
request from a third party for that information, including information
supplied, provided or disclosed by [Party A] to [Party B] under this
Agreement or otherwise;
3 if [Party B] decides to disclose to information following a request from
a third party pursuant to the Act, shall not be in breach of this Clause
[the clause containing confidentiality obligations] and nor any other
provisions of this Agreement[; and
4 in its complete and unfettered discretion can decide

360

M07_Boilerplate_Clauses_F.indd 360 07/09/2017 12:58

 Freedom of information

(a) whether any information which is supplied or provided by

[Party A] to [Party B] or any information which arises under this
Agreement is subject to any exemption under the Act; and/or
(b) whether any such information is to be disclosed following a re-
quest pursuant to the Act; and/or
(c) notwithstanding any requirement to consult with [Party A] under
Clause [no], may disclose information requested pursuant to the
Act without in fact consulting or notifying [Party A]].

Precedent 4—Statement about identification of information which might

be confidential, etc
1 [Party A] recognises that [Party B] is a public authority for the pur-
poses of the Freedom of Information Act 2000 (the ‘Act’);
2 Prior to the [date of the Agreement][the Commencement Date] the
Parties entered into negotiations concerning information which might
be supplied, provided or arise under this Agreement for the purpose
of identifying which information was confidential, a trade secret or
prejudiced the commercial interest of [Party A] and/or [Party B]
(‘Exempt Information’).
3 At [date of the Agreement][the Commencement Date] the Parties
have identified certain information which is Exempt Information of
one or both of the Parties and have set out that Exempt Information
in a schedule to this Agreement [at Schedule [ ]] together with an
explanatory note why that Exempt Information is confidential, a trade
secret, or prejudices the commercial interest of [Party A] and/or [Party
B].
4 After [date of the Agreement][the Commencement Date] further infor-
mation may be supplied, be provided or may arise which is Exempt
Information and the Parties will use their [best endeavours][reason-
able endeavours] to co-operate to identify such information, docu-
ment it as Exempt Information together with making explanatory
notes.

Precedent 5—Public authority not in breach of obligation of

confidentiality (short form)
[Party A] shall not be in breach of:
1 any obligation of confidentiality it owes to [Party B] under this
Agreement; or
2 any other obligation under this Agreement;
if [Party A] discloses any or all of [Party B]’s information to a third party fol-
lowing a request made under the Freedom of Information Act 2000.

361

M07_Boilerplate_Clauses_F.indd 361 07/09/2017 12:58

 Freedom of information

Precedent 6—Provisions for inclusion in a heads of terms, term sheet,

letter of intent etc
[Party A] is a public authority for the purposes of the Freedom of
Information Act 2000 (‘the Act’). Should the negotiations between [Party A]
and [Party B] lead to the execution of agreement relating to the [Proposal],
then all or part of that agreement may be disclosed to any person who
makes a freedom of information request under the Act. Subject to nego-
tiation, the agreement may include provisions that [Party B] may have an
opportunity to be consulted following a request for disclosure. However,
[Party B] recognises and acknowledges that the information of [Party B]
that [Party A] may disclose is solely at the decision, and in the unfettered
discretion, of [Party A].

362

M07_Boilerplate_Clauses_F.indd 362 07/09/2017 12:58

 Further assurance

Purpose of the clause

Further assurances
After completion of a transaction, one or both parties may need to take some
further action or steps. These actions or steps often involve carrying out
(sonetimes formal) tasks to implement aspects of the transaction, for example:
• on the sale or transfer of ownership of land or property: registering the changes
in ownership with the Land Registry, or equivalent in other countries;
• on the sale of a business by way of share sale, etc: notifying changes in
shareholdings and directorships with the Registrar of Companies and
other companies registries;
• on the sale or change of ownership of patents and registered trademarks: notifying
changes in ownership with patent offices and trade mark registries;
• other requirements to notify regulatory authorities, applying for
permissions or otherwise complying with statutory and/or regulatory
rules.
A Further assurances clause is often included to avoid argument or delay in
respect of such matters, as well as setting out which party has the responsibility
for carrying out these matters. Typically the clause will require one or more
parties to execute any further documents that it may need to prepare, sign
or otherwise deal with to give effect to the terms of the agreement of which
the clause forms part. Sometimes a clause, in addition to requiring a party to
execute further documents as envisaged in the previous sentence, may also
go on to empower the other party to a transaction to sign such documents in
place of the first party.
Eg, in an agreement to sell a portfolio of patents, there is often a requirement
to formally assign ownership from the seller to the buyer. The agreement
may include a provision that the parties may agree to execute formal patent
assignments (prepared by the parties) in a specified form (which they do at
the time they sign the sale agreement). After this document is signed, these
documents are then used to register the transfer of ownership with patent
offices. However, a national patent office may insist on a particular form of
assignment being executed (such as the use of its own form rather than the
form of assignment signed by the parties) as a condition of registration of the
new owner. The ‘further assurances’ clause would require the seller to execute

363

M07_Boilerplate_Clauses_F.indd 363 07/09/2017 12:58

 Further assurance

such further assignments. If the seller refused to sign these further documents,
and if the clause provided that the other party could sign in place of the seller,
then the other party could do so.
The clause may also require a party to provide assistance to the other party,
eg by signing further papers that may be required (or possibly in some cases
taking other steps).

Use of a power of attorney in a further assurance clause

A clause where one party has the authority to sign in the name of the other, at
least under English law, does not require any particular formality or need any
particular wording, such as:
‘In the event that [Party A] shall have failed within 14 days from receipt of a
written request from [Party B] to do any such act or execute any such instrument,
then [Party A] authorises [Party B] to do any such act or execute any such
instrument in the name of and on behalf of [Party A].’
However, as this is a simple form of permission, it can be easily countermanded
by Party A at any time in the future. Accordingly where there are particular
actions that need taking by a party at some time in the future, that party may
be asked, as security for its undertaking to perform those acts, to give a power
of attorney to the other party.
Although doing so is partly a matter of form, creating the power of attorney
creates more certainty where the party needs to rely on the wording of such a
clause. Although the power of attorney, as with the simple form of permission,
enables the other party to perform those acts in the name of the first party in
the event of the first party’s failure to do so within a certain time, it is often
coupled with wording that states it is irrevocable (see Precedent 5).
The purpose of making the power of attorney irrevocable is to ensure that the
party giving the authority to the other party to sign documents on its behalf
cannot at some later point revoke the power of attorney. Also by stating it is
irrevocable the Powers of Attorney Act 1971 operates and, to eliminate all
doubt, the wording set out in Precedent 6 together with that in Precedent 7
may be added.
Note: a power of attorney that states it is irrevocable will only be irrevocable if it
is given to secure either a proprietary interest of the donee or the performance
of an obligation owed to the attorney (see Powers of Attorney Act 1971, s 4(1)).
It will not be irrevocable if the attorney is someone other than the person who
has the relevant proprietary interest or to whom the obligation is owed.

Location of ‘further assurance’ clause containing a power of

attorney

An agreement (or any type of document) that includes a power of attorney

(whether irrevocable or not) will need signing as a deed (Powers of Attorney
Act 1971, s 1(1)).

364

M07_Boilerplate_Clauses_F.indd 364 07/09/2017 12:58

 Further assurance

However, a commercial agreement, which includes a further assurance clause

with wording creating a power of attorney, may not always be suitable for
execution as a deed for practical reasons, such as:
• especially where large companies are involved, it may be difficult to get a
director(s) and/or company secretary to sign the document;
• signing a commercial document as a deed will extend any limitation period
to 12 years for breaches of its terms (something one or more parties may
not wish to occur); and
• if at any point where the party who is appointed the attorney has to show
by way of documentation the authority under which it is signing on behalf
of the other party, then it will need to produce the whole agreement.
Doing so will reveal its commercial provisions, which neither party may be
willing to do.
In such a case, and particularly in connection with the last instance, the
parties may wish to sign a short, formal, power of attorney at the same time
as the parties’ substantive agreement (and the further assurance clause can
require a party to sign it, see Precedent 8). Where a party is a foreign company
(who is signing the agreement in its home country), the inclusion of a power
of attorney within the commercial agreement may be an unfamiliar way of
creating a power of attorney. The laws or practice of other countries may
require that a power of attorney is created as a separate document or comply
with some formality (such as signing before a specified number of persons,
or before a notary etc), which again will make the inclusion of a power of
attorney within the commercial agreement unsuitable.
The converse is also true, in that a transaction that involves carrying out
further assurance type tasks in other countries (such as making applications
in company registers or patent authorities) may require a power of attorney
that is signed before a notary (a common requirement with many civil law
jurisdictions) or be in specified form or contain certain things (such as
sealing) or be expressed in the language of that country. The main commercial
agreement, which contains a power of attorney, may not be suitable for that
task (as well as revealing all the provisions of the agreement to third parties).
Accordingly in these two instances the best option will be also to prepare a
separate power of attorney (or a power of attorney for each country involved)
in the form required for that country.
More formal types of document (such as an agreement whose only purpose
is to formally assign the intellectual property of one party to another) that
contain a further assurance clause are likely to be less problematic if they
include a power of attorney.

365

M07_Boilerplate_Clauses_F.indd 365 07/09/2017 12:58

 Further assurance

Drafting issues

• Simple or routine transactions. In most cases, a simple clause will be adequate

to provide that a party will execute any necessary documentation (see
Precedent 1).
• Making a further assurance clause the responsibility of one party. In some
circumstances it will be appropriate for a more specific assurance to be
given by one party only (see Precedent 2).
Eg, where only one party is to benefit from a transaction, or where it is
conventional for that type of transaction for a party to be responsible and
pay the costs of carrying out the further assurance activities.
• Cost. The steps to be taken may involve more than just signing
documentation, eg, where title to assets (such as intellectual property,
land or property) or mortgages need to be checked against records or
against what has been sold or transferred. This can, in some cases, be time-
consuming and attention may need to be given to who will bear the cost of
such work. For routine tasks:
• the parties will either bear their own costs; or
• the party that is to benefit from the execution of documents will bear
the costs of the other party carrying out the further assurance tasks
(eg, see Precedent 2).
• Where operations or tasks continue after transfer:
• where a party transfers a business as a going concern, the transferee
may agree or wish to honour all existing contracts after completion
(see Precedent 3);
• also, both parties may agree to co-operate in the subsequent assignment
or novation of any such contracts where this proves necessary (see
Precedent 4).
• Finding the party after a transaction is completed. If there is some doubt or
concern that a party who is to give further assurances may be difficult to
find or who may refuse to sign any necessary papers, then the other party
may wish to have the power to sign documents in the name of the first
party.
For example, if an inventor is an individual (such as a scientist who is an
academic) they are assigning a patent to a company, then the company may
wish to include in a further assurances clause the right to sign documents in
the name of the inventor. Scientists and academics, particularly if they are
still fairly early in their careers, frequently move from academic institution
to academic institution and country to country (perhaps because they can
only secure fixed-term positions). In these circumstances the company
may be unable to find the inventor (although this is less likely to be a
problem since the existence of the internet, as any moderately productive
scientist will publish or contribute to research and scientific papers, which

366

M07_Boilerplate_Clauses_F.indd 366 07/09/2017 12:58

 Further assurance

are often referenced online). Dealing with the formalities for transferring
ownership of patents (particularly if there are patents (or applications)
in several countries) can take years and accordingly the company may
wish to include a further assurances clause in the form as in Precedent 5.
Clearly there is a commercial issue as to whether this would be acceptable
to the inventor.
• Effort. In most cases the further assurance tasks are often not particularly
time sensitive, but if the requesting party wishes the other party to deal with
the further assurances tasks in a timely manner, words such as ‘promptly’,
‘use all reasonable endeavours’, ‘within [ ] days of being requested by
Party [ ]’ can be added.

Location in the agreement

The Boilerplate section of an agreement will usually be the location for a

Further Assurance clause.

Linkage and use

The type of documents that are generated after a transaction are:

• formal assignments of contracts (eg on the sale of a business);
• formal novation agreements (eg on the sale of a business);
• mortgages;
• investment documents and/or shareholder agreements;
• (formal) assignments of intellectual property;
• conveyances of real property;
• (statutory) transfer documents for real property;
• formal licences of intellectual property for registration with government
bodies responsible for registration of intellectual property;
• applications to governmental and regulatory bodies.
The subject of ‘completion’ has some features in common with ‘further
assurances’ (see Completion).

Sample precedent material

Precedent 1—Simple further assurance clause

Each party agrees to execute, acknowledge and deliver such further
instruments, and do all further similar acts, as may be necessary or
appropriate to carry out the purposes and intent of this agreement.

367

M07_Boilerplate_Clauses_F.indd 367 07/09/2017 12:58

 Further assurance

Precedent 2—Further assurance

The Mortgagor shall at its own expense from time to time execute all such
deeds and documents and do all such acts and things as the Mortgagee
may reasonably require for the purpose of protecting or perfecting the
security intended to be created by this Mortgage.

Precedent 3—Carrying on of activities or contracts after transaction

completed
The Purchaser shall after completion carry out and complete for its own
account [the Contracts] to the extent that the same have not been per-
formed prior to completion.

Precedent 4—Parties to co-operate after a transaction is completed

In so far as the benefit of [the Contracts] cannot effectively be transferred
by the Vendor to the Purchaser except by way of an agreement of nova-
tion with or consent to the assignment from the person, firm or com-
pany concerned, the Vendor and the Purchaser shall (if the Purchaser so
requires and at the expense of the Purchaser) co-operate to do every-
thing they reasonably can to procure [the Contracts] to be novated or
assigned as aforesaid as soon as reasonably practicable.

Precedent 5—Further assurance and power of attorney

The Inventor shall execute such documents and give such assistance as
the Company may require [at the expense of the Company]:
(a) to secure the vesting in the Company of all rights in the Patents;
(b) to uphold the Company’s rights in the Patents; and
(c) to defeat any challenge to the validity of, and resolve any questions
concerning, the Patents.
The Inventor hereby irrevocably appoints the Company as his Attorney in
his name to execute any document and do any act or thing which may be
necessary to comply with the provisions of this clause.

Precedent 6—Irrevocable power of attorney

In the event that [Party A] shall have failed within 14 days from receipt of
a written request from [Party B] to do any such act or execute any such
instrument [Party A] irrevocably authorises [Party B] to do any such act or
execute any such instrument in the name of and on behalf of [Party A] as
the lawfully appointed attorney of [Party A] and [Party A] undertakes and
warrants to confirm and notify and be bound by any and all of the actions
of [Party B] pursuant to this clause.

Precedent 7—Strengthening the irrevocable power of attorney

… and such authority and appointment shall take effect as an irrevocable
power of attorney pursuant to the Powers of Attorney Act 1971, Section 4.

368

M07_Boilerplate_Clauses_F.indd 368 07/09/2017 12:58

 Further assurance

Precedent 8—Execution of a separate, irrevocable, power of attorney

[Party A] shall execute an irrevocable power of attorney in the form set out
in Schedule [ ] [on the date of this Agreement][on the demand of [Party
B]] (at the expense of [Party B]) to enable [Party B] to become [Party A]’s
attorney so that [Party B] can, in the name of [Party A], execute any docu-
ment and do any act or thing which may be necessary to comply with the
provisions of this clause.

Precedent 9—Further assurance – short general-purpose form

Each party to this [deed or agreement] shall at the request and expense
of the other or any of them execute and do any deeds and things reason-
ably necessary to carry out the provisions of this [deed or agreement] or
to make it easier to enforce.

Precedent 10—Further assurance – assets sale agreement

The Vendor undertakes with the Purchaser to execute and deliver any
other documents and take any other steps as shall be reasonably required
by the Purchaser to vest [the Assets] in the Purchaser.

Precedent 11—Further assurance – rights assignment

The Assignor agrees at any time and from time to time on the written
request of the Assignee to execute and deliver promptly and duly to the
Assignee any and all such further instruments and documents which the
Assignee considers desirable or which are required by law for obtaining
the full benefits of this assignment and of the rights and powers granted
by it.

Precedent 12—Longer form – rights assignment – further assurance with

power of attorney
[Party A] undertakes to do any and all acts and execute any and all docu-
ments in such manner and at such locations as may be required by [Party
B] in its sole discretion in order to protect perfect or enforce any of the
rights granted or confirmed to [Party B] pursuant to this agreement. As
security for the performance by [Party A] of its obligations under this
agreement in the event that [Party A] shall have failed within 14 days from
receipt of a written request from [Party B] to do any such act or execute
any such instrument [Party A] irrevocably authorises [Party B] to do any
such act or execute any such instrument in the name of and on behalf
of [Party A] as the lawfully appointed attorney of [Party A] and [Party A]
undertakes and warrants to confirm and notify and be bound by any and
all of the actions of [Party B] pursuant to this clause and such authority
and appointment shall take effect as an irrevocable appointment pursu-
ant to the Powers of Attorney Act 1971, Section 4.

Precedent 13—Longer form – factoring agreement – further assurance

with power of attorney
1 The Vendor shall execute, at any time and from time to time when
requested by the Purchaser, an assignment in the form specified in

369

M07_Boilerplate_Clauses_F.indd 369 07/09/2017 12:58

 Further assurance

Schedule [no] of all or any of [the Purchased Debts] in favour of the

Purchaser and shall execute and do such further documents and
things as the Purchaser may require effectively to vest full title to [the
Purchased Debts] in the Purchaser.
2 The Vendor irrevocably and by way of security appoints the Purchaser
and each and every director, officer or manager of the Purchaser for
the time being the Vendor’s attorney in the Vendor’s name and on
its behalf to execute any such assignment or documents and also
to collect, enforce, realise and give receipts and discharges for any
[Purchased Debts].

Precedent 14—Full form – assets sale agreement – further assurance –

novation of contracts
1 The Vendor agrees and declares that it will after and notwithstanding
completion of the sale and purchase under this agreement execute
and deliver any other documents and take any other steps as shall
reasonably be required from time to time by the Purchaser to vest in
the Purchaser or as it may direct [the Business and the Assets].
2 Subject always to Clause [3] below the Purchaser shall after comple-
tion carry out and complete for its own account [the Contracts] to the
extent that the same have not been performed prior to completion.
3 In so far as the benefit of [the Contracts] cannot effectively be trans-
ferred by the Vendor to the Purchaser except by way of an agreement
of novation with or consent to the assignment from the person, firm or
company concerned:
3.1 the Vendor and the Purchaser shall (if the Purchaser so requires
and at the expense of the Purchaser) co-operate to do every-
thing they reasonably can to procure [the Contracts] to be novat-
ed or assigned as aforesaid as soon as reasonably practicable;
3.2 in the case of any assignment as aforesaid the Purchaser shall
undertake to indemnify the Vendor against all costs, claims, li-
abilities and expenses arising by reason of or in connection with
the non-performance or the defective or negligent performance
by the Purchaser of [the Contracts] following such assignment;
3.3 unless and until any such [Contracts] shall be novated or as-
signed as aforesaid the Vendor shall hold the benefit of the said
[Contracts] in trust for the Purchaser and shall account to the
Purchaser accordingly in respect of any sums or other benefits
received by the Vendor in respect thereof and otherwise act at
the direction of the Purchaser and as its agent in all matters re-
lating thereto subject to the Purchaser indemnifying and holding
the Vendor harmless against any action, claim, demand, pro-
ceeding, damage, expense, charge, liability, cost or loss which
the Vendor may have made or brought against it or suffer or
incur as a consequence.

370

M07_Boilerplate_Clauses_F.indd 370 07/09/2017 12:58

 Good faith

Purpose of the clause

Background
‘Good faith’ can have a number of different meanings as far as a commercial
agreement is concerned, ie:
• a (general) duty or way of behaving, which is:
• other than acting only in a party’s own interest; or
• acting in a fair way (in the sense of a concept of fair dealing);
(there are other possible ways of defining good faith);
• a specific obligation to use ‘good faith’ to do something or achieve
something.
In English law there is no general law or requirement that the parties need
to act in ‘good faith’ to each other (unlike in many civil law countries or the
United States). However there are specific situations in English law when a
party or the parties to a contract will need to show, act in or use good faith, of
which the most relevant in a commercial context are:
• contracts with a consumer (at least to the extent that the Consumer Rights
Act 2015 applies to a consumer contract, ie that a contract term is not
contrary to the requirement of good faith, rather than operation of a
contract, see s 62(4));
• the relationship between agent and principal (in commercial agency, see
regs 3 and 4 of the Commercial Agents (Council Directive) Regulations
1993, SI 1993/3053, the agent and the principal need to show good
faith in the dealings with each other; see also the case of Page v Combined
Shipping and Trading Co Ltd [1997] 3 All ER 656, CA);
• a contract of insurance (and a contract where the parties or a party needs
to show ‘utmost good faith’ (known also under its Latin name: uberimmae
fidei)).
Although the parties to a normal commercial agreement may not need to show
good faith, English law does provide specific duties or remedies, for example:
goods must be of satisfactory quality; a supplier of services must perform the
services with reasonable care and skill, as well as limiting the right to exclude

371

M08_Boilerplate_Clauses_G.indd 371 07/09/2017 14:36

 Good faith

liability for such matters with the Unfair Contracts Terms Act 1977; or a party
cannot exclude its liability for its own fraud; to pick a few examples.
In specific contractual matters a party may need to use or show good faith in
its dealings with another party, although its meaning may be a specific rather
than a general obligation. For example, with a right of first refusal, good faith
can mean that the party giving the right of first refusal has to fully and fairly
disclose certain details to the receiver of the right (see Option and right of first
refusal, and Case analysis).

Duty to use good faith to do or achieve something

The English courts are generally hostile to find any obligation to do something
in good faith or an obligation on a party or parties to use good faith as binding
on a party, particularly where the obligation on a party or the parties to use
good faith is expressed in general terms. But not every use of a good faith
obligation will not be binding. An obligation to use good faith that is found in
an existing contractual relationship and where its fulfilment is referenced to
objective criteria, and accordingly it is possible to measure the obligation, can
be binding.
Principally the problem is that an obligation to do something in good
faith:
• lacks certainty; or
• means that it is not possible to judge objectivity or against objective criteria
whether a party has used good faith or not,
(eg Walford v Miles [1992] 2 AC 128; Petromec Inc v Petroleo Brasileiro
SA [2005] EWCA Civ 891 at 116, [2006] 1 Lloyd’s Rep 121; Shaker v Vistajet
Group Holding SA [2012] EWHC 1329 (Comm)).
However, as noted above, an obligation to use good faith may be enforceable:
• where there is a subsisting contract; and
• where there are set objective criteria within which the parties need to
operate (see Petromec Inc v Petroleo Brasileiro SA [2005] EWCA Civ 891
at paras 115–121; Shaker v Vistajet Group Holding SA [2012] EWHC 1329
(Comm)).
In the Petromec case the judgment implies that if the court was not bound by
the decision in Walford v Miles then it may have decided that the obligation
to use good faith was binding. The judgment in Petromec referred to a key
difference between it and Walford v Miles: the parties were in a contractual
relationship, while in cases such as Walford v Miles there was no contractual
relationship.
Much of the case law turns on whether an obligation to negotiate an agreement
in good in faith is binding (which is considered in the next section).

372

M08_Boilerplate_Clauses_G.indd 372 07/09/2017 14:36

 Good faith

‘Negotiate in good faith’ and ‘agreement to agree’

Much of the hostility of the courts has focused on the obligation to negotiate
in good faith or the parties (purporting to) enter into an agreement to agree.
That is, the parties may have entered into an agreement, but may not have
been able to decide on some matters, or they have entered into a ‘working’
agreement but need at a certain point to enter into a further agreement.
Examples of both these types of situations would be:
• the parties have entered into an agreement where one party will supply
goods in certain quantities to another party, and the provisions of the
agreement state that the parties will need to negotiate the price, timing of
supply, etc;
• the parties have entered into an agreement where one party carries out
a research project funded by another. If the research project is successful
(the research project generates (economically) valuable intellectual
property) then there is a provision that the parties will negotiate the
provisions of a licence agreement so that the funding party can exploit
the intellectual property.
In both situations, the matters needing negotiation may be accompanied by
an obligation to use good faith because the parties are not able to decide on all
the points necessary to enter into an initial agreement, or a further agreement.
Sometimes they may frame their attempts with language suggesting that they
will use a certain amount of effort to achieve agreement (such as the phrase
‘negotiate in good faith’ or they will use ‘reasonable efforts to agree’).
As noted above, such expressions or agreements to agree are not enforceable
except in specific circumstances:
• a bare obligation to negotiate an agreement in good faith is not legally binding:
(Walford v Miles [1992] 2 AC 128, [1992] 1 All ER 453, HL, see Case
analysis below). This proposition will extend to where there is an existing
agreement, but certain aspects under that agreement need to be negotiated
in good faith (see Petromec Inc v Petroleo Brasileiro SA [2005] EWCA Civ 891,
see paras 88–92);
• an obligation to use reasonable endeavours or best endeavours to agree will also
be unenforceable: with regard to using reasonable endeavours see Multiplex
Construction UK Ltd v Cleveland Bridge UK Ltd [2006] EWHC 1341 and with
regard to using best endeavours to agree see Little v Courage Ltd (1994)
70 P & CR 469 at 476; applied in London and Regional Investments Ltd v TBI
plc [2002] EWCA Civ 355;
• using good faith obligations to reach agreement with a third party is also not
enforceable: see Scottish Coal v Danish Forestry [2009] CSOH 171; Shaker v
Vistajet Group Holding SA [2012] EWHC 1329 (Comm));
• but an agreement not to enter into an agreement with a third-party may be binding
(sometimes called a ‘lockout agreement’): an undertaking not to enter into an

373

M08_Boilerplate_Clauses_G.indd 373 07/09/2017 14:36

 Good faith

agreement with a third party during the period of the negotiations can be
enforced under English law (see Pitt v PHH Asset Management Ltd [1993]
4 All ER 961, [1994] 1 WLR 327, CA). If the lock-out agreement contains
no express duration provisions, it may be enforceable as a contract
terminable on reasonable notice (see Global Container Lines Ltd v Black Sea
Shipping Co [1997] CLY 4535, Ch D, Transcript 1422).

Other meanings of ‘good faith’

The meanings of ‘good faith’ discussed above have been primarily in the
context of the parties negotiating (or attempting to negotiate) the provisions
of an agreement, usually before the existence of the agreement. However,
it is possible to have a contractual obligation of good faith in the sense of
the general duty set out at the beginning of this section. In Compass Group
UK and Ireland Ltd (t/a Medirest) v Mid Essex Hospital Services NHS Trust
[2013] EWCA Civ 200 a duty to co-operate in good faith required that the
parties work constantly together at all levels of their relationship, including
resolving problems that occur in a long-term contract as well as not taking
unreasonable actions, which might damage their working relationship. This
case and the cases that have followed have clearly indicated that, as far as
contracts made in England and Wales are concerned, there is no overriding
concept of good faith, whether as having a specific meaning or as a general
concept, or which needs implying into a contract. Recent case law has
indicated (Monde Petroleum v Westernzagros [2016] EWHC 1472 (Comm);
MSC Mediterranean Shipping v Cottonex [2016] EWCA Civ 789):
• there is no general doctrine of ‘good faith’ that applies to English
contract law;
• that only in certain types of contracts will a duty of good faith be implied
(employment, between partners, where there is fiduciary relationship);
• that, otherwise, a duty of good faith will only be implied where:
• a contract lacks commercial or practical coherence; and
• the requirements for implying a term are met (an example of
this would be Astrazeneca UK Ltd v Albemarle International Corpn
[2011] EWHC 1574 (Comm), where an obligation to use good faith
was implied, see Option and Right of first refusal and Case analysis);
• there is case law that some long-term agreements, which involve a
close working relationship, might require the parties to perform their
obligations in good faith, but just because there are agreements of this
type is not enough to indicate that it is necessary to imply an obligation
of good faith (ie there is no special rule of interpretation for this type of
contract);
• that to recognise a general doctrine of ‘good faith’ would be out of step
with how the English courts develop solutions to problems of contractual
interpretation;

374

M08_Boilerplate_Clauses_G.indd 374 07/09/2017 14:36

 Good faith

• that if a general concept or principle of good faith was implemented, it

would be used to weaken the terms that the parties have agreed.
For example in TSG Building Services plc v South Anglia Housing Ltd
[2013] EWHC 1151 (TCC) the parties stated in one clause:
‘The Partnering Team members shall work together and individually in the
spirit of trust, fairness and mutual co-operation for the benefit of the Term
Programme, within the scope of their agreed roles, expertise and responsibilities
as stated in the Partnering Documents…’

and in a later clause concerning termination:

‘13.3. If stated in the Term Partnering Agreement that this Clause 13.3 applies,
the Client may terminate the appointment of all other Partnering Team
members, and any other Partnering Team member stated in the Term Partnering
Agreement may terminate its own appointment, at any time during the Term
or as otherwise stated by the period(s) of notice to all other Partnering Team
members stated in the Term Partnering Agreement.’

The judge indicated: ‘Even if there was some implied term of good faith,
it would not and could not circumscribe or restrict what the parties had
expressly agreed in Cl 13.3, which was in effect that either of them for no,
good or bad reason could terminate at any time before the term of four years
was completed’.
Although it is reasonably clear that there is no general overall concept of good
faith or that it will be implied, much of the case law is concerned with the
implication of good faith into a contract rather than a specific obligation to
use good faith, such as (in Compass Group UK and Ireland Ltd (t/a Medirest) v
Mid Essex Hospital Services NHS Trust) where:
‘3.5 The Trust and the Contractor will co-operate with each other in good faith
and will take all reasonable action as is necessary for the efficient transmission of
information and instructions and to enable the Trust or, as the case may be, any
Beneficiary to derive the full benefit of the Contract.’

The meaning of such an obligation, if it has any specific meaning, is likely to

vary depending on the circumstances and context of the case. In this case the
duty was limited:
‘[106] … The obligation to co-operate in good faith is not a general one which
qualifies or reinforces all of the obligations on the parties in all situations where
they interact. The obligation to co-operate in good faith is specifically focused
upon the two purposes stated in the second half of that sentence.
[107] Those purposes are: i) the efficient transmission of information and
instructions; ii) enabling the Trust or any beneficiary to derive the full benefit
of the contract.’

Accordingly where used it will be context sensitive and will need interpreting
in the context of the case. In Compass Group UK and Ireland Ltd (t/a Medirest)
v Mid Essex Hospital Services NHS Trust it meant, according the court: ‘The
parties will work together honestly endeavouring to achieve the two stated
purposes’. With such a view expressed by the court, it is hard not to draw the
conclusion that: is this not what one would expect the parties to be doing in

375

M08_Boilerplate_Clauses_G.indd 375 07/09/2017 14:36

 Good faith

any case (even without such wording)? In effect, although not stated by the
court, the wording adds nothing.

Drafting issues

• An obligation to use good faith to agree (or variations such as using reasonable
efforts to agree) are likely not to be binding. Avoid the use of ‘good faith’ type
expressions, whether in a non-contractual or contractual document, if no
further wording is used to define such an obligation.
• if the parties wish to use an obligation of ‘good faith’ they should be strongly
discouraged from doing so. The phrase will have no specific meaning and
where used will normally be confined to the specific obligation in which
the phrase appears.
• if the parties insist on a party or the parties being subject to a good faith obligation,
then define objective criteria as to its meaning and the circumstances in which it is
to be used. If the parties are to have an obligation to use good faith to do or
achieve something, then any wording should:
• be in a subsisting contract;
• deal with a very specific issue, and if the parties cannot agree or cannot
act in good faith then there are objective ways of dealing or measuring
the issue, such as in the Petromec case (ie not a general obligation to
act in good faith to agree); and
• set out the intended goal or result that the parties will need to achieve
when exercising an obligation to use good faith.

Case analysis

Walford v Miles [1992] 2 AC 128, [1992] 1 All ER 453, HL

The opinion of Lord Ackner sets out his view on US agreements to negoti-
ate in good faith as well as the implications of an agreement to negotiate
in good faith:
‘… Although the cases in the United States did not speak with one voice
your Lordships’ attention was drawn to the decision of the United States
Court of Appeals, Third Circuit in Channel Home Centers Division of Grace
Retail Corp v Grossman (1986) 795 F 2d 291 as being “the clearest example”
of the American cases in the appellants’ favour. That case raised the issue
whether an agreement to negotiate in good faith, if supported by considera-
tion, is an enforceable contract. I do not find the decision of any assistance.
While accepting that an agreement to agree is not an enforceable contract, the
United States Court of Appeals appears to have proceeded on the basis that
an agreement to negotiate in good faith is synonymous with an agreement to
use best endeavours and, as the latter is enforceable, so is the former. This
appears to me, with respect, to be an unsustainable proposition. The reason
why an agreement to negotiate, like an agreement to agree, is unenforceable

376

M08_Boilerplate_Clauses_G.indd 376 07/09/2017 14:36

 Good faith

is simply because it lacks the necessary certainty. The same does not apply
to an agreement to use best endeavours. This uncertainty is demonstrated in
the instant case by the provision which it is said has to be implied in the agree-
ment for the determination of the negotiations. How can a court be expected
to decide whether, subjectively, a proper reason existed for the termination of
negotiations? The answer suggested depends upon whether the negotiations
have been determined “in good faith”. However, the concept of a duty to carry
on negotiations in good faith is inherently repugnant to the adversarial position
of the parties when involved in negotiations. Each party to the negotiations is
entitled to pursue his (or her) own interest, so long as he avoids making mis-
representations. To advance that interest he must be entitled, if he thinks it
appropriate, to threaten to withdraw from further negotiations or to withdraw in
fact in the hope that the opposite party may seek to reopen the negotiations by
offering him improved terms. [Counsel for the appellants], of course, accepts
that the agreement upon which he relies does not contain a duty to complete
the negotiations. But that still leaves the vital question: how is a vendor ever to
know that he is entitled to withdraw from further negotiations? How is the court
to police such an “agreement”? A duty to negotiate in good faith is as unwork-
able in practice as it is inherently inconsistent with the position of a negotiating
party. It is here that the uncertainty lies. In my judgment, while negotiations are
in existence either party is entitled to withdraw from these negotiations, at any
time and for any reason. There can be thus no obligation to continue to negoti-
ate until there is a “proper reason” to withdraw. Accordingly, a bare agreement
to negotiate has no legal content.’

Shaker v Vistajet Group Holding SA [2012] EWHC 1329 (Comm), [2012]

All ER (D) 141 (May)
This case is an illustration of a recent application of the points made
above concerning obligations to use good faith or reasonable endeav-
ours. It indicates (together with other recent cases) that the courts are not
prepared to move away from the principles outlined in Walford v Miles
and the cases that have followed it.
1 The claimant and the defendant signed a letter of intent for the pur-
pose of negotiating the purchase, operation and repurchase of an air-
craft.
2 A provision in the letter of intent required the claimant to pay a deposit
of $3.5m. The deposit was to go towards the purchase price of the
aircraft. The claimant paid the deposit.
3 The claimant was to proceed in good faith and to use reasonable
endeavours to agree, execute and deliver a number of documents
(‘Transaction Documents’) by no later than a specific date (‘Cut-Off
Date’).
4 The seller was to refrain selling the aircraft to another buyer before
the Cut-Off Date.
5 If the parties failed to reach an agreement and deliver the Transaction
Documents by the Cut-Off Date, despite their using their good faith
and reasonable endeavours, then the letter of intent would terminate
without penalty and that within 5 business days the defendant would
return the deposit.

377

M08_Boilerplate_Clauses_G.indd 377 07/09/2017 14:36

 Good faith

6 The letter of intent was not binding except for the provisions relating
to confidentiality and regarding the application, payment and refund
of the deposit.
7 The parties extended the Cut-Off Date five times. The first time it
was acknowledged that the claimant was seeking finance. The judge
assumed for the purposes of his decision that the claimant undertook
to exercise good faith and reasonable endeavours to secure written
confirmation from a financing party before the Cut-Off Date. The last
amendment provided:
‘We acknowledge that, notwithstanding the exercise of good faith and
reasonable endeavours by all relevant parties, (a) a written confirmation
from a financing party will not be obtained and (b) the agreement, execution
and delivery of the Transaction Documents will not occur by the Cut-Off
Date. We hereby agree that the Cut-Off date be extended to 23.59 CET on
Monday 17 January 2011 and that any reference to the Cut-Off Date in the
Letter of Intent be construed accordingly without prejudice to any of the
parties’ ongoing rights and obligations thereunder.’

8 The claimant argued that he had proceeded in good faith and used
reasonable endeavours to agree the Transaction Documents and
to seek written confirmation from a financing party. The defendant
argued that the defendant had not used good faith and reasonable
endeavours.
9 The judge held:
(a) That obligations of the claimant to use good faith and/or reason-
able endeavours were unenforceable: ‘There can be no doubt
that the Claimant’s agreement to proceed in good faith and to
use reasonable endeavours to agree the Transaction Documents
and obtain written confirmation from the financing party does
not give rise to an enforceable obligation in law. First, the “Non-
binding” clause expressly states that the LOI does not constitute
a binding agreement to enter into the Transaction Documents.
Second, an agreement to negotiate or agree further agreements
is unenforceable in law…Thus agreements to use reasonable
endeavours to agree or to negotiate in good faith are unenforce-
able. The reason for such unenforceability is that there are no
objective criteria by which the court can decide whether a party
has acted unreasonably and that a duty to negotiate in good faith
is unworkable because it is inherently inconsistent with the posi-
tion of a negotiating party. Agreements to reach agreement with
a third party (such as the financing party in the present case) are
also unenforceable for the same reason’ (from para 7).
(b) The judge rejected that the defendant’s argument that the use
of good faith and reasonable endeavours was a condition prec-
edent for the return of the deposit: ‘In my judgment the sug-
gested condition precedent is unenforceable in law for the same
reasons that an obligation to exercise reasonable endeavours

378

M08_Boilerplate_Clauses_G.indd 378 07/09/2017 14:36

 Good faith

is unenforceable in law. If the court is unable to draw a line

between what is to be regarded as reasonable or unreasona-
ble in an area where the parties may legitimately have differing
views or interests and so cannot police such an obligation, the
court is equally unable to police the suggested condition prece-
dent. Similarly, if an obligation to negotiate in good faith is inher-
ently inconsistent with the position of a negotiating party so is
the suggested condition precedent’ (from para 12).
(c) The judge also rejected a further argument of the defendant:
that in a case such as Walford v Miles there was no binding
agreement, while in this case there was a binding agreement as
to the return of the deposit. A second argument of the defend-
ant on this point was that the defendant, by agreeing binding
provisions regarding the refund of the deposit, had ‘given up the
right to act capriciously could also be made in the context of an
obligation to exercise good faith and reasonable endeavours’
(from para 13).
(d) A further argument of the defendant was that there was a provi-
sion in the letter of intent that the defendant agreed to refrain
from selling the aircraft to another person until the Cut-Off Date.
The judge rejected this point as well because: ‘…the existence
of such obligation does not enable the court to police the sug-
gested condition precedent in the absence of objective criteria
for doing so. The obligation to negotiate in good faith remains
inherently inconsistent with the position of a negotiating party’
(from para 16).
(e) The final argument of the defendant was that the obligation to
negotiate in good faith could be enforceable in light of the judg-
ment in Petromec Inc v Petroleo Brasileiro SA [2005] EWCA Civ
891. The judge rejected this argument too, because in the
Petromec case what was being negotiated was a specific issue
(the extra cost to a party) and that there were objective crite-
ria where the extra cost could be established in the absence
of agreement by the parties. The judge held that the facts of
that case were very different to that of this case: ‘I recognise
that Longmore LJ [in Petromec] said that it is “a strong thing
to declare unenforceable a clause into which the parties have
deliberately and expressly entered” but an agreement to negoti-
ate the terms of four further agreements [as in this case] and
secure written confirmation from a financier contains no objec-
tive criteria by which such agreements or written confirmation
could be produced for the parties by the court in the absence
of agreement. Where there are no objective criteria the court is
unable to enforce the parties’ agreement to agree; see Dhanani v
Crasnianski [2011] EWHC 926 (Comm), [2011] 2 All ER (Comm)
799’ (from para 17).

379

M08_Boilerplate_Clauses_G.indd 379 07/09/2017 14:36

 Indemnities

Purpose of the clause

An indemnity is in effect a promise or undertaking by a party, separate from

other contractual obligations, to pay for the loss or damage which another
party incurs. The loss or damage that the indemnity will cover, when the
indemnity operates, etc are all subject to the agreement between the parties.
There is no requirement that an indemnity must be in writing or comply
with any other specific formality, other than it must satisfy the normal rules
concerning the creation of a binding contract.
The parties may:
• include an indemnity together with the other provisions of an agreement
to which the indemnity relates; or
• make a separate agreement dealing specifically with the indemnity.
Whichever approach is taken, the consequence of a person giving an indemnity
is that they are giving a separate promise to cover the losses and damages
caused or suffered by the other party in addition to any other provisions of
an agreement which states the liability or obligation of that person giving the
indemnity (or which are implied by law) to which the indemnity relates.
An indemnity that one party to a contract can provide in a contract normally
falls into one of two categories:
The first category: As this term is normally used in contracts, an indemnity is:
• an undertaking given by one party (A) (the indemnifier) to another (B)
(the indemnified); that
• A will make good any losses suffered by B; arising from
• claims made against B by a third party;
• in specified situations.
For example, Party A licenses the use of material protected by copyright to
Party B, in order for Party B to incorporate that material in a publication for
sale. The indemnity that Party A provides to Party B may cover an issue such
as if the licensed material infringes the intellectual property rights of a third
party and Party B is sued for that infringement. Under the indemnity Party
A will pay to Party B the amount that Party B has to pay to the third party to
settle any case brought by the third party against Party B.

380

M09_Boilerplate_Clauses_I.indd 380 04/09/2017 08:23

 Indemnities

An indemnity clause is a means, together with other provisions in a contract,

such as warranties, representations, exclusions and limitations clauses (and
insurance), of apportioning commercial risks between the contracting parties.
The second category: This type of indemnity is :
• an undertaking given by one party (A) to another (B); that
• A will absolve B;
• against any liability that B may have against A.
Thus, if Party A is required to indemnify Party B against losses caused to Party
B by Party A’s wrongdoing, this is, in effect, an exclusion clause.
Under common law and statute (eg the Unfair Contract Terms Act 1977) an
indemnity clause of this type is treated in the same manner as an exemption
clause where it attempts to limit, reduce or negate liability as between the
contracting parties, rather than deal with third-party liability (eg Smith v South
Wales Switchgear Ltd [1978] 1 All ER 18; Canada Steamship Ltd v R [1952] 1 All
ER 305), on the basis that it is unlikely or improbable that a party would wish
to allow the other party to be responsible for its own negligence (see Gillespie
Bros & Co Ltd v Bowles (Roy) Transport [1973] QB 400).

‘Hold harmless’

Sometimes indemnity clauses refer to the indemnifying party ‘holding the

other party harmless’ against claims and liability. This language is more
common in US contracts. It is understood that such words mean that the
indemnifying party will not sue the other contracting party for recovery of the
indemnifying party’s losses. It may be preferable to state any such obligation
specifically rather than to rely on ‘formula’ phrases of this kind.

Drafting issues

• What will the indemnifier be responsible for? To what extent will the
indemnifying party be responsible for costs incurred by or expended by
the indemnified party?
• Should there be a limit on the amount that may be payable by the indemnifier? The
indemnifier may wish to have some control over possible escalating costs,
either by stating:
• that the costs incurred must be ‘reasonable’; or
• by setting some financial or overall limit.
• When should payment be made under the indemnity?
• as they are incurred; and/or
• at a particular stage of legal proceedings (eg on commencement,
when scheduled for trial); and/or

381

M09_Boilerplate_Clauses_I.indd 381 04/09/2017 08:23

 Indemnities

• on notification by the third party to the indemnified; and/or

• when the matter reaches a final judgment; and/or
• when there is a financial settlement by the indemnified party (ie when
it has paid over any costs or damages).
Such payments could potentially be considerable, particularly where there
may be foreign proceedings as, eg, in the case of intellectual property
rights. Unless the parties agree otherwise, then the indemnified party
could make a claim against the indemnifier as soon as the indemnified
is liable to a third party (eg Firma C-Trade SA v Newcastle Protection and
Indemnity Association, The Fanti [1991] 2 AC 1 at 28, [1990] 2 All ER 705 at
711–712, HL). This proposition is not exactly the same as the indemnifier
being liable to pay the indemnified at the time the liability arises but
following any (successful) claim, the net result might be the same.
• What should the indemnity cover? Typically an indemnifier can provide an
indemnity for the following:
• breach of (specified) warranties;
• negligent acts and other breaches;
• any use of goods or services by the indemnified party;
• breach of the intellectual property rights of a third party or the
indemnified party.
If the facts indicate that there has been a proven or agreed occurrence of
one of the above, would the indemnity operate?
It may be anticipated that most third-party claims are likely to be settled
out of court, in which case there will be no clear decision whether or not
there has been a proven occurrence. To avoid doubt and to cover such
settlements, the indemnity may be worded to cover losses etc arising out,
eg of breach of warranty: ‘out of any claim by a third party based on any
facts which, if substantiated, would constitute such a breach.’
• Conduct of proceedings. Sometimes the indemnifier may require that, as a
condition of giving the indemnity, it will have conduct of the proceedings
itself.
Eg, in an agreement for the sale of goods (which includes also the
provision of software or other material covered by intellectual property
rights), the seller may need to provide an indemnity to the buyer. The
indemnity might cover any claims made by third party against the buyer
in respect of (alleged) breaches of intellectual property rights of the third
party. The wording of the indemnity clause might be:
‘If the buyer shall be subject to any claim from a third party that the goods
infringe such third party’s intellectual property rights then the seller shall
indemnify the buyer against such claims subject to the buyer allowing
the seller to conduct any proceedings or negotiation (in the name of the
buyer if the seller so requests) …’

382

M09_Boilerplate_Clauses_I.indd 382 04/09/2017 08:23

 Indemnities

• Should an indemnity extend to cover other persons? Will the indemnity reach, eg:
• where there is a sale and purchase of goods, to claims by sub-buyers
and end-users.
Such a clause implies an obligation to repair or replace defective
goods even after they have been sold on by the original buyer. If the
seller is to assume this risk, the existence of appropriate insurance
cover must first be ascertained;
• employees, agents and/or representatives of the indemnified parties.
• Restrictions on the actions of the indemnified party when there is a claim. In some
cases, the indemnifier, when indicating that it will provide an indemnity,
will make it a condition that the indemnified party will:
• not act against the interests of the indemnifier;
• notify the indemnifier promptly if the indemnified becomes aware of
a claim;
• co-operate with the indemnifier in defending any claim;
• not have caused any claim under the indemnity or assisted any third
party in causing or making any claim under the indemnity;
• allow the indemnifier sole conduct of the claim.

Location in the agreement

An Indemnity clause will usually be located with provisions relating to warranties

and exclusion and limitation of liability in the Secondary Commercial
Provisions of an agreement.

Linkage and use

As indicated above an Indemnity clause will fall to be considered together with
provisions relating to the Warranties and Exemption clauses.
In some industry sectors it is conventional to give particular types of
indemnities (consideration of which is outside the scope of this book).

Sample precedent material

Precedent 1—Short form general indemnity as to breach of warranty

[Party A] undertakes that it will indemnify [Party B] and keep [Party B] fully
indemnified against all actions, claims, proceedings, costs and damages
(including any damages or compensation paid by [Party B] on the advice

383

M09_Boilerplate_Clauses_I.indd 383 04/09/2017 08:23

 Indemnities

of its legal advisers to compromise or settle any claim) and all legal costs
or other expenses arising out of any breach of the [above warranties] or
out of any claim by a third party based on any facts which if substantiated
would constitute such a breach.

Precedent 2—Short form general indemnity as to injury to staff

Each Party will be responsible for its own (and its Affiliates’) officers,
employees, consultants, agents and representatives (‘Staff’) and will
indemnify the other Party against all claims that may arise out of any
injury, loss or damage suffered by such Staff in connection with the
breach, performance or non-performance of this agreement or the use of
any Delivered Items.

Precedent 3—Long form general indemnity as to any claims in regards to

goods
1 Each party (‘Indemnifying Party’) shall indemnify and hold harmless
the other party, its Affiliates, and their respective officers, employees,
consultants, agents and representatives (the ‘Indemnitees’) against
all third-party Claims which may be asserted against or suffered by
any of the Indemnitees and which relate to:
(a) the use of any Delivered Items, or
(b) the manufacture, distribution, sale, supply or use of any
­products or services which incorporate any Delivered Items,
by or on behalf of the Indemnifying Party or its licensee or sub-
sequently by any third party, including without limitation claims
based on product liability laws.
2 For the purpose of Clause 1, ‘Claims’ shall mean all demands, claims
and liability (whether criminal or civil, in contract, tort or otherwise) for
losses, damages, legal costs and other expenses of any nature what-
soever and all costs and expenses (including without limitation legal
costs) incurred in connection therewith.

Precedent 4—Short form general indemnity to agent

The Principal agrees with the Agent throughout the term to indemnify and
keep indemnified the Agent from and against any and all loss, damage
or liability whether criminal or civil suffered [and legal fees and costs
incurred] by the Agent in the course of [conducting the management of
the Property].

Precedent 5—General indemnity by agent

The Agent agrees with the Principal throughout the term to indemnify and
keep indemnified the Principal from and against any and all loss, damage
or liability (whether criminal or civil) suffered [and legal fees and costs
incurred] by the Principal resulting from a breach of this agreement by the
Agent including:

384

M09_Boilerplate_Clauses_I.indd 384 04/09/2017 08:23

 Indemnities

1 any act, neglect or default of the Agent’s agents, employees, licen-

sees or customers;
2 breaches resulting in any successful claim by any third party alleging
libel or slander in respect of any matter arising from the [supply of the
[Products or Services] or conduct of the Business] [in the Territory].

Precedent 6—Short form indemnity for new partner

The other Partners shall indemnify any new Partner joining the Partnership
against all debts and liabilities of the Partnership business existing at the
date on which the new Partner joins and against any claim against the
Partnership arising from any act or omission which has occurred prior to
that date.

Precedent 7—Short form general indemnity by supplier of services

[Party A] agrees with [Party B] throughout the term to indemnify and keep
indemnified [Party B] from and against any and all loss, damage or liability
(whether criminal or civil) suffered [and legal fees and costs incurred] by
[Party B] resulting from a breach of this agreement by [Party A] including:
1 any act, neglect or default of [Party A]’s employees or agents;
2 breaches in respect of any matter arising from the supply of the ser-
vices resulting in any successful claim by any third party.

Precedent 8—Short form general indemnity by borrower

The Borrower shall on demand indemnify the Lender against any cost,
loss, expense or liability sustained or incurred by it as a result of the
Lender making the Loan available or of any breach of the Borrower of its
obligations under this agreement, or the non-fulfilment of any conditions
precedent, or the repayment of any advance or part of any advance other
than on the last day of the then current interest period, or any change in
the law, or any compliance by the Lender with the requirements of fiscal
or monetary authorities.

Precedent 9—Longer form general indemnity to agent, franchisee etc

The Principal agrees with the Agent throughout the term to indemnify and
keep indemnified the Agent from and against any and all loss, damage
or liability, whether criminal or civil, suffered [and legal fees and costs
incurred] by the Agent in the course of conducting the Business and
resulting from:
1 any act, neglect or default of the Principal or its agents, employees,
licensees or customers;
2 the proven infringement of the intellectual property rights of any third
party;
3 any successful claim by any third party alleging libel or slander in
respect of any matter arising from [the supply of the [Products or
Services] or the conduct of the Business] [in the Territory];

385

M09_Boilerplate_Clauses_I.indd 385 04/09/2017 08:23

 Indemnities

Provided that such liability has not been incurred by the Agent through
any default in carrying out the terms of this agreement.

Precedent 10—Full form indemnity by security contractor

[Party A] (contractor) will indemnify [Party B] (owner or occupier), its serv-
ants and workmen against loss of or damage to property or bodily injury
sustained by it or them by reason of any act of neglect of the security
officers or other personnel of [Party A] whilst performing their duties
within the scope of their employment with [Party A] and against the dis-
honesty of such officers or personnel whilst performing their duties within
the scope of their employment with [Party A] provided that:
1 [Party A] shall be under no liability whatever in respect of:
1.1 loss or damage or any consequential or indirect loss sustained
by [Party B] or its servants or workmen or third parties by reason
of any act or neglect of the security officers or personnel in
excess of [£1,000,000];
1.2 loss of or damage to [Party B]’s property or property for which
[Party B] is responsible or any consequential or indirect loss
attributable to the dishonesty of the security officers or person-
nel in excess of [£100,000];
1.3 loss, damage or injury or any consequential or indirect loss aris-
ing from the performance of or failure by [Party A] to perform a
duty extraneous to this agreement which [Party A] or its security
officers or other personnel may at the express wish of [Party
B] have undertaken to perform (whether such loss, damage or
injury or consequential or indirect loss be due to the negligence
of [Party A] or of its servants or agents or to any other cause
whatever) unless [Party A] has agreed in writing to carry out
such extraneous duty and the written agreement is signed by a
director or senior executive of [Party A].
2 Notice of all claims by [Party B] in respect of any loss, damage or
injury or consequential or indirect loss shall be given in writing to the
address for [Party A] given at the head of this agreement within [7]
days of the discovery of such loss, damage or injury or consequential
or indirect loss and in default of such notice within such period [Party
A] shall not be held responsible for such claim.

Precedent 11—Full form indemnity by lessee of personal property

(eg aircraft)
1 The Lessee indemnifies each of the Lessor and its employees and
agents and shall keep each of them fully indemnified at all times
against all actions, claims, demands, proceedings, costs, expenses,
fines, penalties, taxes (other than taxes chargeable on the Lessor’s
profits or chargeable gains in the United Kingdom), losses and liabili-
ties whatever in any way arising out of or connected with [the Aircraft]

386

M09_Boilerplate_Clauses_I.indd 386 04/09/2017 08:23

 Indemnities

or this agreement and arising during the period of this agreement, but
whenever incurred, including in particular (without limitation) all those
arising from, resulting from or connected with:
1.1 delivery, possession, use, operation, management, mainte-
nance, insurance or repossession of [the Aircraft];
1.2 loss, injury or damage sustained by the Lessee or any third
party;
1.3 any refusal by insurers to meet in full a claim under any of the
insurances;
1.4 seizure, condemnation or taking possession of [the Aircraft] by
any person organisation or state unauthorised by the Lessor
(including any payments or expenses in respect of [hijacking of
or threats against the Aircraft or its passengers, crew or cargo]
provided that no such payment shall be made without the prior
agreement of the Lessor and the appropriate insurers);
1.5 any breach or non-compliance by the Lessee of or with any of
the provisions of this agreement.
2 The Lessee further agrees to defend the Lessor against any action or
proceeding relating to any such losses as are mentioned in Clause
[1], to permit the Lessor (at its option) to become party to any such
action or proceeding and to indemnify the Lessor against all costs
(including legal costs) arising from any such defence.

Precedent 12—Limited indemnity by licensor of eg software

1 Subject to Clause [no] (general limitations on liability) the Licensor
will indemnify the Licensee for its reasonable costs and all damages
awarded under any final judgment by a court of competent jurisdic-
tion or agreed by the Licensor in final settlement to the extent that
the Product as used in accordance with the Licence infringes the
copyright [trademarks or trade secrets of any third party or and the
intellectual property rights (other than patents) of any third party]
Provided that:
1.1 the Licensee makes no statement prejudicial to the Licensor;
1.2 such infringement is not caused by or contributed to by acts of
the Licensee other than the use of the Product in accordance
with the Licence;
1.3 the Licensor is promptly notified in writing of the details of the
claim;
1.4 the Licensor has sole control of the defence of such claim and
all related settlement negotiations; and
1.5 the Licensee gives the Licensor all reasonable assistance at the
Licensor’s expense in connection therewith.

387

M09_Boilerplate_Clauses_I.indd 387 04/09/2017 08:23

 Indemnities

2 If at any time an allegation of infringement of any third-party rights is

made, or in the Licensor’s opinion is likely to be made, in respect of
the licensed materials the Licensor may at its own expense:
2.1 obtain for the Licensee the right to continue using the Licensed
Materials; or
2.2 modify or replace the Licensed Materials so as to avoid infringe-
ment; or
[2.3 if conditions 2.1 and 2.2 above cannot be accomplished on rea-
sonable terms, refund the licence fee whereupon the Licence
shall terminate].
3 The Licensor will have no liability for any infringement claim based on:
3.1 use of other than the latest unaltered current release of the
Product; or
3.2 use or combination of the Product with equipment, programs or
data not supplied by the Licensor; or
3.3 the Licensee’s refusal to use modified or replacement licensed
materials supplied or offered to be supplied pursuant to Clause
[no].
4 This Clause [no] states the entire liability of the Licensor with respect
to the infringement or alleged infringement of any third-party rights of
any kind whatever by the licensed materials.

388

M09_Boilerplate_Clauses_I.indd 388 04/09/2017 08:23

 Indexation (inflation)

Purpose of the clause

An indexation clause has the purpose of allowing one or more of the parties to
adjust prices for goods or services or salaries or wages to allow for the effect of
inflation, usually while the agreement continues in existence.
This clause deals with a different point than the amount that the supplier may
charge for goods or services for any particular order. For example, a supplier
may fix the price in the contract, by reference to a pricing list or by some other
formula allowing for the price to increase or possibly decrease (eg the price
for the goods or services increases by a set percentage on the anniversary of
the parties entering into their agreement).
The use of an indexation clause is more likely to be seen where the agreement
will run for a period of time, or where the goods that the supplier will provide
will either be supplied on a regular basis or have an extended lead time. For
example:
• if the supplier is to construct an item which will take several months from
order to delivery, and is dependent on parts from third parties, then in the
interim between the order being placed and the supplier obtaining the
parts, the parts may have increased in price if calculated taking account
for inflation;
• if the supplier provides services on a regular basis, such as so many hours’
consultancy each month, then over a long period, certain of the supplier’s
costs may increase, such as the amount it pays to its consultants etc.

Drafting issues

The following factors need consideration when including an indexation

clause:
• Is an Indexation clause appropriate? Is this an appropriate method of
allowing for the rise in prices? In some of the following circumstances, an
indexation clause may not be appropriate:
• if used, then the party wishing to increase prices will be restricted
to a contractually fixed method, which does not give control to that
party but leaves it subject to outside events (eg dramatic increases in

389

M09_Boilerplate_Clauses_I.indd 389 04/09/2017 08:23

 Indexation (inflation)

raw materials if the party needs to source these during the life of the
agreement);
• the cost of items used in providing the goods and services may rise at
a greater rate than whatever index is used;
• the party providing goods or services may rely on supplies from third
parties (eg raw materials or finished products) and the third parties
can easily increase their prices, which the party providing the goods
and services cannot control or pass on to its customers.
• Where an Indexation clause is utilised:
• the date on which the indexation is to take place. Eg, the agreement may set
a date, or it may be on each anniversary of the commencement of the
agreement;
• which index should be used? Often the UK Retail Prices Index (RPI)
is used, but it might not be the most appropriate one. Eg, if the
agreement concerns the manufacturing of goods, then an index
based on manufacturing costs may be more appropriate than one
based on the price of retail sales;
• which index month should be used for the calculation?
• the method of calculation;
• what happens if the method of calculating the index changes during the life of
the contract?
• what happens if the index is abolished or replaced by another index during the
life of the contract?
• should the increase happen automatically? Does the party paying the
increase as a result of the Indexation clause have a right to object, be
consulted or terminate the agreement if unhappy about the increase
or if the increase is above a certain level?
• notice. Is the party applying the Indexation clause required to notify the
other party prior to an increase? If so, when is the party required to
do so? Eg, a party may be required to give 30 days’ notice even if the
Indexation clause takes effect the same time each year.
• worked example. As the use of calculations can cause problems for
some parties (and their lawyers) when drafting contracts, should
the clause dealing with indexation include one or more worked
examples, either within the clause itself or by referring to a schedule?
(See, for example, Arnold v Britton [2015] UKSC 36, although not a
case specifically about indexation or inflation, but one that clearly
indicates the difficulty parties (or their lawyers) have in expressing
themselves clearly when dealing with calculations). A clause dealing
with calculating the price or rate for something based on inflation is
likely to be one of these difficult areas.

390

M09_Boilerplate_Clauses_I.indd 390 04/09/2017 08:23

 Indexation (inflation)

Location in the agreement

The Payment clause will normally contain the Indexation clause.

Linkage and use

See Payment terms.

Sample precedent material

Precedent 1—Sample clause – short form

On each [Review Date] [anniversary of the Commencement Date] [(date)]
the Salary mentioned in Clause [no] shall be increased by the proportion
by which the RP Index has increased during the preceding [year].

Precedent 2—Sample clause – longer form

The Payments shall be adjusted at the Assessment Date by the Inflation
Formula, where ‘the Inflation Formula’ means the following formula:
P × RPI (2)
RPI (1)
Where:
‘P’ is the initial amount of the payment as specified in Clause X;
‘RPI(1)’ represents the all-items figure shown in the General Index of Retail
Prices last published before the date of this Deed (namely (specify)); and
‘RPI(2)’ represents the all-items figure shown in the General Index of
Retail Prices last published before the Assessment Date.
PROVIDED that:
(1) if the base rate or any other mathematical factor affecting the calcula-
tion of the all-items figure shown in the General Index of Retail Prices
changes before the Assessment Date all necessary adjustments shall
be made to ensure that RPI(2) is computed consistently with RPI(1);
(2) if the General Index of Retail Prices or the all-items figure in it has
ceased to be published at the Assessment Date the arbitrator shall
adopt such official or other index as shall appear to him to be most
appropriate for measuring the change in the value of money between
the date of this Deed and the Assessment Date.

391

M09_Boilerplate_Clauses_I.indd 391 04/09/2017 08:23

 Insolvency (termination for)

Purpose of the clause

Background
Commercial agreements often include a provision to allow a party to terminate
the agreement if another party becomes insolvent, bankrupt or is liquidated.
Such provisions are often regarded as classic ‘boilerplate’ clauses, which
require little thought.

Insolvency and partnership

In an agreement involving a degree of closeness and trust between the parties,

such as a partnership agreement, the parties may agree that mere indebtedness
at a certain level is to be sufficient cause for expulsion, eg:
‘If any partner shall be unable to pay, or have no reasonable prospect of paying,
and the amount or the aggregate amount of the partner’s debts is equal to or
exceeds the bankruptcy level (within the meaning of the Insolvency Act 1986,
s 267), the partner shall enter into a compromise for the benefit of that partner’s
creditors generally …’

or, less severely:

‘If any partner shall have a bankruptcy order made against her or him or shall
suffer her or his share in the partnership to be charged for his separate debt
under the Partnership Act 1890 …’

In agreements in which the parties are more at arm’s length, the following
may be sufficient to denote the degree of insolvency comprising fundamental
breach:
‘The levying of any distress or execution against (party) or the making by him
of any composition or arrangement with creditors or (being a company) the
liquidation of (party) (other than a members’ voluntary liquidation) …’

Insolvency and the corporate party

The standard form of insolvency clause for a corporate party usually runs as
follows:

392

M09_Boilerplate_Clauses_I.indd 392 04/09/2017 08:23

 Insolvency (termination for)

‘… if [party] becomes insolvent or goes into liquidation, either compulsory or

voluntary (save for the purpose of reconstruction or amalgamation), or if an
administrator, administrative receiver or receiver is appointed in respect of the
whole or any part of its assets, or if [party] makes an assignment for the benefit
of, or composition with, its creditors generally’.

The following words, if added, will widen the effect of the clause considerably,
but may be resisted by the other party or parties:
‘… or threatens to do any of these things, or if any similar occurrence under any
jurisdiction affects [party]’.

Reference to similar events under any jurisdiction may be essential if one

or more of the parties is an overseas company. Indeed, it may be necessary
to obtain overseas legal advice on the equivalent insolvency events under
that country’s insolvency laws. In an agreement in which some parties are
individuals and some are companies, it will be necessary to make express
reference to both the types of insolvency described above.

Insolvency: pre-1987 terminology

It should be noted that in agreements drafted before the coming into force
of the Insolvency Act 1986 it was usual to refer, when specifying insolvency
events relevant to a corporate party, only to the appointment of ‘a receiver’
in respect of the party’s assets, and this form is still occasionally encountered
in forms of agreement which have not since been revised. It is essential
now to specify the officers appointable under the Insolvency Act 1986,
ie administrators and administrative receivers. Reference to receivership (to
cater for appointment eg under powers contained in a debenture) should
also be retained.
Agreements made before 1987 also commonly referred, in the case of
insolvency of an individual, to the committing of ‘any act of bankruptcy’.
This term does not occur in the Insolvency Act 1986 and no longer has any
special meaning. Reference is usually now made instead to the making of a
bankruptcy order against a party (under the Insolvency Act 1986, s 264), and
perhaps also (where a higher degree of solvency is to be maintained) to the
making of an application for an interim order (under the Insolvency Act 1986,
s 252), eg:
‘the presentation by any person against (party) of any application for an interim
order or petition for a bankruptcy order within the meaning of the Insolvency
Act 1986’.

Note, however, that the above provision is narrower in scope than the old ‘act
of bankruptcy’. The current equivalent reference will be to indebtedness at
the statutory bankruptcy level. A comprehensive provision might be worded
as follows:
‘being an individual who:
(a) is the subject of a bankruptcy petition or bankruptcy order; or

393

M09_Boilerplate_Clauses_I.indd 393 04/09/2017 08:23

 Insolvency (termination for)

(b) is the subject of an application or order or appointment under the Insolvency

Act 1986, s 253 or 273 or 286; or
(c) is unable to pay or has no reasonable prospect of being able to pay his debts
within the meaning of the Insolvency Act 1986, ss 267 and 268.’
Similarly, reference to a ‘receiving order’ (found in pre-1987 documents)
should now be avoided.

Drafting issues

There are some commercial issues which may need consideration when
drafting or reviewing a clause which permits termination due to insolvency,
including:
• Do the parties wish the agreement to terminate in the event of insolvency of one
of them? The insolvency of a party is almost always stipulated as an event
entitling the other party to terminate the agreement. In the absence
of such a provision, the bankruptcy or winding up of one party may of
itself be insufficient to terminate the contract. It is always advisable to be
specific when framing such a provision, as under modern law insolvency
can comprise several stages.
• When can the agreement be terminated? A more central issue is when the
contract may be terminated.
Often, the drafter will wish to allow for termination prior to the
commencement of formal winding-up proceedings (in the case of a
company) or bankruptcy proceedings (in the case of an individual).
Termination clauses are sometimes very lengthy, as they try to address a
range of circumstances where the company is close to, but not yet at, the
point of formal proceedings.
• Foreign parties. ‘Termination on insolvency’ clauses tend to use formal legal
language that describes different insolvency events (eg appointment of
administrators) that are recognised by English law. In the case of contracts
with non-UK parties, the parties may require advice from lawyers in the
jurisdiction of the non-UK party as regards the appropriate language to
use to describe insolvency events in that jurisdiction.
Alternatively, a sweep-up provision may be included in the clause referring
to similar or analogous events in other jurisdictions.
• Should the agreement always terminate in the event of insolvency or bankruptcy?
Sometimes, a party will refuse to accept that, in the event of its insolvency
or bankruptcy, the contract should terminate.
Eg, a licensor licenses some intellectual property to a licensee (involved
in a ‘high-technology’ area). The licensee may regard the intellectual
property licence as a valuable asset, which in the event of insolvency the
liquidator or administrator should be allowed to sell in order to raise
money to pay creditors and shareholders. The licensee may argue in

394

M09_Boilerplate_Clauses_I.indd 394 04/09/2017 08:23

 Insolvency (termination for)

negotiations prior to the grant of the licence that as long as the licensor
is receiving royalties, that the licensor should not be concerned about the
licence continuing after insolvency. Moreover, the licensee may feel that it
or its directors will be vulnerable to actions from shareholders if it allows
the licence to be terminated on insolvency, particularly if the insolvency
results in a corporate restructuring that enables the company’s business to
continue (this is perhaps more of a risk with North American companies).
Of course, the licensor is likely to resist such an argument. However, this
example illustrates that there may be situations in which it is in a party’s
interests to object to a right of termination in the event of insolvency.
• Liquidators. If a company is liquidated, the liquidator has a statutory right
to reject ‘onerous contracts’. A contract provision cannot override this
right. In most cases, this is simply a fact of life, and there may be very little
point in trying to address the issue in the contract. Occasionally, though,
contracts do include provisions which seek to protect a party’s position in
the event that a liquidator seeks to reject the contract. Such provisions are
beyond the scope of this title.
• Is the right terminology used in the agreement for the type of party involved? Eg is
the terminology for a company being used when an individual is involved?
• When should termination occur? Should termination occur:
• prior to formal proceedings occurring? Or
• only at the moment they occur? Or
• at the time when a company passes a resolution for winding up? Or
• at the time when an administrator or administrative receiver is
appointed, etc?
• Should the termination refer only to specific types of insolvency? If specific forms
of insolvency are mentioned in an agreement then if the law changes and
another form of insolvency is created, and the party becomes insolvent by
that new form, then the other party may not have the right to terminate. See
the case of William Hare Ltd v Shepherd Construction Ltd [2010] EWCA Civ
283 (briefly considered in the Interpretation section).

Location in the agreement

The Secondary Main Provisions section of an agreement will normally include

the Termination for insolvency clauses.

Linkage and use

The issues and use of a Termination for insolvency clause will fall for consideration
with other Termination provisions.

395

M09_Boilerplate_Clauses_I.indd 395 04/09/2017 08:23

 Insolvency (termination for)

Sample precedent material

Precedent 1—Simple termination for insolvency provision

Without prejudice to any other right or remedy it may have, the Company
may terminate this Agreement forthwith by notice given in writing to the
Distributor at any time if:
(a) the Distributor is declared or becomes insolvent; or
(b) the Distributor convenes a meeting of its creditors or proposes or
makes any arrangement or composition with or any assignment for
the benefit of its creditors or a petition is presented or a meeting is
convened for the purpose of considering a resolution or other steps
are taken for the winding up of the Distributor (save for the purpose
of and followed by a voluntary reconstruction or amalgamation pre-
viously approved in writing by the Company) or if an incumbrancer
takes possession of or a trustee, receiver, liquidator, administrator,
administrative receiver or similar officer is appointed in respect of all
or any part of its business or assets or any distress execution or other
legal process is levied threatened enforced upon or sued out against
any of such assets; or
(c) the Distributor shall abandon or announce that it intends to abandon
the business of distributing Films.

Precedent 2—More detailed provisions (addressing corporate and

individual insolvency)
Without prejudice to any other rights of the Landlord if:
1 the whole or part of the Rent remains unpaid 21 days after becoming
due (whether demanded or not); or
2 any of the Tenant’s agreements in this Agreement are not performed
or observed; or
3 the Tenant:
3.1 proposes or enters into any composition or arrangement with
his creditors generally or any class of his creditors; or
3.2 is the subject of any judgment or order made against him which
is not complied with within seven days or is the subject of any
execution, distress, sequestration or other process levied upon
or enforced against any part of his undertaking, property, assets
or revenue; or
3.3 being a company:
(a) is the subject of a petition presented or an order made or
a resolution passed or analogous proceedings taken for
appointing an administrator of or winding up such com-
pany; or

396

M09_Boilerplate_Clauses_I.indd 396 04/09/2017 08:23

 Insolvency (termination for)

(b) an incumbrancer takes possession or exercises or

attempts to exercise any power of sale or a receiver or
administrative receiver is appointed of the whole or any
part of the undertaking, property, assets or revenues of
such company; or
(c) stops payment or agrees to declare a moratorium or
becomes or is deemed to be insolvent or unable to pay
its debts within the meaning of the Insolvency Act 1986,
s 123; or
(d) without the prior consent in writing of the Landlord
ceases or threatens to cease to carry on its business in
the normal course; or
3.4 being an individual:
(a) is the subject of a bankruptcy petition or bankruptcy
order; or
(b) is the subject of an application or order or appointment
under the Insolvency Act 1986, s 253 or 273 or s 286; or
(c) is unable to pay or has no reasonable prospect of being
able to pay his debts within the meaning of the Insolvency
Act 1986, ss 267 and 268.
4 any event occurs or proceedings are taken with respect to the Tenant
in any jurisdiction to which it is subject which has an effect equivalent
or similar to any of the events mentioned in Clauses 1 to 3 above;
then and in any of such cases the Landlord may at any time (and notwith-
standing the waiver of any previous right of re-entry) re-enter the Holding
whereupon the tenancy granted by this Agreement will absolutely deter-
mine but without prejudice to any right of action of the Landlord in respect
of any previous breach by the Tenant of this Agreement.

397

M09_Boilerplate_Clauses_I.indd 397 04/09/2017 08:23

 Insurance

Purpose of the clause

Background
A clause concerning insurance will cover some or all of the following points:
• the warranties provided by a party as to the level and scope of insurance
cover held by that party; and/or
• the obligations a party has to insure against specified risks; and/or
• the obligations a party has to arrange for the other party to be added as a
‘named party’ under the first party’s insurance policy.

Insurance, risk and exemptions clauses

A clause stating that the one party is to insure against a risk does not mean that
party is liable for any losses associated with that risk. Insurance clauses should
not be used as a substitute for statements as to which of the contracting parties
bears the risk of a particular event happening. The ability of a party to insure
against a risk is a factor to be taken into account by the court when assessing
whether an exemption clause is ‘reasonable’ under the Unfair Contract Terms
Act 1977. See further Exemption.

The view of the insurers

A party may have concerns as to whether another party has an insurance
policy in place and the extent and level of coverage of that policy. However, an
aspect that is sometimes overlooked is whether the wording of any insurance
and other clauses are acceptable to the insurers. The persons negotiating
an agreement may be unaware of the terms and conditions of the insurance
policy (or may have never seen it).
Insurers often have concerns particularly about:
• whether the type of agreement being entered into is the type envisaged by
the insurance policy;
• which country’s law applies to an agreement;

398

M09_Boilerplate_Clauses_I.indd 398 04/09/2017 08:23

 Insurance

• the extent and type of warranties and exclusions from or limitations of

liability that have been agreed to.
In some organisations there are procedures in place to collaborate closely with
the organisation’s insurance brokers, so that the insurers can see the type of
agreements that are entered into and the type of clauses which are normally
agreed to. This approach should ensure that agreements which fall outside
the ‘usual’ type of agreements are seen and considered in a timely fashion by
the insurers brokers and/or insurers.

Drafting issues

• Does a party need to have insurance?

• is a party required to state that they have taken out or have in force an
insurance policy?
• is a party required to indicate that the policy is with a ‘reputable’
insurance company? For some industry or service sectors there may
be a limited number of insurers/insurance brokers available. Whether
they are reputable or not, the party seeking insurance may have no
choice but to deal with them.
• Does the Insurance clause state what kind of incidents will be covered by the
insurance? Is it:
• all activities or incidents arising from the contract? or
• (any) breaches of the agreement? or
• only negligence and/or wilful default of a party? or
• injury or damage only to persons or individuals?
• Warranty. Is the party required to warrant:
• that it has in place a valid insurance policy?
• that the premiums have been paid?
• that it will not carry out any activity or omission to make the policy
void or voidable?
• What level of cover is required? Is a party required to state the level of cover
given by any insurance policy, eg:
• a general statement, such as ‘fully comprehensive’ or ‘all risks’, or ‘all
liabilities, risks and losses’? or
• limited to specific types of insurance such as:
• public liability insurance? or
• professional indemnity insurance? or
• up to or not less than a certain level?

399

M09_Boilerplate_Clauses_I.indd 399 04/09/2017 08:23

 Insurance

• What is the amount of cover for any claim?

• for general types of clauses this is often stated in general terms or no
limit stated; or
• for more specific type of clauses there are specified limits: such as a
limit per an individual claim with an overall limit.
• Interest of the other party to be noted. Sometimes a party will require that the
other party is not only to have insurance in place, but also has the interest
of the first party noted on that insurance policy.
For some parties it may not be possible to carry out such a step. They may
have a general policy which covers a range of risks and noting the interest
of more than one person may not be appropriate or simply impracticable.
Also, such noting may have implications for any other person wishing to
claim.
• Providing copies of insurance documentation and receipts that payment of the
premium has been made. This is sometimes requested by some parties. While
such a request may appear reasonable, it can be a time-consuming and
bureaucratic addition to administering an agreement. Frequently such a
provision is modified (if it is accepted at all) by requiring the party who
wishes to see such documentation specifically to request it.
• Maintaining the insurance policy. Is there a requirement on the party
required to insure that they will not by act or omission invalidate the
insurance policy?

Location in the agreement

The Insurance clause is normally located with other provisions dealing

with warranties, limitation and exclusion of liability in the Secondary Main
Provisions section of an agreement.

Linkage and use

An Insurance clause can be important:

• when the Main Commercial Provisions are negotiated, in particular
where the cost of insurance may affect the contract price. Eg, a supplier of
services may have to pay an increased premium in order to obtain a level
of insurance cover that the customer may wish the supplier to have;
• for the limitation and exclusion of liability. As indicated above, the
availability and amount of insurance cover is one of the factors which
will be taken into account when deciding when liability is restricted to a
specified sum of money (Unfair Contract Terms Act 1977, s 11(4));
• in relation to the giving of a warranty as to having insurance in place.

400

M09_Boilerplate_Clauses_I.indd 400 04/09/2017 08:23

 Insurance

Sample precedent material

Precedent 1—Warranty as to insurances – assets sale agreement

The Vendor warrants that:
1 There are in force policies of insurance in respect of the Assets [to
their full reinstatement value] and against all other risks and liabilities
(including but not limited to product liability and consequential loss of
profits) usually covered by insurance by persons carrying on business
of the same type as [the Business].
2 To the best of the Vendor’s knowledge, information and belief there
are no circumstances which could lead to any such insurance being
revoked, vitiated or not renewed in the ordinary course.

Precedent 2—Warranty as to insurances – share sale agreement

The Vendors warrant that:
1 There are existing valid policies of insurance for full replacement
values against all liabilities risks and losses (including but not limited
to the losses caused by any unlawful act on the part of any person)
against which it is normal or prudent to insure in respect of all prop-
erty owned by and in the business carried on by the Company.
2 All premiums due in respect of the Company’s insurance policies
have been paid in full.
3 Nothing has been done or has been omitted to be done which could
result in any of the Company’s insurance policies being or becoming
void or voidable.
4 The Vendors are not aware of any circumstances which would or
might entitle the Company to make a claim under any of its insurance
policies or which would or might be required under any of its insur-
ance policies to be notified to the insurers.

Precedent 3—Short form obligation to insure (eg business premises)

[Party B] undertakes and agrees:
1 to maintain and pay all premiums in respect of a comprehensive insur-
ance policy (in terms approved by [Party A] (owner/franchisor etc))
issued by an insurer [nominated or approved] by [Party A] in respect
of (describe location) (‘the Location’) (excluding its main structure)
and all the items stored there;
2 to note on such policy that:
2.1 [Party A] shall be covered by such policy in respect of all claims
arising from activities at the Location which are risks covered by
such policy; and

401

M09_Boilerplate_Clauses_I.indd 401 04/09/2017 08:23

 Insurance

2.2 the insurer shall notify [Party A] in the event of any late premium
payment by, or any breach of the terms of such insurance on
the part of, [Party B];
3 not to cause or permit any breach of any such insurance nor any other
insurance in respect of the Location.

Precedent 4—Short form obligation to maintain public liability insurance

[Party B] undertakes and agrees:
1 to obtain and keep in full force and effect at all times in respect of
(location) a policy or policies of insurance covering public liability for
injury to persons or property with policy limits and provisions con-
forming to such requirements as [Party A] (owner/franchisor etc) may
from time to time prescribe;
2 to deliver to [Party A] copies of all applicable insurance policies taken
out pursuant to the provisions of this agreement and to ensure that
[Party A] [and its other franchisees or tenants or as the case may be]
shall be entitled to the benefit of such insurance.

402

M09_Boilerplate_Clauses_I.indd 402 04/09/2017 08:23

 Intellectual property

Purpose of the clause

Value of intellectual property

A significant asset of many businesses is the value of various intellectual
property rights which it owns. If the business is in a high technology market,
a research-based industry, or involved with arts, media or other creative
industries, these rights are likely to be of substantial value or sometimes the
only asset of any value that business has. Eg:
• a pharmaceutical business, will need to fully and adequately protect its
inventions, processes and products principally by means of patents and
trademarks, as these forms of intellectual property are likely to be critical
to the value of the business as well as to its (ongoing) profitability.
For example, if a pharmaceutical business fails to maintain in force
a patent (by failing to pay renewal fees) then the patent will lapse and
potentially will allow another business to start making products based on
or using the invention formerly protected by the patent;
• if the business is a computer software company, the copyright position of
the software it develops or licenses will be critical, to ensure that it does in
fact have the right to license, use, exploit etc the software that it produces
or has the right to use and sub-license any third-party software used to
create its software;
• if the business is based substantially on a franchise operation, trademarks
and brand names will be fundamental; or
• if the business is in the market of obtaining information from different
sources and supplying it in a structured or ordered fashion then the use
of the database right will be critical to protect its investment in making
the database. Ie the business may not own the copyright in the individual
items making up the database, and therefore the only ‘asset’ that the
business possesses is the database right.
Intellectual property clauses can also be found in many agreements that are
not primarily concerned with the creation or licensing of intellectual property.
Eg, in a services agreement concerning the provision of advice where the
advice is put in the form of a report, intellectual property issues may arise. The
report will be subject to copyright (and potentially the database right). If the

403

M09_Boilerplate_Clauses_I.indd 403 04/09/2017 08:23

 Intellectual property

information contained in the report is financially or commercially sensitive

information, and which the recipient of the report can exploit commercially,
then the matter of who owns the information and what can be done with it can
be critical.
There are a number different issues that normally need addressing when
intellectual property is involved, including:
• what meaning intellectual property has;
• who is to own existing or newly-created intellectual property;
• how and who will protect newly-created intellectual property;
• what uses one or both parties can make of the existing and newly-created
intellectual property;
• the payments that need to be made for the creation or use of the
intellectual property; and
• what action is to be taken (and which party has the responsibility for
taking it) if there is an infringement of the intellectual property which is
the subject of an agreement.
Not all of these issues will need addressing in every agreement where
intellectual property issues arise. To continue the example of the services
agreement: if the agreement concerns the provision of consultancy services
and the consultant is under an obligation to produce a report then the report
may be the only tangible output, but the nature of the consultancy and the
report is of a routine nature and of interest only to the recipient client then
the agreement, in theory, could not address any of the six matters listed
above. Instead the consultant could rely on the default provisions of the
Copyright, Designs and Patents Act 1988, as it is likely that the Act would
cover all forms of material in the report (such as text, pictures, tables, etc).
The Act would govern:
• when protection would arise (ie as soon as the consultant commitments
parts of the report in a permanent form: s 3);
• who would own the contents of the report by default (the consultant:
s 9(1), s 11(1)).
Unless there is specific wording in the contract, the client would only get a
limited licence to use the report for the purpose of the agreement (eg Ray v
Classic FM [1998] All ER (D) 105).
However, if the information contained in the report is important, whether for
the consultant or the client, then it will be in the interests of both parties to
address in detail some of the matters in the list, particularly issues of ownership
and what uses the recipient client can make of the information contained
in the report. A simple example (in favour of the consultant) is found in
Reporting, Precedent 7.

404

M09_Boilerplate_Clauses_I.indd 404 04/09/2017 08:23

 Intellectual property

Meaning of intellectual property

‘Intellectual property’ refers to a number of different rights. There is no

universal definition or meaning of ‘intellectual property’. Some legislation
provides a meaning of ‘intellectual property’, and most include the following
rights as being an ‘intellectual property’:
• patents (including supplementary protection certificates);
• registered designs;
• the separate protection known as design right;
• copyright (which itself is made up of a number of different forms of
protection, such as words, music, film etc);
• database rights;
• unregistered trademarks;
• registered trademarks;
• know-how (both technological and commercial) and other confidential
information;
• licences or other rights in respect of the above.
The meaning of ‘intellectual property’ will also cover the following:
• community trademarks;
• community registered and unregistered designs;
• similar rights under UK or foreign laws;
• applications for registered intellectual property.
The above lists only those which are encountered within the UK. In other
countries further types of intellectual property are sometimes encountered.
The following are examples of statutes that define the meaning of intellectual
property for the purposes of the statute concerned: Companies Act 2006,
s 861(4); Value Added Tax Act 1994, Corporation Tax Act 2009. However,
none provides a fully comprehensive list and none deal explicitly with the
newer EU-wide intellectual property rights introduced (community registered
and unregistered design or community trademarks) and are not consistent
among themselves as to the meaning of intellectual property. The principal
intellectual property statutes in the UK all fail to define intellectual property
(Patents Act 1977, Copyright, Designs and Patents Act 1988 and the Trade
Marks Act 1994).

Defining ‘intellectual property’

As there is no fully comprehensive meaning of ‘intellectual property’, it is

usual to define the term ‘intellectual property’ in agreements.

405

M09_Boilerplate_Clauses_I.indd 405 04/09/2017 08:23

 Intellectual property

A broad, general definition might read as in Precedent 1. In practice, this

definition will need using in conjunction with a description of any specific
intellectual property that is to form the subject of the agreement (often such a
specific description is specified in a schedule). Eg:
• for a patent, it is usual to state the application or patent number, title etc;
• for copyright, depending on the work, it might be necessary to describe the
version number or date of creation etc to properly identify the copyright
work in question. In some cases, the work in printed form is reproduced
as a schedule to an agreement.

Know-how and trade secrets

Know-how and trade secrets are not strictly forms of property in their own
right, although they are often treated as a form of intellectual property and
are often licensed in the same ways as intellectual property (eg the technical
and practical information on how to work a patent is licensed together with
the right to use patent). However, they both lack universally recognised
definitions.
It may be more accurate to describe them both as information which
may be protected under the law of confidence. The terms could be used
interchangeably, and a definition of ‘confidential information’ could equally
be valid. As noted in the previous sentence, what is most important is the form
of protection they attract, which is the law of confidence, not the actual term
used in an agreement.
The term ‘know-how’ often covers technical and practical information and
one legislative definition which is broadly consistent with this is found in the
Technology Transfer Regulation (EC Commission Regulation 772/2004):
‘“know-how” means a package of non-patented practical information, resulting
from experience and testing, which is:
(i) secret, that is to say, not generally known or easily accessible,
(ii) substantial, that is to say, significant and useful for the production of the
contract products, and
(iii) identified, that is to say, described in a sufficiently comprehensive manner
so as to make it possible to verify that it fulfils the criteria of secrecy and
substantiality.’
For example, a company may create an invention (a new form of product).
They protect this invention with a patent. They wish to license the patent
to others who will actually manufacture the product and sell the product.
The company making the invention may have carried out testing on how to
manufacture the product, including how to set up machinery quickly and
how to mix, eg, chemicals together, and how to use materials in the most
economical way. It was not necessary to include any of this information in
the patent applications. This information will be of use to a manufacturer (as
such information will allow the manufacturer to save time in getting ready to

406

M09_Boilerplate_Clauses_I.indd 406 04/09/2017 08:23

 Intellectual property

manufacture and then manufacturing the product). If this information is not

provided in confidence then the manufacturer would be able to provide it
to others. If it is provided in writing the written record would be protected
by copyright but the information contained in it would not. The law of
confidence would be the only means to protect the information itself (and
stops others from using it).
Once the patent had expired for the products, the (technical) information
related to it might still be valuable and if protected by law of the confidence
could be licensed to anyone interested in manufacturing the product once
outside of patent protection. Having access to the information would enable
to a person wishing to manufacture the product to save a considerable amount
of time and money in attempting and determining how to manufacture the
product.
The meaning of a trade secret often covers information that has a commercial
value. There are various meanings that a trade secret may have, including:
1 that it includes ‘secret processes of manufacture such as chemical formulae,
or ‘designs and special methods of construction’ or ‘other information
that is of a sufficiently high degree of confidentiality to amount to a trade
secret’, with the latter including information about prices (from Faccenda
Chicken v Fowler [1986] 1 All ER 617);
2 that it ‘…covers not only secret formulae or recipes, but can also
extend[s] to such matters as names of customers and the goods they buy,
or a company’s pricing structure, if these are not generally known and
are the source of a trading advantage’ (from Freedom of Information
Act Awareness Guidance No 5: Commercial Interests, 2008, Information
Commissioner).
3 as found in the Trade Secrets Directive: ‘to cover know-how, business
information and technological information where there is both a
legitimate interest in keeping them confidential and a legitimate
expectation that such confidentiality will be preserved. Furthermore, such
know-how or information should have a commercial value, whether actual
or potential.’ (Directive on the protection of undisclosed know-how and
business information (trade secrets) against their unlawful acquisition,
use and disclosure (2016/943), Recital 14).
In English law a ‘trade secret’ also has a particular meaning in employment
law, relating to that part of the employer’s confidential information that an
employee, after the employee has ceased to be an employee, must continue
to keep secret and confidential. Such information is distinguished from other
employer information that the employee has knowledge or possession of, and
which is confidential during the employee’s employment, but ceases to be
confidential on termination of the employment of the employee (see Faccenda
Chicken v Fowler [1986] 1 All ER 617).
For the contract drafter, the use of the terms ‘know-how’ or ‘trade secrets’
by themselves will not be sufficient to identify the information that will be

407

M09_Boilerplate_Clauses_I.indd 407 04/09/2017 08:23

 Intellectual property

subject to protection (ie to distinguish a particular set of information which

will attract protection from that which does not). If a party wishes to make
sure that their information is protected, rather than rely on an equitable
obligation of confidence arising, or a court implying a contractual obligation
of confidence or relying on statutory protection offered by the Trade Secrets
Directive (once in force in 2018), then an agreement should contain explicit
contractual obligations of confidentiality as well as identifying the information
that will be subject to the obligation (see Confidentiality).

Warranties as to validity of intellectual property rights

The purchaser or licensee of intellectual property may wish to carry out a due
diligence exercise to establish the extent, validity and enforceability of the
rights in question and seek to back this up, so far as possible, with warranties
from the vendor or licensor. These warranties will be designed primarily to
cover the risk that there are no restrictions on using the intellectual property
needed to operate the business and that, where necessary, continued
registration of those rights has been effected and the appropriate fees paid.
Examples of intellectual property warranties are given in Warranties, below.

Drafting issues

The following are a few of the drafting and commercial issues that may need
to be considered when addressing intellectual property issues in a commercial
agreement:
• Type of definition to be used? What type of intellectual property will be created,
used, licensed, transferred or is the subject matter of the agreement?
• should a ‘generic’ (or possibly no) definition of intellectual property be used?
In routine agreements or agreements whose focus is not the creation,
use, transfer etc of intellectual property then it may be appropriate
not to add a definition of intellectual property;
• should the agreement include an all-encompassing definition? In some
agreements, where one party wishes to own or control all creation or
use of intellectual property, an all-encompassing definition might be
appropriate.
A possible danger here is that any definition used may not be
encompassing enough as types of intellectual property are introduced,
ie a court could hold that the definition sets out all the intellectual
property that is covered by the agreement and no more. This is more
likely to be a problem where the agreement covers the creation or
use of intellectual property outside of the UK. However, wording can
be added to extend the coverage such as: ‘and all other intellectual
property rights’;

408

M09_Boilerplate_Clauses_I.indd 408 04/09/2017 08:23

 Intellectual property

• should a very specific definition be used? If the agreement is only concerned

with one type of intellectual property, then a specific definition might
be utilised.
Eg, in a patent licence, the definition of intellectual property might
be limited only to patents, as the licensor would wish to license only
a specific set of patents and patent applications to the licensee (see
Precedent 2).
• Should a number of different definitions of intellectual property be utilised?
In some agreements there are two different definitions of intellectual
property:
• a general definition of intellectual property, usually concerned
with intellectual property owned at the start of the agreement
(and possibly covering that intellectual property generated
during the course of the agreement but is not the focus of the
agreement); and
• a more specific definition, related to the specific purpose of
the agreement, such as the creation or licensing of intellectual
property within a specific area.
• For what purposes can a party or the parties use the intellectual property? Can
the parties use the rights granted under the agreement only for the stated
purposes in the agreement?
• Who is to own any new intellectual property developed or created under or during
the contract? If one of the parties is to own it, will they grant the other a
licence to use or exploit it?
• Which party should apply for and maintain intellectual property? Which party
is responsible for applying and maintaining registered rights (eg patents,
trademarks and registered designs) and in whose name and at whose cost?
• Third-party claims. Which party is responsible for dealing with third-party
claims that use of intellectual property under the contract infringes third-
party rights? Who bears the cost of any royalties or fees paid to third-party
intellectual property owners?
• Suing infringers. Which party is responsible for suing infringers of the
intellectual property provided or licensed under the contract? Who keeps
any damages obtained from infringers?
• Use of intellectual property after termination. What rights does each party have
to any intellectual property after the contract is terminated?
• In a licensing or technology transfer agreement, what rights are to be
transferred?
• In a development, research or supply agreement where development or
adaptation of a product may be involved, who owns the various rights that
either exist prior to the contract (often called ‘background intellectual

409

M09_Boilerplate_Clauses_I.indd 409 04/09/2017 08:23

 Intellectual property

property’)? Who owns any intellectual property that arises during its
execution (often called ‘foreground intellectual property’)?
• Non-intellectual property type agreements. Where an agreement does not have
intellectual property as its focus, but it is likely that some intellectual
property will be used or created, there should be:
• a definition of the types of intellectual property to be used in the
agreement;
• a statement that the intellectual property existing at the start of the
agreement, and used during the course of an agreement, belongs to
the party who introduces it;
• a statement dealing with who owns the intellectual property generated
during the course of the agreement (often called ‘foreground
intellectual property’);
• a statement as to the purposes for which the background and
foreground intellectual property can be used, eg only for the purposes
of the agreement.

Location in the agreement

In an agreement the use of intellectual property usually appears in four

contexts:
• its meaning:
• a clause in the Definitions section of the agreement setting out the
meaning of intellectual property;
• its use:
• one or more clauses in the Main Commercial Provisions of the
agreement concerning:
• the creation of intellectual property (eg who is to create and who
is to own what is created);
• the use of intellectual property (ie licensing);
• the transfer (assignment) of ownership of intellectual property
(eg sale);
• payment:
• one of more clauses dealing with:
• payment for the creation or (further) development of the
intellectual property;
• calculation of methods of payment for the use of intellectual
property (eg upfront payments, milestone payments, royalty
rates, etc);

410

M09_Boilerplate_Clauses_I.indd 410 04/09/2017 08:23

 Intellectual property

• the consequences of its use:

• one or more clauses in the Secondary Commercial Provisions of the
agreement concerning such issues as:
• establishing ownership, responsibility for registering and
maintaining registration (and the costs of so doing);
• dealing with infringements, third-party infringements (eg setting
out who is to be responsible for dealing with infringement and
the costs involved), etc;
• Warranties clauses, the warranties that will be given by a party in
relation to the intellectual property;
• Termination clauses (eg expiry of the agreement if the intellectual
property is held to be invalid or is revoked or expires, termination
for failure to use the intellectual property as set out in the
agreement);
• Consequences of termination clauses, for example dealing with
such issues as to whether any licences or sub-licences terminate,
whether any goods made or services using the intellectual
property can continue, and what to do with products after a
licence terminates, etc.

Linkage and use

Clauses concerning the use of intellectual property are often seen in

agreements dealing with:
• the creation of intellectual property (such as a software development
agreement, or a research-collaboration agreement);
• the licensing of intellectual property (such as software licensing, patent
licensing, use of trademarks);
• in services contracts (which may involve the creation and use of documents
and associated copyright issues);
• in agency and distribution agreements (where the use of copyright
material and trademarks will need attention);
• in manufacturing agreements (where the use of patents or trademarks will
often be involved).

Sample precedent material

Precedent 1—Sample definition of intellectual property

‘Intellectual Property’ means any and all of the following items, whether or
not registered, applications for the following items (where registrable) and
the right to apply for the following items (where registrable):

411

M09_Boilerplate_Clauses_I.indd 411 04/09/2017 08:23

 Intellectual property

(a) Patents; and

(b) Copyright, [moral rights, performance rights,] design rights, [rights in
respect of semi-conductor topographies,] registered designs, [utility
models,] [plant variety rights,] [trademarks,] [Community trademarks,]
[Community registered and unregistered designs,] rights in respect of
confidential information, unfair competition rights, and similar rights
in any country of the world.
‘Patents’ means patents and patent applications, including any continu-
ations, continuations in part, extensions, reissues and divisions, and any
patents, supplementary protection certificates and similar rights that are
based on or derive priority from the foregoing in any country of the world.

Precedent 2—Specific definition of intellectual property – patents only

‘Patents’ shall mean any and all patents and patent applications referred
to in Schedule [ ], and any and all of the patents and patent applications
(if any) which may be made during the term of this Agreement and which
form part of the Project IPR, including any continuations, continuations
in part, extensions, reissues, divisions, and any patents, supplementary
protection certificates and similar rights that are based on or derive prior-
ity from the foregoing.

Precedent 3—Specific definition of intellectual property – primarily

copyright
‘Intellectual Property’ means any and all of the following items, whether or
not registered, applications for the following items (where registrable) and
the right to apply for the following items (where registrable):
(a) Copyright, and all rights in the nature of copyright in the Work cre-
ated for all the residue of the term of copyright in the created Work,
and in the Work about to be created by the Creator for the full term of
copyright, and all extensions and renewals thereof together with all
accrued causes of action in respect thereof;
(b) Moral rights, performance rights, design right, rights in respect of
semi-conductor topographies, registered designs, unregistered and
register Community designs, utility models, plant variety rights, trade
marks and service marks, rights in respect of confidential informa-
tion, unfair competition rights, and similar rights in any country of the
world; and
(c) Patents [(if any) including without limitation the Identified Patents (if
any).
‘Patents’ means patents and patent applications, including any continu-
ations, continuations in part, extensions, reissues and divisions, and any
patents, supplementary protection certificates and similar rights that
are based on or derive priority from the foregoing in any country of the
world.]

412

M09_Boilerplate_Clauses_I.indd 412 04/09/2017 08:23

 Intellectual property

(If the user wishes to further specify the meaning of a patent the wording
‘[ ]’ may be used. It is also possible to include the complementary defini-
tion of ‘Work’)
‘Work’ shall mean any and all literary and artistic works, materials, docu-
mentation, medical or other information and/or software that the Creator
may be commissioned [by Party A] from time to time to generate or may
provide to Party A including without limitation the items described in the
Schedule.

Precedent 4—Definition of intellectual property – foreground and

background IP
‘Background IP’: all technical know-how and information known to either
of the Parties at the date of this Agreement together with all intellectual
property rights owned by or licensed to the Parties at the date of this
Agreement, all technical know-how and information and intellectual prop-
erty rights owned by or licensed to the Parties which is not Foreground IP.
‘Foreground IP’: all information, know-how, results, designs, inventions
and other matter capable of being the subject of intellectual property
rights which is conceived, first reduced to practice or writing or devel-
oped in whole or in substantial part in the course of the Project.
[This pair of definitions would be for use in an agreement where it was
important to distinguish between intellectual property etc that the parties
bring to the agreement (and which belongs to those parties) and intel-
lectual property created during the project, and which is to belong to one
party.]

Precedent 5—Definition of intellectual property – foreground and

background IP – alternative definition
‘Background Information’:
(a) all technical know-how and information known to the Parties at the
Commencement Date of a confidential nature and not in the public
domain, together with
(b) all intellectual property rights owned by or licensed to the Parties at
the Commencement Date and
(c) following the Commencement Date, all technical know-how and
information of a confidential nature (prior to it coming into the public
domain) and intellectual property rights owned by or licensed to the
Parties which is not Foreground Information.
‘Foreground Information’ any inventions, discoveries, ideas, improve-
ments, devices, products, know-how or the like, whether patentable or
not (‘Inventions’), and copyright material that Party A, its staff or agents,
alone or jointly with others, conceives, invents, makes, or produces during
the course of the Project that relate directly to the [Product] [in the Field].

413

M09_Boilerplate_Clauses_I.indd 413 04/09/2017 08:23

 Intellectual property

Precedent 6—Definition of intellectual property – for use in licensing of

software – software
‘Technology’ shall mean intellectual property rights including copyright,
to the Software, including without limitation the software source code and
graphical user interface, the look and feel of the Software, the [any third
party software such as development tools or runtime versions of such
third party software] (which is licensed for use with the Software only),
and the algorithms contained in the source code as supplied under this
Agreement (but excluding any other algorithms).

Precedent 7—Protection of intellectual property – simple form

[Party A] agrees with [Party B] not to cause or permit anything which may
damage or endanger the intellectual property of [Party B] or [Party B]’s
title to such intellectual property or assist or allow others to do so.

Precedent 8—Protection of intellectual property clause – agency/

franchise/services agreement
[Party B] agrees with [Party A] throughout the term:
1 not to cause or permit any damage to [the Mark, the Know-How, the
Methods or the Permitted Name] or the title of [Party A] to any of them
or assist others to do so;
2 not to challenge the validity of any of the intellectual property of [Party
A];
3 to notify [Party A] of any suspected infringement of the intellectual
property or other rights of [Party A] or any member of its group of
companies and to take such reasonable action thereupon as [Party A]
directs at [Party A]’s expense;
4 not to use [the Mark, the Know-How, the Methods or the Permitted
Name] except directly in [the Business];
5 not to use [the Mark, the Know-How, the Methods or the Permitted
Name] in any manner after the term or other sooner determination of
this agreement and to compensate [Party A] fully for any unauthor-
ised use by [Party B] of the same;
6 not to use [the Mark or the Permitted Name] or any derivation of the
same in the corporate name (if any) of [Party B].

Precedent 9—Longer form protection of intellectual property clause –

agency/franchise/services agreement
[Party B] agrees with [Party A] throughout the term:
1 not to cause or permit anything which may damage or endanger
[the Intellectual Property] or other intellectual property of [Party A] or
[Party A]’s title to it or assist or allow others to do so;
2 to notify [Party A] of any suspected infringement of [the Intellectual
Property] or other intellectual property of [Party A];

414

M09_Boilerplate_Clauses_I.indd 414 04/09/2017 08:23

 Intellectual property

3 to take such reasonable action as [Party A] shall direct at [Party A]’s

expense in relation to any such infringement;
4 to affix such notices to [the Products] or their packaging or advertis-
ing associated with [the Business] as [Party A] shall direct;
5 to compensate [Party A] for any use by [Party B] of [the Intellectual
Property] otherwise than in accordance with this agreement;
6 to indemnify [Party A] for any liability incurred to third parties for any
use of [the Intellectual Property] otherwise than in accordance with
this agreement;
7 on the expiry or termination of this agreement forthwith to cease to
use [the Intellectual Property] save as expressly authorised by [Party
A] in writing;
8 not to apply for registration of [the Trade Name] as a trademark but to
give [Party A] at [Party A]’s expense any assistance it may require in
connection with the registration of [the Trade Name] as a trade mark
in any part of the world and not to interfere with in any manner nor
attempt to prohibit the use or registration of [the Trade Name] or any
similar name or designation by any other licensee of [Party A];
9 not to tamper with any markings or name plates or other indication of
the source of origin of the Products which may be placed by [Party A]
on the Products;
10 not to use [the Intellectual Property] otherwise than as permitted by
this agreement;
11 not to use any name or mark similar to or capable of being confused
with [the Trade Name];
12 not to use [the Intellectual Property] except directly in [the Business];
13 not to use [the Trade Name] or any derivation of it in its [trading or]
corporate name;
14 to hold any additional goodwill generated by [Party B] for [the
Intellectual Property] or [the Business] as bare trustee for [Party A];
15 that save that [Party B] acknowledges that [the Trade Name] is well
known and valuable nothing in sub-clauses [1–14] shall be interpreted
as prohibiting [Party B] from challenging the validity of any part of [the
Intellectual Property].

Precedent 10—Protection of software – agency/franchise/services

agreement
[Party B] agrees with [Party A] throughout the term:
1 to use only [the Software] supplied by [Party A] in [the Processor] and
only in [the Business];

415

M09_Boilerplate_Clauses_I.indd 415 04/09/2017 08:23

 Intellectual property

2 to attend training in the use of [the Processor] and [the Software] or to

procure that one of its employees does so;
3 when required by [Party A] to attend such further training in such use
at its own expense;
4 not to cause or permit any person to make a copy of [the Software] at
any time during the term except as permitted under sub-clause [11]
below;
5 to permit [Party A] to inspect and operate [the Processor] and [the
Software] [for the purpose of making copies] in accordance with
Clause [no] of this agreement;
6 to notify [Party A] immediately it discovers any faults or defects in [the
Software];
7 to co-operate fully with [Party A] in the diagnosis and cure of any such
fault or defect;
8 to use only the current version of [the Software] stipulated in [the
Manual] from time to time;
9 not to engage any person (except as authorised in advance by [Party
A]) to provide support services for [the Software];
10 to provide [Party A] at the expense of [Party B] with all necessary facil-
ities, materials and records to enable [Party A] to supply such support
services;
11 to keep a copy of [the Software] and all records maintained by it in
[the Processor] in a secure place [away from premises used in [the
Business or the Location]] on a sound disaster defence basis;
12 not to permit any person (except a person who has signed the non-
disclosure and non-competition undertakings required by [Party A]
and set out in [the Manual]) to use [the Processor] or [the Software];
13 not to corrupt or interfere with any software or other processing mate-
rial used by [Party A] from time to time.

Precedent 11—Agreement as to intellectual property rights – eg product

development joint venture
1 Each party shall be the owner of all existing Intellectual Property
Rights in existence at the date of this agreement in any material which
it has created or the creation of which was undertaken by a third party
which it commissioned to create that material.
[2 Where any new material is created for the purpose of this joint venture
by either party then save to the extent that such material embodies
the Intellectual Property Rights of the other party all the Intellectual
Property Rights in such new Material shall belong to the party which
creates it.]
or, where intellectual property is to be held jointly:

416

M09_Boilerplate_Clauses_I.indd 416 04/09/2017 08:23

 Intellectual property

2 Any new Material created jointly by the parties shall save to the extent
that it embodies Intellectual Property Rights belonging to either party
at the date of its creation belong to the parties jointly and:
(a) where in the course of creating any Material to which this sub-
clause [2] applies any Intellectual Property Rights are brought
into existence such Intellectual Property Rights shall belong to
the parties jointly and the parties shall at their joint expense take
all reasonable steps necessary to protect the same by apply-
ing for UK patents and UK registered designs and such foreign
rights corresponding to them or registrations of them as may be
reasonable;
(b) if at any time during the subsistence of this agreement any
Intellectual Property Rights belonging to the parties jointly are
infringed by a third party then unless the parties agree jointly
to take action in respect of such infringement either party may
in the joint names of the parties on behalf of the parties as joint
owners take all reasonable steps necessary to enforce the joint
Intellectual Property Rights of the parties provided that the
party taking such action shall indemnify the other party against
all legal costs and expenses incurred in connection with such
action (including any costs or damages awarded to such third
party). Both parties shall use all steps and provide all informa-
tion and assistance reasonably required for the purpose of such
proceedings. Any sums recovered as a result of proceedings
taken to enforce the joint Intellectual Property Rights of the par-
ties shall after deduction of all legal fees and other expenses
incurred in connection with such proceedings by the parties be
divided equally between the parties.
3 Each party hereby grants a licence to the other to use its Intellectual
Property Rights in accordance with this agreement.
4 Each party agrees not to use any of the Intellectual Property Rights
belonging to the other party save for the purpose of this agreement.
5 On termination of this agreement each party shall:
(a) deliver up to the other party all materials provided by the other
party together with any copies of any of them which remain in its
possession power or control;
(b) within 7 days destroy any materials created for the purposes of
this agreement which embody any of the Intellectual Property
Rights of the other party to this agreement.
6 If either party believes that any third party is infringing any Intellectual
Property Rights in [the Product] it shall notify the other party of such
belief. If either party wishes to take action against any third party
for infringement of any of that party’s Intellectual Property Rights in

417

M09_Boilerplate_Clauses_I.indd 417 04/09/2017 08:23

 Intellectual property

[the Product] it shall give notice of such proposed action to the other
party.

Precedent 12—Agreement as to intellectual property rights – eg know-

how licence with product development
The Licensee agrees:
1 not at any time during or after the Term to divulge or allow to be
divulged to any person the Know-how or any other confidential infor-
mation imparted to it by the Licensor other than to persons who have
signed secrecy undertakings in the form approved by the Licensor;
2 not to permit any person to act or assist in the Business until such
person has signed such an undertaking;
3 that all aspects of the Know-how shall be treated as confidential
information by the Licensee and:
(a) shall be disclosed only to those employees of the Licensee
whose duties cannot be fulfilled without such disclosure and
then only to the extent necessary to enable them to perform
such duties;
(b) visitors to the premises where drawings or other elements of the
Know-how are present or are in use shall be restricted so far as
is necessary to minimise disclosure of all elements of the Know-
how;
(c) the obligation of confidence shall continue after the end of the
Term until the Know-how is in the public domain; and
(d) notwithstanding the obligation of confidence imposed under the
terms of this agreement it shall not be a breach of this agree-
ment for either party to disclose in general terms relevant items
of the Know-how to customers or potential customers so far as
it is bona fide necessary to do so in order to promote sales;
4 not to use the Know-how otherwise than as permitted by this agree-
ment;
5 to compensate the Licensor for any use by the Licensee of the Know-
how otherwise than in accordance with this agreement;
6 to indemnify the Licensor for any liability incurred to third parties for
any use of the Know-how otherwise than in accordance with this
agreement;
7 on the expiry of this agreement forthwith to cease to use the Know-
how save as expressly authorised by the terms of this agreement [or
by the Licensor in writing];
8 not to apply for registration of any trade name or designation associ-
ated with the Licensor as a trademark or service mark but to give the
Licensor at the Licensor’s expense any assistance it may require in

418

M09_Boilerplate_Clauses_I.indd 418 04/09/2017 08:23

 Intellectual property

connection with the registration of any such trade name or designa-

tion as a trademark in any part of the world and not to interfere with
in any manner nor to attempt to prohibit the use or registration of any
such trade name or designation by any other licensee of the Licensor;
9 when required to do so, to become a registered user of any trade-
mark registered in respect of [the Product] and to pay the expenses,
including registry fees, involved in such registration as user;
10 not to tamper with any markings or name plates or other indication of
the source of origin of [the Plant] or any part of it which may be placed
by the Licensor on [the Plant] or upon the containers and packaging
in which [the Product] may be supplied;
11 not to use any name or mark similar to or capable of being confused
with any trade name or designation associated with the Licensor;
12 not to use any trade name or designation associated with the Licensor
or any derivation of them in its corporate name.

419

M09_Boilerplate_Clauses_I.indd 419 04/09/2017 08:23

 Interest

Purpose of the clause

Common law and interest

Under English common law, if a party makes a late payment of a contractual
debt it does not need to pay interest, unless the parties to the contract have
expressly agreed this or the payment of interest is implied from a course of
dealing or trade custom.

Equity and interest

In certain circumstances interest may be payable under equitable rules, eg, in

the case of a mortgage where interest was not mentioned (see Mendl v Smith
(1943) 112 LJ Ch 279); however, this should not amount to a penalty, as this
would make the clause unenforceable. The rate of interest should therefore
be made comparable to the likely cost of borrowing the money from a bank.

Statute and interest

County Courts Act 1984

Until recently, there were only limited statutory situations where interest was
payable (eg on county court judgment debts: County Courts Act 1984, s 74).

Late Payment of Commercial Debts (Interest) Act 1998

The Late Payment of Commercial Debts (Interest) Act 1998 (LPCD(I)A 1998)
provides for interest to be payable on qualifying debts in contracts for the
supply of goods or services, where the purchaser and the supplier are each
acting in the course of a business (LPCD(I)A 1998, s 2(1)). Keys features of
the LPCD(I)A 1998 include:
• it applies to a ‘qualifying debt’: a debt created by virtue of an obligation to
pay the whole or any part of the contract price (LPCD(I)A 1998, s 3).
A qualifying debt will include the payment of an instalment under a
contract (ie where a contract provides for the payments of sums due
by instalments), see Fitzroy Robinson Ltd and Mentmore Towers Ltd; Fitzroy
Robinson Ltd v Good Start Ltd (No 3) [2009] EWHC 3365 (TCC);

420

M09_Boilerplate_Clauses_I.indd 420 04/09/2017 08:23

 Interest

• it implies a term into contracts (LPCD(I)A 1998, s 1);

• it does not apply to ‘excepted contracts’:
• a consumer credit agreement;
• a contract intended to operate by way of mortgage, pledge, charge or
other security (LPCD(I)A 1998, s 2(5));
• a statutory rate of interest applies (currently at 8% over the official dealing
rate per annum) (LPCD(I)A 1998, s 6; Late Payment of Commercial Debts
(Rate of Interest) (No 3) Order 2002, SI 2002/1675);
• that interest will start running from the day after the date agreed for
payment of the debt (unless the parties agree otherwise) (LPCD(I)A 1998,
s 4);
• it is possible, in the interests of justice, based on the supplier’s conduct,
for the supplier either to receive a lower rate of interest or no rate of
interest (LPCD(I)A 1998, s 5);
For a court to exercise its powers under the LPCD(I)A 1998, s 5 it is the
supplier’s conduct that needs consideration and not the rate of interest
that the supplier was charging (see Ruttle Plant Hire v Secretary of State for
the Environment, Food and Rural Affairs [2009] EWCA Civ 97);
• that once the liability for interest begins to run, the supplier shall also be
entitled to fixed sums payable in addition to interest and which are also an
implied term into a contract.
The amounts are £40 for debts less than £1,000; £70 for debts of more
than £1,000 but less than £10,000; and £100 for debts of £10,000 (LPCD(I)
A 1998, s 5A);
• anti-avoidance measures. The parties cannot exclude the right to statutory
interest under the LPCD(I)A 1998 unless there is a substantial contractual
remedy in place for the late payment of the debt (LPCD(I)A 1998, s 8(1)).
The parties are free to decide on what the substantial contractual remedy
is (it can include something other than the payment of interest and/or be
a different rate of interest than the statutory rate).
A substantial remedy is one that compensates the supplier for late payment
or deters late payment and where it is fair and reasonable to rely on the
alternative to the statutory remedy taking into account all the relevant
circumstances at the time the terms in question were agreed (LPCD(I)
A 1998, s 9).
In deciding whether a remedy should be enforceable in place of the
statutory regime, regard will be paid to (a) the benefits of commercial
certainty; (b) the strength of the bargaining position of the parties
relative to each other; (c) whether the term (containing the remedy)
was imposed by one party to the detriment of the other (via the use of
standard terms or by other means); and (d) whether the supplier received
an inducement to agree to the term (LPCD(I)A 1998, s 9(3)). The fact

421

M09_Boilerplate_Clauses_I.indd 421 04/09/2017 08:23

 Interest

that a contractual rate is less than the statutory rate does not mean by
itself it is not a substantial remedy (see Yuanda (UK) Co Ltd v WW Gear
Construction Ltd [2010] EWHC 720 (TCC)). In this case some observations
were made about the rate of interest in relation to what amounted to
substantial remedy:
• interest rates can vary, with the base rate at the date of the judgment
being very different to that when the LPCD(I)A 1998 was passed;
• the LPCD(I)A 1998 does not automatically substitute the statutory
rate of interest for that found in a contract; it only does so if the
contractual rate does not amount to a substantial remedy;
• the statutory rate could be considered as penal, as at the date it was set
it was double the base rate; and
• that in commercial cases coming before the courts the interest rate
on damages was typically between 1% and 3% (usually at the lower
percentage).
On the facts of the case, and using the criteria found in the LPCD(I)
A 1998, s 9(3), an interest rate of 0.5% over base rate was not a substantial
remedy;
• that the statutory interest will also apply to any assignee of the creditor or
other change in the identities of either party (LPCD(I)A 1998, s 13).

Consumer Credit Act 1974

The Consumer Credit Act 1974 imposes limits on extortionate credit bargains
(ie credit agreements that stipulate grossly exorbitant repayments or grossly
contravene ordinary principles of fair dealing), which may affect a contractual
obligation to pay interest on loans. In the case of most commercial contracts,
the main restriction on interest provisions is that they should not amount to a
penalty, as this would make them unenforceable. The rate of interest should
therefore be made comparable to the likely cost of borrowing the money from
a bank.

Drafting issues

• Should a party have the right to charge interest?

• If the right to charge interest is not permitted, has some other ‘substantial remedy’
been provided?
• What rate should be charged? If the rate is above that set by the LPCD(I)
A 1998 then the other party required to pay interest may claim that the
rate set amounts to a penalty. If substantially below the rate set by the
LPCD(I)A 1998 then the rate may not amount to a substantial remedy.

422

M09_Boilerplate_Clauses_I.indd 422 04/09/2017 08:23

 Interest

• What other rights does the party receiving payment have where a payment is late?
In addition (or sometime in the alternative), a party has other rights,
such as:
• the right to withhold performance of the agreement (or further
aspects of the agreement);
• the right to terminate the agreement (under Termination provisions).

Location in the agreement

Where the charging of interest is permitted, the provision will normally be

included with other provisions relating to Payment.

Linkage and use

See Payment terms.

Sample precedent material

Precedent 1—Interest on late payment – calculated from base rate

All sums due from either of the parties to the other which are not paid on
the due date shall bear interest from day to day at the annual rate of [ ]%
over the current (name) Bank plc daily base rate with a minimum of ……%
per year.

Precedent 2—Interest on late payment – fixed rate

[Party A] shall punctually pay to [Party B] all sums owing to [Party B] under
this Agreement and in the event of any late payment all sums due shall
bear interest at the rate of …% per month.

Precedent 3—Interest on late payment –consumer agreement

If any sum payable to us under this agreement is [10] days or more over-
due, you must pay to us on demand (but without prejudice to any other
right or remedy which we may have under this agreement or otherwise)
interest on sums payable under this agreement which are [10] days or
more overdue at (base rate) plus 5% per year on a day-to-day basis from
the due date until the date of payment after as well as before judgment.

Precedent 4—Interest on late payment – supply agreement

Interest on overdue invoices shall accrue from the date when payment
becomes due from day to day until the date of payment at a rate of [2]%
above the (name of bank) base rate from time to time in force and shall
accrue at such a rate after as well as before any judgment.

423

M09_Boilerplate_Clauses_I.indd 423 04/09/2017 08:23

 Interest

Precedent 5—Interest on late payment including underpayments

In the event of late payment of any money due to [Party A] under the terms
of this Agreement (including without limitation any moneys found on an
inspection carried out under Clause [no] (inspection of accounts) to have
been underpaid) [Party B] shall pay to [Party A] interest accruing from day
to day calculated at the annual rate of …% above the base rate from time
to time of [name] Bank plc on all such money overdue from the due date
for payment until the actual date of payment.

Precedent 6—Interest where completion delayed – compounding

In the event that Completion is delayed for any reason not attributable
to default or delay of the Vendor in performing its obligations under
this agreement interest shall be payable (as well after as before judg-
ment) to the Vendor in respect of the consideration due on such date of
Completion at the rate of ……% above the base rate from time to time of
[name] Bank plc such interest to be calculated on a daily basis [and to be
compounded at monthly rests].

Precedent 7—Interest on late payment – general – compounded interest

If any sum payable under this agreement shall not be paid when due,
[Party B] shall pay to [Party A] interest on such sum calculated on a daily
basis and compounded quarterly from the due date until payment at the
rate of [5]% per annum over the [name] Bank plc base rate from time to
time in force.

424

M09_Boilerplate_Clauses_I.indd 424 04/09/2017 08:23

 Interpretation

Purpose of the clause

An interpretation clause typically provides for a number of matters in an

agreement, including whether:
• references to legislation include references to the legislation in an
amended form, including changes during the life of the agreement; also
whether any reference to that legislation is a reference to the amended
version of the legislation;
• references to persons and genders (and the use of the singular or plural),
are interpreted in too narrow a way. For example, where a reference to a
‘person’ means also ‘persons’;
• a reference to a clause will mean a reference to a clause of the agreement,
and avoiding repetition of words such as ‘hereof’; and
• a heading used with a clause will or will not be used as an aid to interpreting
the clause;
• references to a schedule or schedules are references to schedules included
with the agreement.
In some situations (see below), some of the above are implied into an
agreement even though an Interpretation clause is not specifically included.
A contract drafter will generally wish to include an interpretation clause in an
agreement, except in very short contracts, where such a clause might be out
of place.

Drafting issues

Amendment/replacement of statutes

• Interpretation Act 1978. The Interpretation Act 1978 provides that where
an Act repeals and re-enacts a previous enactment then a reference to
that enactment in a document is taken as a reference to its re-enacted
version, with or without modification (Interpretation Act 1978, ss 17(2)
(a), 23(3)). This will apply unless there is a contrary intention and will
apply in any deed or other instrument or document

425

M09_Boilerplate_Clauses_I.indd 425 04/09/2017 08:23

 Interpretation

Note: the wording in the 1978 Act is likely to apply only to a limited range
of changes to legislation: that is the repeal and re-enactment of an enactment
(and is unlikely to cover anything other than an Act, and not subordinate
legislative measures such as Statutory Instruments). However, it is likely to
apply to an agreement, as it covers any form of ‘instrument’ or document.
• Catering for amendments and modification. However, most of the changes
to legislation are not made by repeal and re-enactment, but by way of
amendment and modification. Accordingly, where specific statutes
are referred to in an agreement it is necessary to make wider provision
than under the 1978 Act and cater expressly for amendment and other
modification of statutes as well as repeal and replacement, eg:
‘Reference to any statute or statutory provision includes a reference to:
(a) that statute or statutory provision as from time to time amended,
extended, re-enacted or consolidated’.
• Covering further amendments. It will also be necessary to make clear that the
provision covers future amendment, repeals etc:
‘whether before or after the date of this agreement’.

• Covering subordinate legislation. Statutory Orders, Rules and Regulations

may also be covered by adding:
‘and
(b) all statutory instruments or orders made pursuant to it.’
• Should future amendments be included? Care should be taken to ascertain, in
the case of each statutory provision referred to in the agreement, whether
subsequent amendment of that provision, if automatically incorporated
into the contract terms, is likely to affect any of the parties’ rights and
duties. Eg, parties sometimes wish to define group companies by reference
to the definition of ‘subsidiary’ used in the Companies Act 2006, and they
may prefer the certainty of using the definition in force at the time the
agreement was signed. In such cases, the reference should be to:
‘the (statutory provision) as originally enacted’
and to allow for an individual updating provision, where appropriate in
the agreement, the statutes interpretation sub-clause should begin:
‘Unless provision is made to the contrary …’

If the agreement includes a clause that is based on or uses statutory

wording but the clause makes no reference (whether in the clause or
elsewhere in the agreement) as to the meaning of the clause changing
if the statute is amended, then there is a danger that the clause will not
be amended to take account of the change in the statutory wording. For
example, in William Hare Ltd v Shepherd Construction Ltd [2010] EWCA Civ
283 the agreement made reference to the Insolvency Act 1986 and the
circumstances when insolvency might occur. However a failure to use the
wording of the updated version of the provision of the 1986 Act meant
that a new way for a party to become insolvent was not covered. The court

426

M09_Boilerplate_Clauses_I.indd 426 04/09/2017 08:23

 Interpretation

found that the words used in the agreement were clearly expressed and
could not be used to cover the new way for a party to become insolvent.
• Persons/singular/plural.
• He/she/singular/plural. For the sake of brevity and to avoid any
confusion, it is usual to make provision to the effect that in the
agreement ‘he’ includes ‘she’ and ‘it’ and vice versa, thus avoiding
any need to use the awkward ‘he or she’, ‘he or it’ etc throughout the
agreement.
The Interpretation Act 1978, s 6, provides similar wording. But this
meaning is only for the purposes of any Act (see Rossetti Marketing Ltd
v Diamond Sofa Company Ltd [2011] EWHC 2482 (QB) for an example
of the use of the Act to interpret the word ‘Principal’ in reg 2(1) of
Commercial Agents (Council Directive) Regulations 1993, where it
was held that it could also mean the agent acting for more than one
principal; ie it would not be interpreted as only referring to a single
principal).
• Person also means a corporate body. To make the point abundantly clear,
the agreement should state that reference to a person also includes a
corporate body. Eg:
‘Unless the context otherwise requires words denoting the singular shall
include the plural and vice versa and words denoting any one gender
shall include all genders and words denoting persons shall include
bodies corporate, unincorporated associations and partnerships.’

The Interpretation Act 1978, s 5, Sch 1, also includes provision for

the meaning of a person to include a ‘body of persons corporate or
incorporate’. But this meaning is only for the purposes of an Act.
The Law of Property Act 1925, s 61 may imply similar provisions (see
under Extracts from legislation, below).
• References to clauses. To ensure a clear economical style of drafting, in
general a reference to a clause, a sub-clause or a schedule is a reference to
one of these in the agreement. This will avoid any need to refer to ‘clause
6 of this agreement’ or ‘the above clause 6’. Eg:
‘Unless the context otherwise requires reference to any clause, sub-clause
or schedule is to a clause, sub-clause or schedule (as the case may be) of
or to this agreement.’

In some agreements a reference to a clause, sub-clause or schedule, eg

‘… subject to the provisions of Clause [ ]’

is in the form of capitalising the first letter of the word ‘Clause’. This is
a matter of personal preference, but can aid finding where references
are made to clauses or schedules. Where there is any doubt about which
agreement is being referred to it is possible to add wording such as:
‘of this Agreement’

427

M09_Boilerplate_Clauses_I.indd 427 04/09/2017 08:23

 Interpretation

(eg, ‘…subject to the provisions of Clause [ ] of this Agreement’). This is

advisable where there are several agreements being used in a transaction.
• Headings. The headings to the clauses of an agreement should succinctly
indicate the contents of that clause, but the need to abbreviate may result
in a generalised and possibly incomplete or misleading descriptive phrase.
To avoid, in the event of a dispute, a heading being included as a relevant
factor in interpreting the agreement, the drafter can include a brief
disclaimer, eg:
‘The headings in this document are inserted for convenience only and
shall not affect the construction or interpretation of this agreement’.

It appears, at best, that a heading to a clause will carry some weight in

interpreting the clause it relates to, but will ‘not prevail over the express
wording of the clause’ (Cott UK Ltd v FE Barber Ltd [1997] 3 All ER 540).
It is sometimes provided that the headings ‘are not to be part of’ the
agreement.’ Such a statement could cause confusion in the minds of
persons reading the agreement who are not lawyers and is best avoided.
The precedent given above is more logical and is quite adequate for the
purpose.

Location in the agreement

In traditional drafting practice, interpretation provisions are:

• combined with the Definitions clause. The heading will often be ‘Definitions
and Interpretation’ (but the two should not be confused); or
• placed at the end of the agreement in the Boilerplate section of an
agreement, with other standard boilerplate clauses.

Linkage and use

It is possible to find wording more usually seen in an Interpretation clause in

any parts of an agreement, but particularly important are those referring to
statutes and other forms of legislation. In many types of agreements a party
may be required to comply with statutory and regulatory requirements and
often provide a warranty stating that they do comply. Such requirements and
warranties may be true at the date of the agreement. If warranties in these
terms are given and the Interpretation clause indicates that the references
to legislation include any changes to it, and if the law changes and/or the
regulatory requirements change, any continuing warranty may no longer be
true and lead possibly to a breach of the agreement. This is unlikely to be a
problem where the warranty is for a short duration, but in some cases some
warranties are expressed to last for a lengthy period (sometimes years).
Care should be taken in checking the provisions of an Interpretation clause,
as it is often seen as a very routine and obvious piece of boilerplate. In the

428

M09_Boilerplate_Clauses_I.indd 428 04/09/2017 08:23

 Interpretation

example given here, a party giving a warranty that they have complied with
statutory and regulatory requirements might wish to exclude any references to
changes in the law etc in the Interpretation clause.

Extracts from legislation

Law of Property Act 1925

Section 61—Construction of expressions used in deeds and other

instruments
In all deeds, contracts, wills, orders and other instruments executed, made or
coming into operation after the commencement of this Act, unless the context
otherwise requires—
(a) ‘Month’ means calendar month;
(b) ‘Person’ includes a corporation;
(c) The singular includes the plural and vice versa;
(d) The masculine includes the feminine and vice versa.

Interpretation Act 1978

Section 5—Definitions
In any Act, unless the contrary intention appears, words and expressions listed
in Schedule 1 to this Act are to be construed according to that Schedule.

Section 6—Gender and number

In any Act, unless the contrary intention appears,—
(a) words importing the masculine gender include the feminine;
(b) words importing the feminine gender include the masculine;
(c) words in the singular include the plural and words in the plural include
the singular.

Section 17—Repeal and re-enactment

(1) Where an Act repeals a previous enactment and substitutes provisions for
the enactment repealed, the repealed enactment remains in force until
the substituted provisions come into force.
(2) Where an Act repeals and re-enacts, with or without modification, a
previous enactment then, unless the contrary intention appears,—

429

M09_Boilerplate_Clauses_I.indd 429 04/09/2017 08:23

 Interpretation

(a) any reference in any other enactment to the enactment so repealed

shall be construed as a reference to the provision re-enacted;
(b) in so far as any subordinate legislation made or other thing done
under the enactment so repealed, or having effect as if so made or
done, could have been made or done under the provision re-enacted,
it shall have effect as if made or done under that provision.

Section 21—Interpretation etc

(1) In this Act ‘Act’ includes a local and personal or private Act; and
‘subordinate legislation’ means Orders in Council, orders, rules,
regulations, schemes, warrants, byelaws and other instruments made or to
be made under any Act.
(2) This Act binds the Crown.

Section 22—Application to Acts and Measures

(1) This Act applies to itself, to any Act passed after the commencement of
this Act and, to the extent specified in Part I of Schedule 2, to Acts passed
before the commencement of this Act.
(2) In any of the foregoing provisions of this Act a reference to an Act is a
reference to an Act to which that provision applies; but this does not affect
the generality of references to enactments or of the references in section
19(1) to other Acts.
(3) This Act applies to Measures of the General Synod of the Church of
England (and, so far as it relates to Acts passed before the commencement
of this Act, to Measures of the Church Assembly passed after 28th May
1925) as it applies to Acts.

Schedule 1
‘Person’ includes a body of persons corporate or unincorporate.

Sample precedent material

Precedent 1—Interpretation clauses – statutes – singular and plural –

clauses – headings
1 Reference to any statute or statutory provision includes a refer-
ence to:
(a) that statute or statutory provision as from time to time amended,
extended, re-enacted or consolidated; and
(b) all statutory instruments or orders made pursuant to it.

430

M09_Boilerplate_Clauses_I.indd 430 04/09/2017 08:23

 Interpretation

2 Words denoting the singular number only shall include the plural and
vice versa. Words denoting any gender include all genders and words
denoting persons shall include firms and corporations and vice versa.
3 Unless the context otherwise requires reference to any clause, sub-
clause or schedule is to a clause, sub-clause or schedule (as the case
may be) of or to this agreement.
4 The headings in this document are inserted for convenience only and
shall not affect the construction or interpretation of this agreement.

Precedent 2—Interpretation clauses – particular statute – singular and

plural – general statutes – headings
1 Unless the context requires otherwise:
1.1 words and expressions that are defined in the (name of statute)
shall bear the same meaning in this agreement;
1.2 words importing the singular number shall include the plural and
vice versa;
1.3 words importing any particular gender shall include all other
genders;
1.4 references to persons shall include bodies of persons whether
corporate or incorporate.
2 Any reference in this agreement to any statute or statutory provision
shall be construed as referring to that statute or statutory provision
as the same may from time to time be amended, modified, extended,
re-enacted or replaced (whether before or after the date of this agree-
ment) and including all subordinate legislation made under it from
time to time.
3 Headings contained in this agreement are for reference purposes
only and shall not be incorporated into this agreement and shall not
be deemed to be any indication of the meaning of the clauses and
sub-clauses to which they relate.

Precedent 3—Interpretation clause – gender – singular and plural –

general statutes – schedules – clauses
In this Agreement unless the context otherwise requires:
1 words importing any gender include every gender;
2 words importing the singular number include the plural number and
vice versa;
3 words importing persons include firms companies and corporations
and vice versa;
4 references to numbered clauses and schedules are references to the
relevant clause in or schedule to this Agreement;

431

M09_Boilerplate_Clauses_I.indd 431 04/09/2017 08:23

 Interpretation

5 reference in any schedule to this Agreement to numbered paragraphs

relate to the numbered paragraphs of that schedule;
6 where any obligation is undertaken by two or more persons jointly
they are to be jointly and severally liable in respect of that obligation;
7 any obligation on any party not to do or omit to do anything is to
include an obligation not to allow that thing to be done or omitted to
be done;
8 any party who agrees to do something shall be deemed to fulfil that
obligation if that party procures that it is done;
9 the headings to the clauses, schedules and paragraphs of this
Agreement shall not affect the interpretation;
10 any sum payable by one party to the other shall be exclusive of VAT
which shall where it is chargeable be paid in addition to the sum in
question at the time when the sum in question is due to be paid;
[11 any relevant perpetuity period shall be 80 years from the date of this
Agreement;]
12 any reference to an enactment includes reference to that enactment
as amended or replaced from time to time and to any subordinate
legislation or byelaw made under that enactment.

Precedent 4—Interpretation clause – exclusive rights

Where there is a licence of intellectual property, then the drafter might
add the following to Precedent 3 to explain clearly the meaning of ‘exclu-
sive’ rights:
‘References to the grant of ‘exclusive’ rights shall mean that the person grant-
ing the rights shall neither grant the same rights to any other person, nor exer-
cise those rights directly within the field and territory granted exclusively to the
other party, subject to the other provisions of this Agreement.’

Precedent 5—Interpretation clause – headings

Headings are used in this Agreement for the convenience of the parties
only and shall not be incorporated into this Agreement and shall not be
deemed to be any indication of the meaning of the clauses, schedules or
exhibits to which they relate.

432

M09_Boilerplate_Clauses_I.indd 432 04/09/2017 08:23

 Joint and several liability

Purpose of the clause

Background
The question whether an undertaking given by two or more persons is:
• ‘several’; or
• ‘joint’; or
• both ‘joint and several’
is in general one of interpretation and depends on the intention of the
parties as evidenced by the terms of their agreement (Fell v Goslin (1852) 7
Exch 185).

Joint promisees

In the absence of express provision, there is a presumption, where two or more

persons join in making a promise, that generally their liability for performance
is joint (eg, Kendell v Hamilton (1879) 4 App Cas 504 at 544, HL; Royal Albert
Hall Corpn v Winchillsea (1891) 7 TLR 362 at 364, CA; Lockett v A and M Charles
Ltd [1938] 4 All ER 170). Consequently, it will be necessary to join all the
promisors as defendants to proceedings to enforce performance (eg, Kendell
v Hamilton (1879) 4 App CA 504 at 544; Norbury Natzio & Co v Griffiths [1918]
2 KB 369 at 369). However, there are some exceptions (minors, an undisclosed
sleeping partner, action brought in the county court).
Similarly, where a promise is made to two or more promisees, it may be
deemed to be made to them jointly, and all the promisees might therefore be
required to join in proceedings to enforce performance.

Several liability

By contrast, where there is ‘several’ liability, the liability is owed by each person
separately and each can be sued separately (eg, Mikeover Ltd v Brady [1989]
3 All ER 618, CA).

433

M10_Boilerplate_Clauses_J.indd 433 04/09/2017 08:26

 Joint and several liability

Joint and several liability

Where two or more persons make joint and several promises, each person
making a promise will have a joint and several liability (all persons are jointly
promising and each party is separately promising) so that each person
will have a joint and a several liability (eg, King v Hoare (1844) 13 M &
W 494 AT 505; Beecham v Smith (1858) EB & E 442; Owen v Wilkinson (1858)
5 CB NS 526). Accordingly, it is possible to sue one of them, some of them or
all of them.
The recipient of an undertaking given by two or more persons will generally
wish the liability to be ‘joint and several’ as this gives the recipient the most
flexibility in deciding who to sue and from whom to obtain satisfaction of
the undertaking. For example, if a person is buying advertising services, and
the provider of the services (design of the adverts, production of the artwork
for the adverts, printing, buying of space in various media) are all divided
into separate companies, then the person ideally would like that all of these
separate companies are jointly and severally liable for the performance of
the various obligations they are under, particularly if only one of the group
of companies had any substantial trading history or assets. In the event of a
dispute, the person could pick and sue the company in the group which had
the most substantial assets.
Where more than one party is stated to have an obligation under a clause of
a contract, a simple way of ensuring that they have joint and several liability
in respect of that obligation is to use the wording in Precedent 1. In more
complex situations, separate clauses providing for joint and several liability
may be appropriate.

Drafting issues

• Should there be a Joint and Several Liability clause at all? Eg:

• if a party consists of one person then such a clause will not have any
application (or not be relevant to that party);
• if a contract has two or more parties who are performing separate
obligations then, from those parties’ perspective, it may not be
appropriate to make them jointly and severally liable for those
obligations.
Eg, two parties may be responsible for providing (different) services
to a third party under one agreement. If the two parties’ obligations
are completely separate neither may wish to be responsible for the
other’s obligations (eg a plumber and an electrician).
• If there are several persons who constitute a party, should they be subject to joint
and several liability? Eg, where there is a sale of a business or of shares,
the persons who are involved are often required to jointly and severally
provide a series of warranties.

434

M10_Boilerplate_Clauses_J.indd 434 04/09/2017 08:26

 Joint and several liability

• If there is to be joint and several liability, should this be for all the obligations
under the agreement or just a particular obligation? If limited to a particular
obligation, then the Joint and Several Liability clause should probably be
located in the same clause as the clause in which the obligation appears.
Also the agreement might contain wording to make it clear that the joint
and several liability only applies to that obligation and not generally to the
agreement.
• Do the obligations refer to a definition of a single party, but in fact there is more
than one party coming within the meaning of that definition? If so, should
they have joint and several liability? Eg, a contract may provide that two
accountants are hired to provide specialist tax advice to a company. They
do not otherwise work together, but they are each experts on slightly
different areas of tax law. The contract may have a party clause stating:
‘1. Jane Elizabeth Smith of [address]; and
2. Sara Eliza Jolly of [address].
(together the ‘Accountant’).’
And with the main obligation clause stating:
‘The Accountant shall perform the Services including delivery of a final
report to the Company by 1 January 2018.’

In such a case, such wording may not make it clear whether the two
accountants are jointly responsible for the obligation, or jointly and
severally responsible. Best drafting practice would be to avoid such
ambiguity in defining the parties and make clear with explicit wording
whether the parties each have the obligation to perform it and what their
liability is in relation to that obligation (eg joint, several, joint and several
or only on the party who is to perform it).
In some standard form contracts it may not always be possible. In such a
case as the example above, if the intention is that all the persons/parties
coming within the definition of an ‘Accountant’ are to have joint and
several liability, then if there is an Interpretation clause there might appear
in addition to the other wording the following:
‘a reference to the ‘Accountant’ shall be a reference to any one of the
persons named in [eg the party clause] and/or all of them and any obligation
on or to be carried out by the Accountant shall be joint and several on the
persons referred to at [eg the party clause].’

See AIB Group (UK) plc (formerly Allied Irish Banks plc and AIB Finance Ltd) v
Martin [2001] UKHL 63, [2002] 1 All ER (Comm) 209, which deals with
the reach of a joint and several liability clause (that of imposing liability
on one person for another’s debt), and see Case analysis below.
• Are the parties carrying out an obligation under an agreement as partners? If the
parties who are carrying out an obligation under an agreement are partners
(within the meaning given under the Partnership Act 1890) then, unless
the agreement says otherwise, the 1890 Act assumes that the partners would
have joint liability while they remain partners (1890 Act, s 9).

435

M10_Boilerplate_Clauses_J.indd 435 04/09/2017 08:26

 Joint and several liability

Location in the agreement

A Joint and Several Liability clause is generally found:

• in the Boilerplate section of an agreement; or
• as part of a clause binding a party to an obligation; or
• in an interpretation clause (see Precedent 3 under Interpretation).

Linkage and use

The issues relating to joint and several liability arise, for example, in
construction contracts where several contractors make a joint bid for the
contract. A party that is contracting with several other parties acting together
will invariably wish to insert a clause stating that liability is to be joint and
several, as this will give the first party the ability to proceed against the most
solvent and accessible of the co-contractors. This is a particularly useful facility
if any of the contractors is not a UK resident.
The advisers of the co-contractors may need to exercise care in the wording of
any ‘joint and several’ obligations. They may, for example, wish to limit joint
and several liability to breach of warranty or indemnity only and not extend
it to all the obligations under the agreement, some of which the contractors
may not be in a position to fulfil. Any one contractor may have no control over
the other contractors’ activities or method of operation and it may therefore
be dangerous for it to accept a joint and several liability clause such as in
Precedent 4.

Sample precedent material

Precedent 1—Short form

[Party A] and [Party B] shall be jointly and severally liable for the perfor-
mance of their obligations under this Clause [no].

Precedent 2—Short form

Where any party comprises more than one person the obligations and
liabilities of that party under this agreement shall be the joint and several
obligations of those persons.

Precedent 3—Alternative form

All agreements on the part of either of the parties which comprises more
than one person or entity shall be joint and several and the neuter singular
gender throughout this Agreement shall include all genders and the plural
and the successors in title to the parties.

436

M10_Boilerplate_Clauses_J.indd 436 04/09/2017 08:26

 Joint and several liability

Precedent 4—Short form – joint and several obligations (eg contract for
services)
Each member of [Party] acknowledges that such member is individually
contracted to the Company and that references to [Party] in this agree-
ment shall be deemed to refer to each member and that all obligations on
the part of [Party] in this agreement are joint and several obligations on
the part of each member.

Precedent 5—Longer form – joint and several liability – power of

discharge and composition
Where this agreement [and indemnity] is signed by or on behalf of a part-
nership or otherwise by or on behalf of more than one person, any liability
arising under it shall be deemed to be the joint and several liability of the
partners or of such persons as stated above and any demand for pay-
ment made or notice given by [Party] to any one or more of the persons
so jointly and severally liable shall be deemed to be a demand made or
notice given to all such persons. [Party] is to be at liberty to release or
discharge any one or more of such persons from liability under this under-
taking or to compound with, accept compositions from or make any other
arrangements with any of such persons without in consequence releas-
ing or discharging any other party to this agreement [and indemnity] or
other­wise prejudicing or affecting [Party]’s rights and remedies against
any such other party.

Consumer issues

The phrase ‘joint and severally’ is not always clear to non-lawyers. An

alternative formulation could be used for consumers, such as ‘separately,
together or in any combination’ (see Butt, Modern Legal Drafting: A Guide to
Using Clearer Language (3rd Edn, 2013, Cambridge University Press), 8.19).
If the phrase ‘jointly and severally’ is to be retained and a consumer is to be a
party to an agreement, an explanation of the phrase’s meaning might be used
based on the definition found in the Glossary to the Civil Procedure Rules:
‘Parties who are jointly liable share a single liability and each party can be held
liable for the whole of it. A person who is severally liable with others may remain
liable for the whole claim even where judgment has been obtained against the
others’.

Case analysis

AIB Group (UK) plc (formerly Allied Irish Banks plc and AIB Finance Ltd) v
Martin [2001] UKHL 631, [2002] 1 All ER (Comm) 209
1 The defendants (M and G) were partners whose business was the
purchase and development of property.

437

M10_Boilerplate_Clauses_J.indd 437 04/09/2017 08:26

 Joint and several liability

2 One of the defendants (M) borrowed money from the bank and the
partners jointly borrowed money from the bank.
3 All this borrowing was restructured and for the joint borrowing the
claimant granted to the defendants a joint mortgage (on the standard
form of the claimant) (Joint Mortgage).
4 The Joint Mortgage defined the borrowers (M and G) as ‘the
Mortgager’.
5 The interpretation clause of the Joint Mortgage dealt with the situa-
tion when there is more than one person within the definition of the
Mortgager:
‘[it] shall be construed as referring to all and/or any one of those persons
and the obligations of such persons hereunder shall be joint and several’

6 The Mortgager (ie the defendants) provided a covenant to the claim-

ant bank in the following terms:
‘The Mortgagor hereby covenants with … the Bank … that it will on
demand pay or discharge to the Bank … all sums of money … advanced
to the Mortgagor by the Bank …’ [covenant as set out in the judgment].

7 The claimant bank called in the loans and wished to enforce the cov-
enant and argued that defendants were liable for the Joint Mortgage
and also each of them liable for the other indebtedness as well (under
other loan agreements with the bank). Defendant M argued that he
should not be liable under the covenant for the debt of G.
8 The House of Lords (as did the lower courts) held that M was liable
for the debt of G, and that the true meaning of the covenant, read-
ing it together with the interpretation clause, was that the parties
were jointly and severally liable, which included M being liable for G’s
debts to the bank as well:
‘[39] …The [covenant] starts with a joint covenant by Mr Gold and Mr
Martin. It is not three separate covenants, one by them jointly and one by
each of them individually. It is a single joint covenant. Their liability under
this joint covenant is declared to be joint and several. This deals with the
effect of their joint covenant. It does not turn a single covenant into three
covenants.
[40] But the critical issue is not whether Mr Gold and Mr Martin, as well
as jointly covenanting to pay, have severally covenanted to pay. The
critical issue is what have they covenanted to pay? Under sub-cl (1)
they have covenanted to pay “all sums of money … advanced to the
Mortgagor by the Bank”. The mortgagor means the two of them and/
or each of them. So they have covenanted to pay all sums of money
advanced by the bank to the two of them and/or to each of them.
I do not understand how any process of construction can avoid the
conclusion that they have covenanted to pay the sums advanced by the
bank to Mr Martin alone as well as the sums advanced by the bank to
them jointly.
[41] The point is the same under sub-cl (2). Mr Gold and Mr Martin have
covenanted to pay or discharge “all other indebtedness and/or liabilities

438

M10_Boilerplate_Clauses_J.indd 438 04/09/2017 08:26

 Joint and several liability

whatsoever of the Mortgagor to the Bank’ ie ‘of the two of them and/
or each of them”. So they have covenanted to pay or discharge the
indebtedness of Mr Martin to the bank as well as their joint indebtedness
to the bank.’

439

M10_Boilerplate_Clauses_J.indd 439 04/09/2017 08:26

 Language

Purpose of the clause

The use of the English language is commonplace now in many international

transactions. Parties to international transactions often prepare agreements in
English, whether because:
• all the parties are based in countries which use the English language; or
• one (dominant) party is based in a country which uses the English
language; or
• all the parties are from different countries and the English language may
be the ‘common’ language among them.
However, the parties may prepare an agreement (or parts of it) in more than
one language. In such agreements specifying the language of the agreement
can have a number of advantages (see Precedent 1 for a typical clause).
In addition to the main commercial agreement many formal documents (such
as power of attorneys, formal assignments, technical or specification schedules
and other such documents) may need filing with a country’s governmental
and regulatory authorities. These documents are sometimes required to be
in the language of that country. The same may be true for an agreement
prepared in one language and used in a country where that language is not an
official language. In such cases this may need translation into that country’s
official language. It will also be advantageous to know which language version
of the document prevails in the case of a dispute.

Drafting issues

For agreements prepared in more than one language, consider the following
points:
• Which language version prevails? If the agreement exists in different
languages, it is desirable to state which is the authoritative version, in the
event of a difference in meaning between the different versions.
• Amendments. If there are to be any amendments to the agreement then
the agreement should state that any amendments are made in the same
language as the original.

440

M11_Boilerplate_Clauses_L.indd 440 31/08/2017 08:16

 Language

• Which law and jurisdiction is to prevail? In some jurisdictions the language

of the agreement may influence the court when deciding under which
country’s laws the agreement is made, and which country’s courts should
have jurisdiction. Ideally the agreement should state these matters
specifically. Under English law, the language in which an agreement is
expressed is unlikely to be a determining factor by itself (see eg Amin Rasheed
Shipping Corp v Kuwait Insurance Co The Al Wahab [1983] 2 All ER 884, HL).
• Documents related to the agreement also should be translated into the same
language as the agreement. In some agreements documents referred to or
generated under an agreement may not be in the same language. For
example, for an agreement in the English language, it is desirable that
there should be authoritative English versions of the other documents.
The Language clause can be drafted so that any foreign documents are
translated into English and certified by a party as being accurate (or are
translated by a qualified/licensed translator) (see Precedent 3).
• Language required by local law. For a few countries, the law of that country
requires that a contract made under its law must be in the language of that
country, or is authoritative where used. If either situation arises then the
wording used in the contract may not be able to achieve the requirement.
Only appropriate enquiries prior to the entering of the contract can deal
with this point.
• Documentation generated, or to fulfil obligations, under an agreement. An
agreement may require one of the parties to supply documents or generate
documents. For example,
• a consultant may need to prepare a report to summarise the
consultant’s findings and advice. If the party to whom she is providing
the report has English as their working language then there will
usually be no issue that needs addressing in the contract language.
However, if the party (or the persons of the party) who will be reading
the report do not have English as their working language then it may
be necessary to specify which party is responsible for preparing a copy
of the report in another language, as well as dealing with issues such
as who will bear the cost, the type of translator that needs using etc
(eg a heavily technical report may need a specialist translator);
• the supplier of goods which come with a manual or installation guide
(or other supporting materials, such as YouTube videos, etc) may
need to provide some of the manuals, guides or materials in other
languages if the goods are intended for supply other than in an
English-speaking country.

Location in the agreement

The Boilerplate section of an agreement will usually include the Language

clause.

441

M11_Boilerplate_Clauses_L.indd 441 31/08/2017 08:16

 Language

Linkage and use

Although a Language clause is generally free-standing, there are often other

parts of an agreement that require that the language of documents or actions
be expressed in a particular language, for example:
• where documentation is required to be generated or provided in an
agreement as part of the core obligations (eg, in a software licensing
agreement, the language of user manuals (printed or electronic) may be
specified);
• where third parties are involved in matters arising from the agreement,
such as arbitration or alternative dispute resolution, the language in which
the third parties will operate may be specified.

Sample precedent material

Precedent 1—English language version to prevail

This agreement is made only in the English language. If there is any con-
flict in meaning between the English language version of this agreement
and any version or translation of this agreement in any other language,
the English language version shall prevail.

Precedent 2—Documents in English to prevail

Each document referred to in this agreement or to be delivered under it
shall be in the English language or accompanied by an English translation
of it certified as accurate by an officer of [Party]. In the case of conflict and
unless [Party] otherwise specifies, the English language version of any
such document shall prevail.

Precedent 3—Documents in English to prevail – alternative version

Any of the Reports that [Party A] is required to supply to [Party B] in
accordance with Clause [no] or any notice that any Party wishes to give
under this Agreement (‘Document’) shall be in the English language. If
any Document is not in the English language, then the Document shall
be accompanied by an English translation of it certified as accurate by
an officer of the Party supplying or giving the Document. In the case of
conflict [and unless the Party supplying or giving the Document otherwise
specifies], the English language version of any such Document shall pre-
vail.

Precedent 4—Party’s language to prevail

All agreements and all contractual arrangements in connection with
(transaction) should be written in, or translated by a sworn translator into,
[the] [an] official language of the country in which [Party] is established.

442

M11_Boilerplate_Clauses_L.indd 442 31/08/2017 08:16

 Law and jurisdiction

Purpose of the clause

Background
A clause relating to law and jurisdiction indicates:
• which legal system applies to an agreement or a dispute concerning or
related to the agreement; and
• which country’s court will hear any dispute concerning or arising from the
agreement.

Where there are only English parties to an agreement

If the agreement concerns only English parties, as well as rights and obligations
arising or taking place only in England, a law and jurisdiction clause will often
be unnecessary. In practice, a law and jurisdiction clause is often seen as
‘default’ boilerplate wording and is included as a matter of course.

Where a foreign party or obligation is present

Where there is a foreign element then an agreement should always include a

law and jurisdiction clause. For example:
• where one or more parties does not operate or have a base in England and
Wales; or
• where a party has a place of incorporation outside England and Wales; or
• if either the offer or acceptance of the contract takes place outside
England and Wales; or
• if a party is to perform any services outside of England and Wales;
• if a party is a manufacturer or assembles goods in one country but is to
deliver them to another country or to supply goods from one country to
another; or
• where a party has significant assets (or all of its assets) in another
jurisdiction to the one in which it operates, is incorporated, or in which
the rights and obligations arise.

443

M11_Boilerplate_Clauses_L.indd 443 31/08/2017 08:16

 Law and jurisdiction

Example one
It is possible to construct a contract that involves several countries. For
example:
• a company incorporated in Germany wishes to supply goods to a company
incorporated in England;
• representatives of the German and English companies meet in France and
enter into the contract in France;
• the German company purchases the goods from a Russian manufacturer
for delivery to South Korea;
• the English company arranges for payment through a subsidiary based in
the United States to a subsidiary of the German company;
• the payment is made from a bank in New York;
• the English company subsidiary is incorporated in Delaware and the
German subsidiary is incorporated in California;
• the payment is made into the German subsidiary company’s French bank
account.
If the contract does not specify which country’s laws apply and which country’s
courts can hear any dispute then it may be difficult to decide (if the parties do
not agree) which is the correct law or court.

Example 2
Two parties wish to hold negotiations as to whether one party will grant a
licence to some intellectual property it owns to the second party. Prior to their
substantive negotiations commencing, the parties wish to sign a confidentiality
agreement, as the first party will have to disclose confidential information and
know-how relating to the intellectual property in order for the second party to
know whether it wishes to take a licence. After signature of the confidentiality
agreement the first party discloses the confidential information to the second
party. The second party misuses the confidential information (such as using
it for a purpose other than as permitted in the confidentiality agreement or
makes it publicly available).
If the confidentiality agreement includes an exclusive jurisdiction clause
(eg exclusive jurisdiction of the English courts) and the misuse of the
confidential information takes place outside of England, then the first party
may not be able to take action directly in the courts of the jurisdiction where
the other party has misused it. The first party may need to obtain a court order
in England and then seek to enforce that court order in the courts of the
other jurisdiction. In such a case, first obtaining a court order in England and
then having to engage the procedures within the other country to have the
judgment of the English court recognised may lead to substantial delay and
expense.

444

M11_Boilerplate_Clauses_L.indd 444 31/08/2017 08:16

 Law and jurisdiction

Which country has jurisdiction over an agreement or a dispute

arising under or from an agreement?

There are a number of legislative measures that deal with which court
has jurisdiction over a matter. The main measure on how jurisdiction is
determined where one or more of the parties are within the EU is the Brussels
Regulation (EU) No 1215/2012 of 12 December 2012 on jurisdiction and the
recognition and enforcement of judgments in civil and commercial matters
(recast). The Brussels Regulation deals (in simple terms) with disputes within
the EU, and besides contractual disputes also ranges over matters other than
those which are the subject matter of this book. In the absence of the parties
choosing which country’s courts will have jurisdiction over a matter, then the
Regulation provides as follows:
• a person who is domiciled in a member state needs to be sued in that
member state (regardless of their nationality) (Art 4);
• it is possible to sue a person who is domiciled in one member state in
another member state in specific situations, such as where a matter
involves a contract. In such a case it is possible to use the courts ‘of the
place of performance of the obligation’, which will normally mean in the
courts of the place:
(a) where goods are delivered (or supposed to be delivered) under a
contract for the sale of goods, and for the place of performance of
the obligation in question (Art 7(1)(a));
(b) where services are provided (or ought to have been provided) under
a contract for the provision of services (Art 7(1)(b)).
There are rules for deciding in which member state a person is domiciled who
is not a national of a member state, or which member state’s court will have
jurisdiction where a defendant is not domiciled in any member state.
The above states how jurisdiction is dealt with where the parties do not choose
which country will have jurisdiction. However, the Brussels Regulation does
give the parties the freedom to choose which member state’s courts will have
jurisdiction (whether or not any of the parties are domiciled in that member
state), and whether the jurisdiction is exclusive or non-exclusive. If they do
make that choice then the chosen court will normally have jurisdiction (and by
default the jurisdiction will be exclusive unless the parties decide otherwise).
There are a number of conditions for the parties’ choice to be valid, including
(Brussels Regulation, Art 25):
• that their agreement is not ‘null and void as to its substantive validity
under the law of the member state chosen to have jurisdiction’; and
• that the agreement is in writing or evidenced in writing, or accords with
a practice that the parties have established between themselves or (for
international trade and commerce) accords with usage which is commonly
known for contracts of the type the parties entered into.

445

M11_Boilerplate_Clauses_L.indd 445 31/08/2017 08:16

 Law and jurisdiction

Exclusive jurisdiction

If it is agreed that any proceedings between the parties in connection with

the contract should only be brought in the English courts, the jurisdiction
of those courts should be expressed to be ‘exclusive’. The effect of this will
be reinforced by the Civil Jurisdiction and Judgments Act 1982, s 32, under
which judgments given by a foreign court in proceedings brought contrary
to an express agreement between the parties that another court should have
jurisdiction will not be recognised or enforced. Note that the party seeking
to invalidate such a judgment must not have submitted in any way to the
jurisdiction of that foreign court (apart from contesting such jurisdiction): see
the Civil Jurisdiction and Judgments Act 1982, s 33.

Non-exclusive jurisdiction

If the parties specify that any dispute will be subject to the ‘non-exclusive’
jurisdiction of the English courts, it will be possible to bring proceedings in
a foreign court on a matter over which that court has jurisdiction. Where
cross-border rights (eg, intellectual property rights) are the subjects of the
agreement, it may be in the owner’s interest to insist on the inclusion of this
term in order to reserve the right to take protective action abroad. If the
possessor of confidentiality wishes to obtain an urgent injunction (eg, to
prevent disclosure of the confidential information), it is desirable to reserve
the right to bring interim proceedings in the other party’s ‘home’ jurisdiction.

Which country’s law is to apply

For parties domiciled in the EU, and for most types of contract made after
17 December 2009, the matter of which country’s law applies will be governed
by the Rome I Regulation (Regulation 593/2008) (except for Denmark
where the Rome Convention continues to apply). The Rome I Regulation
applies directly in England (ie it does not need implementation by an Act of
Parliament or a statutory instrument). The Rome Convention (which applied
to contracts entered into after 1 April 1991) also deals with the question of
which law is to govern the obligations of the parties in the absence of an
express provision in the contract (the Convention was brought into force by
the Contracts (Applicable Law) Act 1990, s 2).
In essence, both the Regulation and the Convention allow the parties to
a contract to choose which country’s law applies to a contract. The Rome
I Regulation provides, as far as choice of law is concerned, that:
• the parties are free to choose the law of the contract (whether expressly or
to be established by the provisions of their contract or the circumstances
of the case) (Art 3(1)). The latter point may arise where they have not
chosen a particular country’s law but their choice is clear because they

446

M11_Boilerplate_Clauses_L.indd 446 31/08/2017 08:16

 Law and jurisdiction

have referred the matter to a particular country’s court or perhaps from a

course of dealing;
• the parties can choose different laws to apply to different parts of a
contract as well as changing the law of the contract subsequent to the
contract being entered into (Art 3(2));
• it is possible for the law of a particular country to apply to a contract
despite the choice made by the parties;
• if the parties do not choose the law of the contract then the law chosen
is based on what type of contract it is. For example for the sale of goods
or services, the law of the contract is the one of where the seller/supplier
is habitually resident. For a franchise agreement, the law is where the
franchisee is habitually resident. Where none of these type of situations
(or a mixture of them applies) then the law of the contract will be that of
where the ‘party required to effect the characteristic performance of the
contract has his habitual residence’. A final rule is that where none of the
above apply then the law of the contract is that of the country to which it
is most closely connected (Art 4);
• where a contract involves a consumer, the law of the contract will normally
be that of the country where the consumer is habitually resident. This
provision is subject to the supplier of the goods and services providing
the goods and services from that country or offering to provide the goods
and services to the country where the consumer is habitually resident. It
is possible for the law of the contract to be other than that of the country
where the consumer is habitually resident, as long as the consumer rights
of the consumer are not taken away (Art 6).

Law and jurisdiction rules and laws outside of the EU

For contracts where the parties are not located in the EU, there is no
international law or convention which universally applies to both law and/
or jurisdiction. The law will depend on how a particular country decides such
matters; for example, the law governing the contract for a particular country
may be based on where the parties are, or where a party is located, where the
contract is performed or the country in which the contract is entered into.
The main international convention (primarily only in relation to goods), the
United Nations Convention for the International Sale of Goods 1980, will
not normally apply to UK-based parties as the UK is not a signatory to this
convention.
It should be noted that specifying which law governs the contract will not
necessarily override the laws of another country that may affect the contract,
particularly where such laws are concerned with public policy issues. Eg, in a
contract between English and United States parties in which the law of the
contract is stated to be that of a US state, English competition laws may still
apply (see the Chiron v Organon cases, eg Chiron Corpn v Murex Diagnostics Ltd
(No 12); Chiron Corpn v Organon Teknika Ltd (No 12) [1996] FSR 153, CA).

447

M11_Boilerplate_Clauses_L.indd 447 31/08/2017 08:16

 Law and jurisdiction

The subject of international conflicts of law and jurisdiction is a large and

complex one. For further information, readers are referred to the specialised
works on the subject, eg Cheshire, North and Fawcett, Private International Law
(14th Edn, 2008, Oxford University Press) or Goode on Commercial Law (5th
Edn, 2016, Lexis Nexis).

Drafting issues

• Is one or more of the parties located outside England and Wales? If so, then the
law of the agreement should be clearly stated in order to avoid the default
rules under the Rome I Regulation, any international treaty or another
country’s legal system applying (to the extent possible).
• Is the law of another country to apply? If so,
• are there consequences or issues that might affect the agreement if
this is so, eg, whether some wording which might be binding under
another country’s laws would not be binding in England and Wales
(eg, wording that the parties are to negotiate in good faith will
generally not be binding under English law, but might be binding in
some civil law countries);
• is a party’s insurer content with non-English law applying? Eg, some
insurers will not provide cover (or subject the party insured to extra
conditions, or will limit the cover they provide if the insurer provides
it at all) if a contract is entered into with a party based in the United
States (or Canada) or which may be subject to US jurisdiction or the
law of a US state.
• If another country’s law applies, is the jurisdiction expressed to be non-exclusive? If
the law is other than England and Wales and if the agreement provides for
exclusive jurisdiction in that country’s law then an English party may be
prevented from taking any litigation steps outside that jurisdiction. A non-
exclusive jurisdiction may permit an English party to take appropriate
litigation steps in England or another country;
• Should the jurisdiction be expressed to be non-exclusive even if the law is that of
England and Wales? If:
• one of the parties is not based in England and Wales; and/or
• some of the activities under the agreement are to take place outside
of England and Wales; and/or
• some of the assets of a party are based outside of England and Wales,
then it might be appropriate to have non-exclusive jurisdiction.
Eg, if an English company grants a software licence to a licensee which
operates in France, and the licensee operates outside of its licence, it may
be easier for the licensor to obtain an injunction or other remedies in
France with a non-exclusive jurisdiction clause, or if an English company

448

M11_Boilerplate_Clauses_L.indd 448 31/08/2017 08:16

 Law and jurisdiction

sells goods to another English company (which is a subsidiary of a US

parent) who has no assets or real presence in England, then it may be
necessary for the seller to enforce any judgment in the US where the
assets are located. Therefore a non-exclusive jurisdiction clause will be
desirable.
• Which country’s law is to prevail in the UK? It is wrong to state in a law and
jurisdiction clause that ‘the courts of the UK are to have jurisdiction’ or
that ‘the courts will apply the law of the UK’. Neither exist, as the UK is
made up of a number of countries, each with its own legal system and laws.
See Exmek Pharmaceuticals SAC v Alkem Laboratories Ltd [2015] EWHC 3158
(Comm), where a jurisdiction clause referred to ‘The proper law of this
Agreement is the law of the UK, and the Parties submit to the exclusive
jurisdiction of the Courts of the UK and of all Courts having jurisdiction
in appeal from the Courts of the UK’. In the context of the agreement, as
it was one relating to international trade and that many disputes are dealt
with by the English commercial courts, the court was able to indicate that
English law and the English courts should deal with the dispute between
the parties.
• Is a country’s law correctly described? Eg:
• there is no law of the ‘United Kingdom’, there are several. The
principal ones are:
• the law of England and Wales;
• the law of Scotland;
• the law of Northern Ireland;
• there is no law of the United States as such, but there are laws for
individual states, such as New York, Delaware, California etc. For
example, companies are incorporated within a particular state;
• there is no EU-wide law (although the EU passes directives and
regulations and other measures that take effect across the whole of
the EU).

Location in the agreement

The Boilerplate section of the agreement will normally be the location for a
Law and jurisdiction clause.

Linkage and use

• If a party is not based in England and Wales, but the law of England and
Wales applies to the agreement, then it may be appropriate to appoint an
English agent for the service of court documents on the overseas party, see
Agents for service.

449

M11_Boilerplate_Clauses_L.indd 449 31/08/2017 08:16

 Law and jurisdiction

• If the parties to a contract choose a law other than that of England and
Wales and an English party has insurance (eg, professional indemnity
insurance or is required under the contract to provide insurance cover
for certain incidents arising under the contract), the insurance policy may
have been entered into on the basis that the law of England and Wales will
apply, see Insurance.

Sample precedent material

Precedent 1—Sample precedent

The validity, construction and performance of this Agreement shall be
governed by English Law. Any dispute arising under or in connection with
this Agreement shall be subject to the [non-]exclusive jurisdiction of the
English courts to which the parties to this Agreement hereby submit.

Precedent 2—Sample precedent – alternative

The validity, construction and performance of this Agreement shall be
governed by English Law, and any dispute arising under or in connection
with this Agreement shall be subject to the [non-]exclusive jurisdiction of
the English courts to which the parties to this Agreement hereby submit.
For the purpose of this Clause [no] ‘dispute’ shall mean any contractual
or non-contractual dispute, matter or claim which relates to, concerns or
arises from this Agreement.

Precedent 3—Short form – English law

The validity, construction and performance of this agreement shall be
governed by English law.

Precedent 4—Short form – English law and courts

This agreement shall be governed by and construed in accordance with
the law of England and Wales and each party agrees to submit to the
[non-]exclusive jurisdiction of the courts of England and Wales.

Precedent 5—Short form – English law and courts – interim injunction

outside of UK
This agreement shall be governed by and construed in accordance with
the laws of England and Wales and each party agrees to submit to the
exclusive jurisdiction of the courts of England and Wales, but any party
shall have the right to apply for an interim injunction in another court of
competent jurisdiction.

Precedent 6—Short form – English law and courts – service of

proceedings
1 This contract is subject to the law of England and Wales.
2 The parties submit to the [non-]exclusive jurisdiction of the courts of
England and Wales and irrevocably agree that proceedings issued

450

M11_Boilerplate_Clauses_L.indd 450 31/08/2017 08:16

 Law and jurisdiction

out of the said courts may without prejudice to the rules of service of
such courts be served by delivering such proceedings in an envelope
addressed to the party to be served at the address for such party set
out in this contract.

Precedent 7—Longer form – English law – exclusive jurisdiction of

English courts unless purchaser decides otherwise
1 This agreement shall be governed by and construed in all respects
in accordance with English law and the parties irrevocably agree
that the courts of England and Wales shall have exclusive jurisdic-
tion in respect of any dispute, suit, action arbitration or proceed-
ings (‘Proceedings’) which may arise out of or in connection with this
agreement provided that nothing contained in this agreement shall be
taken to have limited the right of the Purchaser to bring Proceedings
in any other jurisdiction or jurisdictions whether concurrently or not.
2 The Vendors expressly and specifically agree and accept that the
terms of this clause are fair and reasonable and appoint [name] of
[address] or such other firm as is mentioned in Clause [no] for the time
being to accept service on their behalf of any Proceedings which may
be commenced in England and Wales.

Precedent 8—Longer form – English law – partially exclusive jurisdiction

1 This agreement shall be governed by and construed in accordance
with English law.
2 The parties agree that the English courts have exclusive jurisdiction
to adjudicate any dispute which arises in connection with this agree-
ment save that, as such agreement conferring jurisdiction is for the
benefit of [Party A] only, [Party A] shall retain the right to bring pro-
ceedings against [Party B] in any other court which has jurisdiction.
3 [Party B] represents and warrants that the choice of English law to
govern this agreement is a valid choice of law under the laws of the
country in which [Party B] is based and the submission by [Party B]
to the jurisdiction of the courts of England and any other country in
accordance with this agreement is valid and binding upon the Lessee.

Precedent 9—Alternative form – English law – exclusive or non-exclusive

jurisdiction
1 This agreement shall be governed by and construed in all respects in
accordance with English law.
2 In relation to any legal action or proceedings to enforce this
agreement or arising out of or in connection with this agreement
(‘Proceedings’) each of the parties irrevocably submits to the jurisdic-
tion of the English courts and waives any objection to Proceedings
in such courts on the grounds of venue or on the grounds that the
Proceedings have been brought in an inconvenient forum.

451

M11_Boilerplate_Clauses_L.indd 451 31/08/2017 08:16

 Law and jurisdiction

[3 These submissions shall not affect the right of any party to take
Proceedings in any other jurisdiction nor shall the taking of
Proceedings in any jurisdiction preclude any party from taking
Proceedings in any other jurisdiction.]
[4 These submissions shall not affect the right of any party to take
Proceedings with a view to obtaining interim relief in any other juris-
diction.]

Precedent 10—Long form – UK/foreign jurisdiction

(This provision has been drafted to take account of the Civil Jurisdiction
and Judgments Act 1982.)
1 All the parties irrevocably agree that the courts of England are to have
jurisdiction to settle any disputes which may arise out of or in connec-
tion with this agreement and that accordingly any suit, action or pro-
ceedings (together in this clause referred to as ‘Proceedings’) arising
out of or in connection with this agreement may be brought in such
courts.
2 Without prejudice to Clause [1] each of [Party A] and [Party B] further
irrevocably agrees that any Proceedings arising out of or in connec-
tion with this agreement may be brought in any [State Courts of, or
Federal Courts in, the State of New York] and submits to the non-
exclusive jurisdiction of each such court.
3 Each of [Party A] and [Party B] irrevocably waives any objection
which it may have now or hereafter to the laying of the venue of any
Proceedings in any such court as is referred to in this clause and any
claim that any such Proceedings have been brought in an incon-
venient forum, and further irrevocably agrees that a judgment in any
Proceedings brought in the English Courts or in any [State Court of, or
Federal Court in, the State of New York] shall be conclusive and bind-
ing upon [Party A] and [Party B] and may be enforced in the courts of
any other jurisdiction.
4 Nothing contained in this clause shall limit the right of the Party C to
take Proceedings against [Party A] or [Party B] in any other court of
competent jurisdiction, nor shall the taking of Proceedings in one or
more jurisdictions preclude the taking of Proceedings in any other
jurisdiction, whether concurrently or not.

452

M11_Boilerplate_Clauses_L.indd 452 31/08/2017 08:16

 Months and other expressions of time

Purpose of the clause

Agreements often include provisions concerned with periods of time. It is

crucial to know with certainty when an obligation or benefit is to commence
and/or finish, including establishing whether a party has complied with its
obligations or is in breach of its contractual obligations and liable for damages
and other remedies. Case law provides some of the answers. Sometimes
the legal position is surprising and unexpected. The following paragraphs
summarise the legal position under English law.

Months, days, years and quarters

Month
Generally a month means a calendar month. This is provided:
• by the Law of Property Act 1925, s 61, and applies to all deeds, contracts
and other instruments governed by UK law unless the contract otherwise
requires;
• by the Interpretation Act 1978, s 5, Sch 1, and applies to legislation;
• at common law ‘month’ meant calendar month only in bills of exchange
and other commercial documents. Otherwise it meant ‘lunar month’
(Hart v Middleton (1845) 2 Car & Kir 9, 10).
Note that ‘calendar month’ does not necessarily mean a month which
commences on the first day of a month, but can mean a month commencing
on any date (see General principles of calculation in months below).

Year
Unlike ‘month’, which has a statutory definition, ‘year’ is not defined.
Consequently the agreement should state clearly what is meant by a year. Eg, in
an agreement there might be an expression such as ‘year of this Agreement’.
Does this mean:
• a year from a specified date? or
• the year in which the date of execution occurs? or

453

M12_Boilerplate_Clauses_M.indd 453 31/08/2017 08:27

 Months and other expressions of time

• the year in which the agreement commenced (ie a date prior to the date
of execution)? or
• the period of 1 January to 31 December (ie a calendar year)?
To avoid any uncertainty, the expression ‘year of this Agreement’ is sometimes
defined in the contract. Without a definition it may mean either a calender
year or a period of 365 days (366 days in a leap year) starting from another
date, depending on the context. It is possible also that a year (regardless of
when the period of year begins) may be for a length other than 365 days, such
as where ‘year’ has a particular meaning within a particular industry, trade etc
(eg Grant v Maddox (1846) 15 M & W 737; Boufoy-Bastick v The University of West
Indies [2015] UKPC 27). In the latter case, a year was held to be the length of
an academic year.

Day
The word ‘day’ may mean:
• a calendar day, from midnight to midnight; or
• a period of 24 consecutive hours, depending on the context (see for
example, Cornfoot v Royal Exchange Assurance Corpn [1904] 1 KB 40, CA,
distinguished in Cartwright v MacCormack [1963] 1 All ER 11, [1963]
1 WLR 18, CA); or
• a ‘working day’, which is normally understood as a (complete) calendar
day that is not a holiday, and not just the working hours of a day (Reardon
Smith Line Ltd v Ministry of Agriculture, Fisheries and Food [1963] AC 691,
[1963] 1 All ER 545, HL); or
• a ‘conventional day’ which begins at a defined time and ends 24 hours
later (Reardon Smith Line Ltd v Ministry of Agriculture, Fisheries and Food
[1963] AC 691, [1963] 1 All ER 545, HL); or
• a ‘business day’, which is sometimes understood to mean the days on
which a bank is open for business, while ‘working days’ will normally
mean Monday to Friday but not Christmas, Easter and bank holidays
(Lafarge (Aggregates) Ltd v Newham London Borough Council [2005] EWHC
1337 (Comm), [2005] 2 Lloyd’s Rept 577 even though one of the parties
regularly carried out work on a Saturday).

Quarters
If reference is made to quarters of a year in an agreement (eg where a royalty is
to be paid quarterly) then the agreement should state which quarterly periods
are to be applied (eg, 1 January to 31 March, 1 April to 30 June). If the periods
are not stated, a court may interpret the contract as referring to the traditional
quarterly periods used in landlord and tenant law, which end on a ‘quarter
day’. The ‘usual quarter days’ (as distinct from another set of quarter days that
were used in the distant past) are:

454

M12_Boilerplate_Clauses_M.indd 454 31/08/2017 08:27

 Months and other expressions of time

• 25 March (Lady Day);

• 24 June (Midsummer);
• 29 September (Michaelmas);
• 25 December (Christmas).

General principles of calculation in months

Day on which time begins to run generally excluded from reckoning

In calculating the period that has elapsed after the occurrence of the specified
event such as the giving of a notice, the day on which the event occurred is
excluded from the reckoning (Dodds v Walker [1981] 2 All ER 609, [1981]
1 WLR 1027, HL, also see Case analysis, below).

Period ends on corresponding date in appropriate subsequent month

(‘corresponding date’ rule)
When the relevant period is a month or a specified number of months after
the giving of a notice or the happening of an event, the general rule is that
the period ends on the corresponding date in the appropriate subsequent
month, ie, the day of that month that bears the same number as the day of
the earlier month on which the notice was given (Dodds v Walker [1981] 2 All
ER 609, [1981] 1 WLR 1027, HL, also see Case analysis, below). The following
are recent illustrations of the corresponding rule being applied:
• in Registrar of Companies v Radio-Tech Engineering Ltd [2004] BCC 277,
where a company was required to file its accounts within 10 months of
the end of its accounting period (on what is now Companies Act 2006,
s 442(2)), which was 30 September. The accounts were actually filed on
31 July. The Registrar applying the corresponding date rule argued that
the expiry date for filing was 30 July, not 31 July. The court, following
Dodds v Walker, agreed with the Registrar;
• in Okolo v Secretary of State for the Environment [1997] 4 All ER 242, where
by the Acquisition of Land Act 1981, s 23(4) applications to the High
Court concerning compulsory purchase orders needed to be made within
six weeks from the date of notice on which an order was first published,
excluding the date of publication. The High Court’s application of the
corresponding date rule was overturned by the Court of Appeal. The
Court of Appeal indicated that there was no need for such a rule where
the period is counted by weeks, as the period of a week was certain (ie a
period of seven days). See Case analysis, below.

Ends of months
A notice which lasts for a month or several months and which is served on the
last day of a month will expire on the corresponding day in the following day

455

M12_Boilerplate_Clauses_M.indd 455 31/08/2017 08:27

 Months and other expressions of time

of the appropriate subsequent month, except where there is no corresponding

day in the subsequent month. In such cases the corresponding day will be the
last day of the month. Eg, a month’s notice:

Served on expires
31 January 28 February (29 February in leap year)
28 February 28 March
30 April 30 May
31 May 30 June
30 June 30 July

The following clauses clarify some intended meanings for days, months and
years:
‘Day’ means a period of 24 hours expiring at midnight
‘Month’ means the period of a calendar month from [date]
‘Year’ means a period of 365 days from [date] (or, where that period includes a
29 February, 366 days)

Calculation of start and end points for defined periods of time

At what time does a period expire? Fractions of a day are normally excluded.
Eg, if a month’s notice must be given, the period will expire on midnight on
the last day of the month (see Re Figgis, Roberts v MacLaren [1969] 1 Ch 123,
[1968] 1 All ER 999). Therefore, ‘where a person under an obligation to do
a particular act has to do it on or before a particular date he has the whole of
that day to perform it’ (Afovos Shipping COSA v Pagnan [1983] 1 All ER 449,
[1983] 1 WLR 195, HL).
However, a provision which requires the giving of ‘at least’ or ‘not less than’ a
specified number of days’ notice is often interpreted as requiring that number
of ‘clear’ days, excluding not only the date on which a notice is served but also
that on which it expires (see, eg, Re Hector Whaling Ltd [1936] Ch 208 on what
is now the Companies Act 2006, s 320(1), (3)).

Dates calculated ‘from’ and ‘until’ etc

If the agreement states that something must be done:

• ‘from’,
• ‘beginning from’, or
• ‘after’
a date or event, then that date is excluded (see Hammond v Haigh Castle &
Co Ltd [1973] 2 All ER 289, and Trow v Ind Coope (West Midlands) Ltd [1967]

456

M12_Boilerplate_Clauses_M.indd 456 31/08/2017 08:27

 Months and other expressions of time

2 QB 899, [1967] 1 All ER 19; affd [1967] 2 QB 899, [1967] 2 All ER 900,
CA, considered in RJB Mining (UK) Ltd v NUM [1995] IRLR 556, CA). ‘Until’
a specified date includes that date (Henrich Hirdes GmbH v Edmund [1991] 2
Lloyd’s Rep 546, per Hirst J).

Stated length of an agreement

If the period is stated to be:

‘X months from the date of this Agreement’

it seems that the date set out at the head of the agreement will be used as the
reference point, even if the parties have mis-stated the date of execution of the
agreement (Styles v Wardle (1825) 4 B & C 908).
However, in this context it is not entirely clear whether the stated number of
months is to run from the date of the agreement or the day after. It may be
better to use phrases such as:
• ‘on or before’,
• ‘from and excluding’,
• ‘from and including’,
• ‘to and including’ etc,
which specify which dates to apply.
In some agreements drafted by US lawyers the interpretation clause defines
exactly what is meant by expressions such as ‘until’. American drafters also
use the term ‘through’ as in ‘through March 1st’ which means ‘up to and
including 1 March’. To avoid ambiguity (or lack of understanding on the part
of the commercial parties), the drafter may prefer to avoid the expressions
in the left-hand column, below, and use instead the words in the right-hand
column.

Avoid Use instead

‘by’ ‘on or before’
‘from’ ‘after’ or ‘from and excluding’. If it is intended to include the
date referred to, use ‘from and including’
‘until’ ‘to and including’ or ‘to but excluding’
‘between’ state whether the period is to be inclusive or exclusive of the first
day and the last day

Use of ‘business day’, ‘business hours’ etc

Some agreements define periods by the use of phrases such as ‘business day’
or ‘business hours’, etc. One meaning of such phrases relates to the activities
of banks and some definitions specifically relate, eg business hours as to the

457

M12_Boilerplate_Clauses_M.indd 457 31/08/2017 08:27

 Months and other expressions of time

hours that a particular type of bank (and sometimes a specific locality such
as the City of London) is open for business on a day. This is not always a
common understanding, and such phrases (if used) should be defined to state
specifically the days and times referred to, particularly if the parties operate
in different industries or countries. What might be a conventional business
day or business hours in one country or for a particular type of business may
be very different for another. For example, a firm of traditional lawyers in a
country with a high level of formality and tradition may be different to the
supplier of security software, who works 24 hours a day.

Use of ‘public holidays’, ‘bank holidays’ etc

An agreement may specify that something is done on a day other than a public
holiday or bank holiday (such as the meaning of ‘business day’ above). Eg a
supplier of goods may be under an obligation to make deliveries of goods on a
business day. If the meaning of a holiday is not defined, then the following can
provide guidance:
• there is no statutory definition of a public holiday that is generally
applicable;
• a public holiday, where defined, will normally include:
• non-statutory holidays: Good Friday, Christmas Day;
• Bank holidays: for England: Easter Monday, the last Monday in May,
the last Monday in August, 26 December (if it is not a Sunday),
27 December (in a year in which 25 or 26 December is a Sunday).
For Scotland: New Year’s Day (if it is not a Sunday or, if it is a Sunday,
3 January), 2 January (if it is not a Sunday or, if it is a Sunday,
3 January), Good Friday, the first Monday in May, the first Monday
in August, 30 November (if it is not a Saturday or Sunday or, if it is a
Saturday or Sunday, the first Monday following that day), Christmas
Day, if it is not a Sunday or, if it is a Sunday, 26 December).
For Northern Ireland: 17 March (if it is not a Sunday or, if it is a
Sunday, 18 March), Easter Monday, the last Monday in May, the last
Monday in August, 26 December (if it is not a Sunday), 27 December
(in a year in which 25 or 26 December is a Sunday).
See the Banking and Financial Dealings Act 1971.
The above applies within the UK; for a contract with party incorporated or
operating in another country the days that are public (or religious) holidays
and where no work is normaly done are likely to be different.

Other time periods

Rather than specifiy a particular period in which a party must undertake an

obligation, a clause may specify in more general terms when the obligation

458

M12_Boilerplate_Clauses_M.indd 458 31/08/2017 08:27

 Months and other expressions of time

will need to be fulfilled, such as ‘immediately, ‘forthwith’ or ‘as soon as

possible’. None of these expressions have a precise meaning. The meaning of
such expressions is likely:
• to be derived from the context in which the obligation appears together
with other obligations which need performing within a specific time
period in an agreement; or
• to equate to being done within a reasonable period.
Rarely will the expressions equate to instant performance of an obligation.
The courts have considered the words above (and others such as ‘promptly’,
‘directly’, ‘with all possible speed’) but not always in the context of interpreting
a contract.
The following are illustrations of how the courts have interpreted phrases such
as ‘as soon as possible’ and ‘forthwith’ in a contract:
• ‘as soon as possible’: a party was under obligation to make and deliver a part
for a gun ‘as soon as possible’. It delayed doing so because it did not have
a member of staff able to make the part. It was in breach of its obligation.
The court held that ‘“as soon as possible” meant do it within a reasonable
time, with an undertaking to do it in the “shortest practicable time”’. But
it did not mean that the party under the obligation had to put aside other
orders on which it was already working (Hydraulic Engineering Co Ltd v
McHaffie Goslett & Co (1878) 4 QBD 670 at 3, per Bramwell LJ, CA);
• ‘forthwith’: a party was under an obligation to deliver goods ‘forthwith’. But
payment for them was to be made within 14 days. In the context of the
case ‘forthwith’ meant the party under the obligation had to deliver the
goods no later than the date payment was due (Staunton v Wood (1851)
16 QB 638).

Location in the agreement

The definitions of the meaning of time are usually located:

• in the Definitions section of the agreement, ie, if there are one or two
expressions of time being used; or
• in the Boilerplate section of an agreement, eg, if several definitions of
time are used, sometimes with the Interpretation clause.

Linkage and use

Expressions of time are used extensively throughout agreements, but are most
frequently seen in the following types of clauses:
• in the Definitions, such as:
any definition for the length of the agreement:

459

M12_Boilerplate_Clauses_M.indd 459 31/08/2017 08:27

 Months and other expressions of time

‘“Contract Period” shall mean the period of 180 days from and including
the Commencement Date’
‘“Business Day” shall mean any day other than Saturday, Sunday, bank or
other public holiday in England and Wales’;

• in Main Commercial Provisions, such as:

Conditions Precedent and Subsequent provisions which define the core
commercial obligations of the agreement.
‘[Party A] shall carry out the Services within 90 days of the Commencement
Date’;

• Payment, concerning the periods for when payments are due, such as:
‘the Purchaser shall make payment within 30 days of the Agreement’;
• Reporting, provisions requiring a party to provide reports within a certain
period;
• in Secondary Commercial Provisions, such as:
• Confidentiality, which specify the length of time confidentiality
obligations will continue:
‘The provisions of this Clause 5 shall survive termination of this
Agreement for a period of 5 years’;

• Warranties, stating, eg, the length of any warranties which are given
and time limits on enforcing or claiming under them;
• Termination, stating the period in which an agreement can terminated
or a breach can be remedied;
‘A Party may terminate this Agreement at any time on 90 days’ notice’;

• Consequences of Termination, eg, stating any periods for when

things must be returned or activities are allowed to continue post
termination.
• in the Boilerplate section, such as:
in a Notices clause, to state when a notice is deemed to have been received
by a party:
‘…shall be deemed duly served … in the case of a notice sent inland by
first-class pre-paid post, two clear business days after the date of dispatch’.

Sample precedent material

Precedent 1—‘Month’ – definition

‘Month’ means calendar month.

Precedent 2—Part of month

Part of a calendar month shall count as a calendar month.

460

M12_Boilerplate_Clauses_M.indd 460 31/08/2017 08:27

 Months and other expressions of time

Precedent 3—‘Month’ – notice period

At least [one calendar month’s] notice of the intention to propose any new
rule or alteration must be given to the secretary.

Precedent 4—‘Month’ – notice period to coincide

The period of such notice shall coincide with the end of a calendar month.

Precedent 5—‘Month’ – completed calendar month

Entitlement to holiday will accrue with each completed calendar month
worked at the appropriate yearly rate.

Precedent 6—‘Month’ – payment terms

A fee of £[amount] per [month] [(variable upwards at the discretion of
[Party])] payable [monthly on the last day of every calendar month or quar-
terly on the first days of March, June, September and December] com-
mencing [with a proportionate payment] on [date] …

Precedent 7—‘Month’ – gross turnover calculation

The gross takings of the [Franchise Operation] arising directly or indi-
rectly from the conduct of the [Franchise Operation] during each calen-
dar month of the Term (and for any period less than a complete calendar
month) …

Precedent 8—‘Day’ – definition

‘Day’ means a period of 24 hours.

Precedent 9—‘Day’ – alternative definition

A ‘day’ shall be 24 consecutive hours.

Precedent 10—‘Clear day’ – definition

‘Clear day’ means 24 hours from midnight following the relevant event.

Precedent 11—24 hours’ notice

Party A may terminate such arrangement in whole or in part on 24 hours’
notice.

Precedent 12—Completion period

Party A undertakes and agrees to take all reasonable steps to ensure that
such works shall be completed within [ ] days of their commencement.

Precedent 13—‘Payment dates’ – definition

The [last] business day (being a day on which banks are open for busi-
ness in [England] of each [calendar month or quarter].

Precedent 14—‘Payment dates’ – alternative definition

[on [Friday] of each week in respect of the Business during the imme-
diately preceding seven (7) days or on the [tenth] day of each calendar
month in respect of the Business in the immediately preceding calendar
month].

461

M12_Boilerplate_Clauses_M.indd 461 31/08/2017 08:27

 Months and other expressions of time

Precedent 15—‘Due date’

The due date shall be extended to the next succeeding Business Day,
unless that Business Day falls in the next calendar month, in which event
the due date shall be the immediately preceding Business Day.

Precedent 16—‘Year’ – definition

‘Year’ means calendar year unless otherwise specifically stated.

Precedent 17—‘Year’ – alternative definition

‘Year’ means any period of 12 months from 1 January to the following
31 December.

Precedent 18—‘Year’ – alternative definition

‘Year’ means each 12-month period commencing from the date of this
Agreement or any anniversary of this Agreement.

Precedent 19—‘Year’ – alternative definition

‘Year’ means a period commencing on [date] and expiring on [date] in
the following calendar year or the date of termination of this Agreement,
if sooner.

Precedent 20—‘Year’ – alternative definition

‘Year’ means each period of 12 months starting on [the Commencement
Date or [date]] and includes the period from the Commencement Date to
the next [date].

Precedent 21—‘Year’ – alternative definition

The Agency’s total remuneration for each year of the Term, beginning
with the Commencement Date and its anniversaries (‘Year’) will not be
less than £[amount].

Precedent 22—‘Year’ – alternative definition

‘Year’ in this byelaw means the interval between one annual general
meeting and the next following annual general meeting.

Precedent 23—‘Year’ – longer form definition

A ‘year’ shall mean a financial year commencing on the 1st day of January
and ending on the next 31st day of December Provided that the first year
of the Term shall be deemed to commence upon the execution of this
Agreement and that the final year of the Term shall be deemed to con-
clude upon the expiry or earlier determination of the Term.

Precedent 24—‘Year’ – alternative definition – manufacturing licence

‘Year’ means each period of 12 months calculated from the calendar
quarter day following the date on which the Licensee shall have com-
menced the manufacture of the goods for commercial purposes.

462

M12_Boilerplate_Clauses_M.indd 462 31/08/2017 08:27

 Months and other expressions of time

Extracts from legislation

Law of Property Act 1925

Section 61—Construction of expressions used in deeds and other

instruments
In all deeds, contracts, wills, orders and other instruments executed, made or
coming into operation after the commencement of this Act, unless the context
otherwise requires—
(a) ‘Month’ means calendar month;
(b) ‘Person’ includes a corporation;
(c) The singular includes the plural and vice versa;
(d) The masculine includes the feminine and vice versa.

Case analysis

Dodds v Walker [1981] 2 All ER 609

Extract from the judgment of Lord Diplock:
‘In the instant case the (respondent) landlord’s notice was given on
30 September 1978; the (appellant) tenant’s application to the court for a new
lease was made on 31 January 1979. The only question in this appeal is: was
that one day too late?
The registrar and the judge of Grantham County Court both thought that it was
too late. They dismissed the tenant’s application on the ground that the court
had no jurisdiction to entertain it. In the Court of Appeal ([1980] 2 All ER 507,
[1980] 1 WLR 1061) opinion was divided. Stephenson and Templeman LJJ,
agreed that it was one day too late; Bridge LJ thought that it was just in time;
and leave was given by that court to appeal to your Lordships’ House.
My Lords, reference to a “month” in a statute is to be understood as a calendar
month. The Interpretation Act 1978 says so. It is also clear under a rule that has
been consistently applied by the courts since Lester v Garland (1808) 15 Ves
248, [1803–13] All ER Rep 436 that, in calculating the period that has elapsed
after the occurrence of the specified event such as the giving of a notice, the
day on which the event occurs is excluded from the reckoning. It is equally
well established, and is not disputed by counsel for the tenant, that when the
relevant period is a month or a specified number of months after the giving of a
notice the general rule is that the period ends on the corresponding date in the
appropriate subsequent month, ie the day of that month that bears the same
number as the day of the earlier month on which the notice was given.
The corresponding date rule is simple. It is easy of application. Except in a
small minority of cases, of which the instant case is not an example, all that
the calculator has to do is to mark in his diary the corresponding date in the
appropriate subsequent month. Because the number of days in five months
of the year is less than in the seven others the inevitable consequence of the
corresponding date rule is that one month’s notice given in a 30-day month is
one day shorter than one month’s notice given in a 31-day month and is three

463

M12_Boilerplate_Clauses_M.indd 463 31/08/2017 08:27

 Months and other expressions of time

days shorter if it is given in February. Corresponding variations in the length

of notice reckoned in days occurs where the required notice is a plurality of
months.
This simple general rule, which Cockburn CJ in Freeman v Read (1863) 4 B &
S 174 at 184, 122 ER 425 at 429 described as being ‘in accordance with
common usage … and with the sense of mankind’, works perfectly well with-
out need for any modification so long as there is in the month in which the
notice expires a day which bears the same number as the day of the month
on which the notice was given. Such was the instant case and such will be
every other case except for notices given on the 31st of a 31-day month and
expiring in a 30-day month or in February, and notices expiring in February and
given on 30th or 29th (except in leap years) of any other month of the year. In
these exceptional cases, the modification of the corresponding date rule that
is called for is also well established: the period given by the notice ends on the
last day of the month in which the notice expires.’

Okolo v Secretary of State for the Environment [1997] 4 All ER 242

Extract from the judgment of Schiemann LJ:
‘The point in relation to the six weeks is very simple and, to my mind, one of
first impression. In my judgment, if the notice is published on a Monday and
you are given six weeks to challenge it, six weeks will have ended by midnight
of the Monday in six weeks’ time. I equiparate six weeks with six times seven
days. There are various cases to which reference has been made where, in
the landlord and tenant field, one is construing periods of a month. There the
courts have used what has been described as the corresponding date rule.
“Month” is of course a rather more difficult word than “week” because “month”
can be anything from 28 to 31 days and, therefore, it has no precise meaning.
Parliament in the Interpretation Act 1978 has given it a definition in relation to
statutes passed after 1850.
The need for such a rule as to the corresponding date is one which has arisen
because of this uncertainty. I see no need for such a rule in relation to a “week”
where none of these problems arise. One notes that even in cases where the
rule would normally apply there are modifications of it, for instance where a
notice is given on the 31st day of a month containing 31 days, such as August,
that would expire in a month with only 30 days in September, and one could
not continue into the next month.’

464

M12_Boilerplate_Clauses_M.indd 464 31/08/2017 08:27

 Net sales value (or net invoice price)

Purpose of the clause

Definitions of ‘net sales value’ (or similar expressions, eg ‘net invoice price’)
are often included in intellectual property licence agreements and other
agreements where payments are calculated by reference to the amount paid of
a party’s sales of goods (such as agency or distribution agreements).
The concept of a net sales price or value implies that in calculating the amount
payable to a licensor or principal, the licensee, agent or distributor may deduct
certain items from the amount payable. Typically, items such as VAT, carriage
and insurance charges are deducted. A typical simple definition is seen in
Precedent 1. The list of what is a permitted deduction will vary from industry
sector to industry sector and will also depend on the bargaining position of
the parties.
The practical aim behind including such wording is to make it clear what the
licensee, agent or distributor can deduct from the amount it needs pay to
licensor or principal, both in terms of specific items and amounts. The bigger
aim behind such a clause is as a type of anti-avoidance measure, particularly
where intellectual property is involved.
For example, a company develops technology which can render web pages
more quickly. The company (the Licensor) licenses the technology to other
software companies (OSC), such as those who make operating systems. The
technology is embedded in the web browser that comes with the operating
system. The Licensor licenses the technology on the basis that the Licensor
receives a percentage royalty based on the price that the OSC sell each copy of
their operating system.
If the OSC decide to give the operating system away (make it freely available
as a download) then there are no sales. Or perhaps the OSC decide to create
a subsidiary which will be responsible for the development and sale of the
operating system with the OSC sub-licensing the technology to the subsidiary.
Again there is also no sale as such. Unless there are provisions to deal with
these situations the Licensor will receive no royalties. However it will continue
to be under an obligation to license their technology.
To deal with this, and other situations, the definition of net sales value attempts
to prevent the ways that some licensees have tried to avoid paying royalties.
The ‘bigger picture’ purpose of this type of clause is:

465

M13_Boilerplate_Clauses_N.indd 465 04/09/2017 08:28

 Net sales value (or net invoice price)

• to make sure that the licensor is paid for the grant of a licence and the use
of its intellectual property;
• to prevent the licensee avoiding making payments for the licence, such
as by:
• making no charge for the products or items that contain the licensed
intellectual property:
• making no charge for the products or items that contain the licensed
intellectual property, but charging for items, products or services
that are related to or need the licensed intellectual property (such
as if a product that contains the licensed intellectual property needs
servicing or maintenance, and the licensee charges for the servicing
or maintenance, but not for the product itself);
• transferring the licensed intellectual property to a company within
the group of companies of which the licensee is a member (ie there is
no sale);
• selling items or products that contain the licensed intellectual
property at below its market price; and
• to require that the licensee can only deduct sums from the amount it pays
to the licensor for specific items it has actually charged its (the licensee’s)
customers.
The use of a net sales value is normally based on the proposition that the
payment mechanism for which it is used is a royalty or other type of payment
per unit sold or made. Not all types of licensing, agency or distribution
agreement are suited to that method of payment calculation. The discussion
of other methods is beyond the scope of this book (but see Anderson,
Technology Transfer, 4th Edn, forthcoming).

Drafting issues

Where a party is using a Net Sales Value clause then depending on the
negotiating position and strengths of the parties, some of the following points
may also need consideration:
• What specific items can the licensee deduct? What is specifically deductible will
vary from industry to industry but normally focuses on costs of actually
making the sale of the licensed product (eg if the agreement concerns the
licensing of intellectual property that leads to the sale of a product), and
would include:
• the cost of packaging, insuring and delivering goods;
• any VAT or other similar sales tax that the licensee needs to pay;
• any other taxes or duties etc that the licensee needs to pay (eg the
licensee may need to pay import taxes on importing the goods into a
particular country);

466

M13_Boilerplate_Clauses_N.indd 466 04/09/2017 08:28

 Net sales value (or net invoice price)

• any trade discounts a licensee needs to offer (as well as any credits it
receives).
• What income or price will be used as the basis for the deductions in a Net Sales
Value definition? A licensee, in order to minimise royalty payments, could
deliberately sell no products, but give them away or sell them in return
for some other non-monetary payment, or sell them at a deliberately
low price so that the price equalled the amount of deductions in a Net
Sales Value definition. To meet this point the Net Sales Value will often
include wording whereby the price is set against the invoiced price of the
goods if sold to someone unrelated to the licensee in an arm’s length
transaction. This aims to add an element of objectivity to the price set by
the Licensee.
• A cap on the amount deducted? Although the categories stated in Precedent
1 are measurable, the licensor or principal may wish to include a cap on
the amount of deductions that the licensee/agent/distributor can make.
Possible ways of addressing this include:
• a general restriction so that the permitted deductions are no more
than the level found in the industry or markets in which the licensee
operates (ie are not more than the usual amounts or are average or
reasonable amounts that are deducted), or
• setting a maximum percentage deduction on the amount that a
licensee may deduct from the sale price of the licensed products.
• Does the Licensee receive income that is not derived from sales of licensed products?
A licensee may not in fact make any goods but derives all or some of its
income by granting sub-licences or from carrying out further development
work involving the licensed intellectual property (if the agreement involves
the granting of intellectual property rights). It is possible a licensee may
not in fact grant any sub-licences at all but still receive income related to
the licensed rights. For example, a third party may pay for the licensee
to carry out further research work and/or take an option to obtain a
licence in case the research work proves successful. There are other ways
in which a licensee may derive ‘income’ from having a licence. If these
types of income are normally obtained by a licensee then a Net Sales Value
definition will not be appropriate, rather a definition of Net Receipts
should be the basis for the calculation of royalties (see Precedent 3 for a
very simple version of a Net Receipts definition).

Location in the agreement

The Definitions section of an agreement will normally include the definition

of Net Sales Value.
The application of such a definition will normally be found in the Payment
clause.

467

M13_Boilerplate_Clauses_N.indd 467 04/09/2017 08:28

 Net sales value (or net invoice price)

Linkage and use

A Payment clause will normally apply the definition of a Net Sales Value clause
(see Precedent 2). In a licence agreement the royalty will be calculated using
the definition of Net Sales Value. The greater the amount of deductions, the
smaller the figure available to calculate a royalty.
In licence agreements the Net Sales Value clause can assume significance,
because of the amount of deductions that a licensee might wish to include.
Wording included in the definition of Net Sales Value as to what expenses and
payments are allowable can permit a licensee to deduct greater amounts and
thus reduce the royalty payable to the licensor.

Sample precedent material

Precedent 1—Sample definition – Net Sales Value

‘Net Sales Value’ means the invoiced price of Licensed Products sold by
the Licensee or its Affiliates [or its sub-licensees] [to independent third
parties] in arm’s length transactions exclusively for money, or, where the
sale is not at arm’s length, the price that would have been so invoiced if it
had been at arm’s length, after deduction of:
(a) normal trade discounts actually granted and any credits actually
given, and [provided that the amounts are separately charged on the
relevant invoice]
(b) any costs of packaging, insurance, carriage and freight,
(c) any value added tax or other sales tax, and
(d) any import duties or similar applicable government levies.
The deductions shall be no greater than an amount which is reasonable
and usual in the market or markets where products of the type of the
Licensed Products are normally sold.

Precedent 2—Application of a Net Sales Value definition in a payment

clause
Royalties
The Licensee shall pay to the Licensor a royalty being a percentage of the
Net Sales Value of all the Licensed Products [or any party thereof] sold by
the Licensee [or its sub-licensees].

Precedent 3—Sample definition – Net Receipts – simple

‘Net Receipts’ the amounts received by Licensee or its Affiliates from the
grant of sub-licences under the Patents and Know-how, less any VAT or
other sales tax.

468

M13_Boilerplate_Clauses_N.indd 468 04/09/2017 08:28

 Notices

Purpose of the clause

A Notices clause specifies the means by which parties to an agreement must

(or can) communicate with each other when certain specified events under
the agreement occur. All commercial agreements should provide for agreed
methods by which the parties can or must send formal notices to one another.
Providing a notices clause is useful, for example:
• to enable either party to communicate its intention to terminate or that it
is terminating the agreement;
• for commercial agreements that contain various optional or interim
powers, the exercise of which by one party is dependent on that party
giving notice to the other party (eg options to purchase property or
rights);
• for routine matters that arise during the operation of a commercial
agreement such as to where a party should send:
• invoices or statements;
• make payments;
• reports or other documents.
• as there is often a degree of urgency involved in party-to-party
communication, and it is therefore desirable to agree on a procedure
for giving notice which avoids the need to trace the other party’s current
address or whereabouts (or registered office) and the need to prove that
the other party has actually had the notice placed in its hands.
Following on from the last point, a practical reason why it is important to
include a Notices clause is that once a party complies with any formalities
regarding the notice as set out in the Notices clause (such as to its contents,
who must send it, who must sign it, how a party must send it, when it must
be sent, and when it assumed that it is received by the recipient, etc) there
will be an assumption (if the agreement contains wording to that effect) that
the notice is received by the other party. This assumption will depend on the
Notices clause containing wording in accordance with the assumption. The
advantages of including wording with the assumption is that it is taken as a fact
that the recipient has received the notice, regardless of whether they do in fact
receive or bother to read the notice. Such an assumption lends certainty to
commercial transactions.

469

M13_Boilerplate_Clauses_N.indd 469 04/09/2017 08:28

 Notices

Many lawyers consider a Notices clause is one of the most important ‘boilerplate’
clauses to be included in a commercial agreement.
There is much case law relating to the service, and the timing, of notices. The
great majority relate to landlord and tenant law. In some cases, mistakes in
the entering of details within a notice (such as inserting the wrong date of
termination) will not make the notice ineffective (see eg, Mannai Investment
Co Ltd v Eagle Star Life Assurance Co Ltd [1997] 2 WLR 945, HL – putting the
wrong date was held to be an ‘immaterial error which would not have misled
a reasonable recipient’). But where the mistake is deliberate or the error was
not apparent (such as sending the notice to a wrong party – see Lemmerbell Ltd
v Britannai LAS Direct Ltd [1998] 3 EGLR 67, CA – or to the wrong address) the
notice will not be effective.
However, where the form and content of the notice or the requirement for
a notice at all is specified by law then any type of mistake in or concerning a
notice makes the notice ineffective. This is likely to be on the basis that the
courts interpret compliance with statutory and regulatory requirements more
strictly than where commercial and other types of contracts are concerned.
In most commercial agreements it is not normally necessary to send notices
to comply with statutory or regulatory requirements. But they can sometimes
arise, for example in situations such as:
• in a sale/purchase of a business, the formal transfer of ownership will
need submitting to the Land Registry;
• in the licensing of some types of intellectual property (particularly with
patents, where prosecuting or maintaining in force a patent requires the
submission of forms, documentation and fees by particular dates).
There are also rules concerning the service and effectiveness of notices when
a contract is formed (the postal rule: Household Fire and Carriage Accident
Insurance Co Ltd v Grant (1879) 4 Ex D 216, CA), and in administrative (such
as judicial review proceedings), employment and civil proceedings, which are
outside the scope of this book.

Drafting issues

When preparing or considering the provisions of a Notices clause, a contract

drafter will wish to take account of the following matters:
• Whether the notice must be given in writing. It is unlikely that where the parties
use a written agreement, they will want notices sent other than in writing,
but it does no harm to specify this:
‘Any notice given pursuant to this agreement shall be in writing …’

• Whether only certain forms of writing are permissible. The parties may specify
that only certain forms of communication will constitute ‘writing’
(although a clause indicating that a notice may be sent by a particular

470

M13_Boilerplate_Clauses_N.indd 470 04/09/2017 08:28

 Notices

method may be sufficient indication that the notice itself may be prepared
in a way suitable for that form of communication). Eg:
‘Any notice … shall be writing (which will include a letter written by hand
or which is printed or which is prepared in a form suitable for sending by
electronic mail)’.
• Whether personal delivery is permitted. ‘Personal delivery’ has a particular
meaning, it does not mean that an individual delivers the notice but
rather that the notice is delivered (ie handed over) to a person. In the
case of a corporate body, personal delivery will normally mean leaving the
notice with someone authorised to receive it (such as a receptionist) (see
Bottin (International) Investments Ltd v Venson Group plc [2004] EWCA Civ
1368, [2004] All ER (D) 322 (Oct), para 47). Where a party is an
individual, ‘personal delivery’ will normally mean handing the notice
to the individual (Ener-G Holdings plc v Hormell [2012] EWCA Civ 1059).
A notice put through a letterbox or left at an unattended reception is
unlikely to equate to ‘personal delivery’. These meanings of personal
delivery will apply if not further defined or explained in the wording used
in a notices clause. For example, if the parties wish that a notice which
is served personally is sufficiently delivered by leaving at the reception
desk or by putting the notice through a letterbox, then the notices clause
should include wording to that effect.
If parties are to work together on a project or in partnership, whether
or not they are corporate bodies, then this simple direct method of
giving notice should not be overlooked. To omit it may cause subsequent
confusion, both as to whether due notice has in fact been given and as to
the time of delivery (see below).
‘Any notice … shall either be delivered personally or …)’.
For a corporate body, if a party wishes to make sure that a notice must
be brought to the attention of a more senior member of staff (such as
a director or senior manager) then the notices clause should use clear
wording to that effect. This may be difficult if it is not possible to easily
reach a director or a senior manager, who might work from an office
which is located within a building protected by security measures (such
as with serviced offices or multi-occupancy office blocks, where in order
to get into the building through security gates requires the permission of
the corporate body itself). Lawyers, when asked to deliver notices, usually
employ specialist process servers for such tasks, who will be experienced
in reaching the right person.
• Whether the notice can be sent by post. Until the advent of electronic mail, it
was common to send documents by post and to provide for the sending
of notices by post, usually first class post within the UK, or airmail from
overseas:
‘Any notice … shall be sufficiently given to any party if sent in a letter by
first-class or airmail pre-paid post.’

For particularly important notices the parties might specify that the notice
has to be sent by recorded delivery or another method.

471

M13_Boilerplate_Clauses_N.indd 471 04/09/2017 08:28

 Notices

As a practical measure, the contract drafter may need to consider whether

sending post by ordinary mail (or even recorded delivery (‘signed-for’)
mail) is an adequate method. Particularly within the UK, such methods
are not always reliable and do not always reach the intended recipient
(or the Royal Mail does not indicate in its systems that an item has been
‘signed-for’, ie the Royal Mail continues to display that it is still delivering
the item). For example, a business operating in a serviced office block
may never get to see its mail, because the mail when it reaches the serviced
office has to be collected from an office (ie the operators of the serviced
office do not deliver mail within their office block) and the recipient does
not bother to collect mail as it receives very little mail.
In such circumstances, for written communications, using (within the
UK) Royal Mail Special Delivery may be the only option:
‘Any notice … shall be sufficiently given to any party if sent in a letter and
only by Royal Mail Special Delivery (or an equivalent if the notice is sent
outside of the United Kingdom).’

• Whether the notice may be sent by email. In many commercial agreements the
sending of notices by email is the default position, and even more so in
situations where a party is resident overseas, or where it is necessary to
communicate promptly with the other party. Obviously, it is for the parties
to specify what communication systems are acceptable to them, but where,
as is usual, all currently available forms of message are specified it should
be ascertained that each party has the means to receive them. An example
in point is the use of facsimile machines. The presence of such machines
in organisations is becoming uncommon; nowadays they are likely to be
found only in larger organisations, and such an organisation may only
have one machine so it will take extra effort for a received facsimile to be
passed onto the intended recipient.
The following simple form of wording might be inserted:
‘Any notice … shall be sent … by electronic mail’.

In an agreement of lengthy duration, it may be thought wise to add a

simple form of wording to cover any new means of communication that
may be devised in future, eg:
‘… or by any means of telecommunication in permanent written form’.

• Whether communication other than by post must be confirmed by post. Where

electronic mail is concerned, the automatic receipts generated by some
emails programs can be turned off by the user of the email program.
Just as with other means of electronic or traditional methods, the sender
may have no idea whether a notice sent by electronic mail is received,
but there are dangers unique to electronic mail. For example, if
the recipient has a quota for the amount of email it may receive, and
that quota is exceeded, then the email will not reach the server. Or if
the email address of the recipient is valid, but the person(s) who has
access to it has left the organisation, then no-one at the recipient may
have arranged for such emails to be forwarded to another person in the

472

M13_Boilerplate_Clauses_N.indd 472 04/09/2017 08:28

 Notices

organisation. The person responsible for specifying an email address as

an address for service of notices may not be the same person as the one
who deals with forwarding email sent to an email address of a person
who has left organisation.
Accordingly, sometimes parties will wish to have emails confirmed by post,
with a view to reducing the risk that the notice was not received, eg:
‘Notices may be given by email (confirmed by post as provided above)’.

• Does the notices clause state the address(es) to which a party needs to send any notice?
Any notice should state the correct and current address of the recipient
to which a notice should be sent. For postal purposes, this will usually be
the address of the party set out at the beginning of the agreement. But a
party may change its address, particularly during an agreement intended
to run for some time. Accordingly a notices clauses should provide for the
possibility of a change of address, eg:
‘… for notice sent by post, to the address of the party receiving such notice
as set out at the head of this agreement, and for notices sent by electronic
mail to the electronic mail address set out below in Clause [no], or as
notified between the parties for the purpose of this clause’.

Preferably, the agreement should include these addresses, either by

reference to the Parties clause or within the Notices clause itself:
‘The electronic mail addresses of the Parties are: [ ] for [Party A] and for
[Party B] [ ]. [The address for the Parties for notices sent by post are: [ ]
for [Party A] and for [Party B] [ ]. Notices to [Party A] shall be marked for
the attention of [[name]] [job title]. Notices to [Party B] shall be marked for
the attention of [[name]] [job title].’

• When is the notice deemed as received. It may be very important to establish

that a notice has been duly delivered; the time of delivery should therefore
be specified. Such wording is important as by including a provision where
delivery is considered received, then the matters specified in the notice
may be carried out without being dependent on the recipient actually
receiving or admitting they have received the notice. Without this wording
it would always be open to the recipient to state they had never received
the notice, or that they failed to read it and to argue that the notice only
operates when it has come to the recipient’s attention.
Accordingly, agreements often include wording so that delivery of the
notice is considered made (or ‘deemed’) and that the recipient has
received the notice.
• Personal delivery.
‘Any such notice shall be deemed duly served, in the case of a notice
delivered personally, at the time of delivery;

or where personal delivery to an office is envisaged:

‘Any such notice shall be deemed duly served if left at the address of
the party receiving such notice as set out at the head of this agreement’

or (alternate form):

473

M13_Boilerplate_Clauses_N.indd 473 04/09/2017 08:28

 Notices

‘Any such notice shall be deemed to be given to and received by the

addressee at the time the same is left at the address of or handed to a
representative of the party to be served’.

Where it may be important for notice to be served promptly, eg in the

event of a significant breach of contract, service by hand may be given
priority and made operative even if the recipient is not present. For
example, if an owner of a trademark licence (Licensor) has granted
a licence to another person (Licensee) to permit the application of
the trademark to goods that the Licensee sells, but the Licensee has
not paid the royalties due for a substantial period, then the Licensor
may wish to terminate the licence. The Licensor will also wish the
Licensee to stop having the right to apply the trademark immediately
(and therefore not continuing to generate sales and income based on
the value of the trademark). Serving a notice by hand will bring such
activities to an end more quickly than other methods. Eg:
‘The Licensor may serve any such notice by hand upon the Licensee
at [the Premises] (whether or not the Licensee appears to be in
occupation of [the Premises] at the time of service) whereupon in the
event of any conflict between service by hand and service by any other
means such service by hand shall prevail’.

As noted above, if it is important or critical to a party that the sender of

a notice must physically hand over the notice to a representative of the
recipient (and no other method will do) then clear explicit wording
is necessary. In addition, the Notices clause should include wording
to indicate that other forms of delivery are specifically excluded as
acceptable means of service of the notice. It is likely that using words
such as ‘personal delivery’ will be interpreted to include other forms
of delivery than just physically handing over the document. In Primus
Build Ltd v Pompey Centre Ltd [2009] EWHC 1487 (TCC), [2009] All
ER (D) 14 (Jul) a Notices clause provided that a party could deliver
a notice by ‘personal delivery or sent by fax’. The notice was sent by
post and received and acted on by the recipient. The judge held that
‘personal delivery’ was not the same as ‘personal service’. For the
judge ‘personal delivery’ meant ‘the actual delivery by an appropriate
individual within [the claimant] to a similarly appropriate individual
within [the defendant]. The document in question must actually be
delivered. The method of delivery does not matter, provided that
the document is actually delivered to the named address in [the
schedule].’
• Post. If only routine notices are envisaged, the following may suffice:
‘any notice so given shall be deemed duly served unless the contrary is
proved to have been duly served at the time at which the letter would
be delivered in the ordinary course of post’.

However, there may be a need to be more specific, eg:

‘… shall be deemed duly served, in the case of a notice sent inland
by first class pre-paid post, [2] clear business days after the date of

474

M13_Boilerplate_Clauses_N.indd 474 04/09/2017 08:28

 Notices

sending, or, in the case of a notice sent to or from overseas by air mail,
[7] business days (being business days in the place to which the notice
is sent) after the date of sending’.

• Electronic mail. In addition to mechanical failures, the internet as

the carrier of electronic mail may also fail (servers fail to function,
server software stops working, internet service providers’ machinery is
stopped for repairs or maintenance).
Additional to problems that are outside of the control of the sender
or recipient, are problems with the recipient email program, ie that
correctly addressed email is not sent to the correct email address but
to a default address for all emails. Or the email address, although
correctly used by the sender, has been deleted by the recipient company
or the person to whom it is assigned or has to access emails sent to it
has left the recipient company (ie because of some re-organisation or
takeover or the role or person to who the email address is assigned
has left the company) and no-one at the recipient has arranged for
emails to that email address to be forwarded. These points are not
the sender’s problem and are difficult to address in contract wording.
However, a recipient needs to bear in mind, particularly if the contract
is a long-term one and in an industry where re-organisations, mergers,
takeovers etc are routinely frequent, that email addresses can change
or become non-operative. An email that is sent to an email address
which is no longer operative is unlikely to come to anyone’s attention,
while a letter addressed to a person who has left or a role which no
longer exists will still be seen by someone on receipt.
• Is a method of proof that a notice has been received required? In contracts where
the question of receipt of due notice may be especially important, it is
advisable to insert express provision confirming the method of proof in
the event of a dispute, eg:
‘In proving the giving of a notice for the purpose of any provision of this
agreement it shall be sufficient to prove that the notice was left or that the
envelope containing the notice was properly addressed and posted or that
the notice was sent by the applicable means of telecommunication to the
correct address and despatch of the transmission was confirmed and/or
acknowledged as the case may be’.

• Should the same address (and person) be used for all notices? For some types of
agreements or situations it may not be appropriate for a party to send all
notices and other documents to the same person or address of the other
party. This will be especially relevant where a party is a large organisation
(which is spread over several sites) or the agreement is long term.
For example, it may be more appropriate to send a notice concerning:
• an invoice, statement etc for the attention of the accounts department;
• delivery of goods to the delivery department; but
• breaches or termination to the chief executive, another senior
manager or in-house counsel.

475

M13_Boilerplate_Clauses_N.indd 475 04/09/2017 08:28

 Notices

A related point is that some forms of communication may not be used

for some notices because of the importance of the notice. Eg, in some
agreements, notices such as those concerning breach or termination
should not be sent by email.
• Notice to a party consisting of several persons. Eg, in partnership agreements
between a large number of partners, it may be convenient to provide for a
form of multiple notice to be given, eg:
‘A notice given by more than one partner may be in one or more copies
each signed by one or more of them’.

Location in the agreement

The Boilerplate section of an agreement will normally be the location for a

Notices clause.

Linkage and use

A Notices clause will have application throughout any agreement and all types
of agreement.

Sample precedent material

Precedent 1—First-class post

Any notice given pursuant to this agreement shall be in writing and shall
be sufficiently given to any party if sent in a letter by first-class or airmail
pre-paid post addressed to that party at [the party’s last known address
or place of business or that party’s registered office or the address of that
party set out at the head of this agreement (or any alternative address
notified by that party in accordance with this clause)] and any notice
so given shall be deemed unless the contrary is proved to have been
effected at the time at which the letter would be delivered in the ordinary
course of post.

Precedent 2—Short form – recorded delivery or registered post/telex/fax

– proof of service after extensive period
Any notice required or authorised to be given by either party under this
Agreement to the other party shall be in writing and shall be sent by pre-
paid registered or recorded delivery post or by electronic mail to the other
party at the address stated in this Agreement or such other address as
may be specified by the parties by notice to the other from time to time.
Any such notice shall operate and be deemed to have been served at the
expiration of [14] days after it is posted or transmitted. In proving such
service it shall be sufficient to show that the envelope containing the
notice was properly addressed and posted or that the transmission was
duly despatched and acknowledged as the case may be.

476

M13_Boilerplate_Clauses_N.indd 476 04/09/2017 08:28

 Notices

Precedent 3—Longer form – personal delivery/post/fax/electronic mail –

with confirmation
All notices to be given under this agreement shall be in writing and shall
either be delivered personally or sent by first-class or airmail pre-paid
post, facsimile transmission or email and shall be deemed duly served:
(a) in the case of a notice delivered personally, at the time of delivery;
(b) in the case of a notice sent inland by first-class pre-paid post, two
clear business days after the date of dispatch;
(c) in the case of a notice sent overseas by airmail, 7 business days
(being business days in the place to which the notice is dispatched)
after the date of dispatch; and
(d) in the case of electronic mail, if sent during normal business hours,
then at the time of sending and if sent outside normal business hours
then on the next following business day provided (in each case) that
a confirmatory copy is sent by first-class pre-paid post or by hand by
the end of the next business day.
Each notice shall be addressed to the address of the party concerned set
out in this agreement or to such other address as that party shall have
previously notified to the sender.

Precedent 4—Longer form – personal delivery/post/fax/electronic mail –

proof of receipt
1 Any notice or other document required to be given under this agree-
ment or any communication between the parties with respect to any
of the provisions of this agreement [(other than notice given by [Party]
pursuant to the provisions of Clauses [no] or [no] which may be oral)]
shall be in writing in English and be deemed duly given if signed by or
on behalf of a duly authorised officer of the party giving the notice and
if left at or sent by pre-paid registered or recorded delivery post or by
electronic mail, or other means of telecommunication in permanent
written form to the address of the party receiving such notice as set
out at the head of the Agreement, or set out in Clause [no] or as noti-
fied between the parties for the purpose of this clause.
2 Any such notice or other communication shall be deemed to be given
to and received by the addressee:
(a) at the time the same is left at the address of or handed to a rep-
resentative of the party to be served;
(b) by post on the day not being a Sunday or public holiday 2 days
following the date of posting;
(c) in the case of electronic mail or other means of telecommunica-
tion on the next following day.
3 In proving the giving of a notice it shall be sufficient to prove that the
notice was left, or that the envelope containing the notice was prop-

477

M13_Boilerplate_Clauses_N.indd 477 04/09/2017 08:28

 Notices

erly addressed and posted, or that the applicable means of telecom-

munication was correctly addressed and despatched (and if avail-
able, delivery was confirmed and/or acknowledged as the case may
be).
4 Communications addressed to [party] shall be marked for the atten-
tion of [name] [with a copy to [name and address of solicitors]].

Precedent 5—Alternative longer form – post/fax/electronic mail – proof of

receipt
1.1. Any notice to be given under this Agreement shall be in writing and
shall be sent by first-class mail or air mail, or by e-mail (confirmed
by first-class mail or airmail), to the address of the relevant Party
set out at the head of this Agreement, or to the relevant electronic
mail address set out below, or such other address electronic mail
address as that Party may from time to time notify to the other Party
in accordance with this Clause [1]. At the date of the Agreement, the
facsimile numbers and electronic mail addresses of the Parties are
as follows: Party A (electronic mail address); Party B (electronic mail
address).
1.2. Notices sent as above shall be deemed to have been received three
working days after the day of posting (in the case of inland first-class
mail), or seven working days after the date of posting (in the case of
airmail), or on the next working day after sending (in the case of elec-
tronic mail, but only if received in the electronic mailbox of the person
to whom the electronic mail is addressed to).
1.3. In proving the giving of a notice it shall be sufficient to prove that the
notice was left, or that the envelope containing the notice was prop-
erly addressed and posted, or that the applicable means of telecom-
munication was addressed and despatched.

Precedent 6—Long form – provision for urgent personal service with

priority
1 Any notice to be served on either of the parties by the other:
1.1 shall be in writing;
1.2 shall be sent by first-class pre-paid recorded delivery post or by
electronic mail or facsimile transmission;
1.3 shall be deemed to have been received by the addressee within
48 hours of posting to the address of the addressee set out at
the start of this agreement or within 24 hours if sent by electronic
mail to the correct electronic mail address of the addressee;
1.4 (in the case of any notice to be served by Party X may at the
discretion of the Party X be delivered by hand to [the Premises]
whereupon it shall be deemed to have been duly served on the
Party Y immediately.

478

M13_Boilerplate_Clauses_N.indd 478 04/09/2017 08:28

 Notices

2 Each of the parties shall notify the other of any change of address or
number within 48 hours of such change.
3 The Party X may serve any such notice by hand upon the Party Y at
[the Premises] (whether or not the Party Y appears to be in occupa-
tion of [the Premises] at the time of such service) whereupon in the
event of any conflict between service by hand and service by any
other means such service by hand shall prevail.

Precedent 7—Short form–one way

1 If you wish to provide to us any communication or notice for the pur-
poses of this agreement then you must provide in the ways set out in
this clause.
2 The communication or notice must be in writing. ‘Writing’ means that
you can write a letter by hand or which is printed, or which is pre-
pared on a computer for sending by electronic mail.
3 You can send the communication or notice to us in the follow-
ing ways:
(a) by delivering the communication or notice by hand. You will
need to deliver it to our [registered office] for which the address
is set out [at the top of this agreement] [somewhere else].
[Please note that this address [eg] is a building with several
businesses and a reception area which is for all of the business.
If you deliver the notice to the reception area then you will not
be delivering to us. You will need to ensure that the receptionist
calls us and asks for one of our employees to come and take the
letter from you. The reception area is only open between 9am
and 6pm Monday to Friday.]
(b) by sending it to us by post. You will need to address it to our
[registered office] for which the address is set out [at the top of
this agreement] [somewhere else]. You will need to address the
letter for the attention of [specify];
(c) by sending it by electronic mail. The electronic mail address you
will need to use is [specify][found somewhere else].
4 We [cannot] [do not] accept any communication or notice from you if
it is:
(a) sent by facsimile [or (specify)]; or
(b) provided orally, such as by telephone or when in the presence
of one of our employees or agents.
5 As long as you have delivered the communication in the way
described in 3(a) above or that you have correctly addressed your
letter or electronic mail in the way described in 3(b) and 3(c) above
then your communication or notice will be delivered to us as follows:

479

M13_Boilerplate_Clauses_N.indd 479 04/09/2017 08:28

 Notices

(a) a communication or notice delivered by hand: the next busi-

ness day.
(b) for a letter sent by post. If you send the letter by first class mail
then 3 business days after the date you placed the letter in the
post box. If you send the letter by second class mail then 5
working days after the date you placed the letter in the post box.
(c) an electronic mail: the next business day.
A ‘business day’ means Monday to Friday which is not a public holi-
day or a bank holiday.

Case analysis

Bottin (International) Investments Ltd v Venson Group plc

[2004] EWCA Civ 1368, [2004] All ER (D) 322 (Oct)

Key facts
The case involved the interpretation of a notices clause in a commercial
agreement (a share purchase agreement).
1 The defendants gave a number of warranties to the claimants. If there
was a breach of a warranty and the claimants wished to bring a claim
for such a breach, clauses in the agreement set out a procedure
which started with the serving of a notice on the defendants:
[From Clause 3 of the share purchase agreement]
(h) A Warrantor shall be liable for breach of a Warranty …. only if notice of a
claim is given to him, specifying such details of the event or circumstance
giving rise to such claim as are available to the Investor and estimating
(if capable of estimation by the Investor) its quantum, prior to the third
anniversary of Completion.
….
(o) No claim under the Warranties shall be deemed to have been made
unless notice of such claim was made in writing to the Warrantors
specifying such detail[s] of the event or circumstances giving rise to
such claim as are available to the Investor and an estimate (if capable
of preparation by the Investor) of the total amount of the Warrantors’
liabilities therefore claimed.
(p) Any claim in respect of which notice shall have been given in
accordance with Clause 3(o) above shall be deemed to have been
irrevocably withdrawn and lapsed (not having been previously satisfied
settled or withdrawn) if proceedings in respect of such claim have not
been issued and served on the Warrantors not later than the expiry of the
period of 12 months after the date of such notice.’

2 Clause 19 of the agreement specified how notices should be served:

‘Any notice, request instruction or other document to be given under this
Agreement to any of the Parties by any of the others shall be in writing and

480

M13_Boilerplate_Clauses_N.indd 480 04/09/2017 08:28

 Notices

delivered personally or sent by pre-paid recorded delivery post to their

addresses set out in this agreement. Any Party may change the address
to which notices are to be sent to it by giving written notice of the change
of address to the other Parties in the manner provided for in this clause
for giving notice. Any notice delivered personally shall be deemed to be
received when delivered and any notice sent by pre-paid recorded delivery
post shall be deemed received 5 business days after posting.’

3 A notice under Clause 3(o) was served on the defendants (to simplify
the facts of the case) by leaving the notice with the receptionist at the
defendants’ registered office.

Held
1 The Court of Appeal repeated points made by the judge at first
instance that the notice clause would not be interpreted by refer-
ence to:
(i) CPR 6.4(4): requiring personal service of a document on a com-
pany by leaving it with a person holding a senior position in the
company, or
(ii) to the Companies Act 1948, s 725, where service of a docu-
ment is by leaving it at or sending it to the company’s registered
office,
as neither had been incorporated into the share purchase agreement.
2 The Court of Appeal disagreed with the judge at first instance by stat-
ing that service could be effected by leaving the notice at the reg-
istered office of the defendants. The Court of Appeal noted that a
specific address was provided in Clause 19:
‘46. …There is nothing in clause 19 to require that the personal delivery to
a party which is a company has to be at the company’s registered office,
still less anything to suggest that personal delivery can be effected merely
by leaving the document in question somewhere in the building which is
the registered office. That gives no meaning to “personally”.’

3 The Court of Appeal agreed with the judge that a notice which is per-
sonally served can be left with a receptionist, as such a person is
authorised to receive, inter alia, letters:
‘47. The judge went on to say that service at the registered office by leaving
it with the receptionist was sufficient. Apart from the superfluous reference
to the registered office, on the particular facts that conclusion is in my
judgment correct. I agree with [counsel for the defendant] when he says
that personal delivery of a notice to a company is effected by delivering
the notice to somebody authorised to receive it. I disagree with him when
he says that the only person to have such authority is somebody in a
senior position in the company. The function of a receptionist ordinarily
is to receive people visiting, and letters or parcels being delivered to, the
employer of the receptionist. In the present case there was in evidence
the witness statement of the process server […], who delivered the […]
notice to the receptionist; that was accepted on the receptionist’s express
assurance that it would come to the attention of a director. As the judge

481

M13_Boilerplate_Clauses_N.indd 481 04/09/2017 08:28

 Notices

pointed out, the Defendants did not adduce any evidence as to what
happened to the […] notice after it was left with the receptionist. It is to be
inferred that it did come to the attention of a director. In my judgment, the
[…] notice was delivered personally to Venson.’

482

M13_Boilerplate_Clauses_N.indd 482 04/09/2017 08:28

 Option and right of first refusal

Purpose of the clause

What is an ‘option’
An option is a contractual right for one party (the option holder) to elect
to bring into force a term of an agreement. Usually, the option will arise in
specific circumstances and will continue for a specified period and will be
exercisable on pre-agreed terms or when particular circumstances occur.
For example, an option clause may grant the option holder:
• a right to purchase land if a landowner decides to sell it;
• a right to buy or sell shares if a company decides to allot more shares; or
• a right to take a licence to intellectual property generated under an
agreement.
To develop the final example, under a research agreement, a pharmaceutical
company agrees with another company or organisation (researcher) to
pay for research into a new treatment. The agreement may provide that if
the researcher receives or achieves a particular goal then the company can
exercise an option to either:
• immediately acquire an intellectual property licence to the results of the
research. The provisions of the licence may have been agreed at the time
the research agreement was entered into and the exercise of the option
simply gives the company the immediate right to a licence; or
• give the pharmaceutical company the right to negotiate the provisions
of the licence (and subject to the researcher and the pharmaceutical
company agreeing, the pharmaceutical company can then acquire a
licence). On exercise of the option, the parties will negotiate the provisions
of the licence (including duration, price, scope of the licence, etc).

Right of first refusal distinguished from option

Options are sometimes confused with rights of first refusal (sometimes also
known as a ‘first option’ or ‘pre-emption’). A right of first refusal is exercisable
only if the grantor of the right elects to make the right available. In other
words it is the right to be given the opportunity to acquire what is the subject

483

M14_Boilerplate_Clauses_O.indd 483 31/08/2017 08:55

 Option and right of first refusal

matter of the right of first refusal if the granter of the opportunity decides to
do so, see Astrazeneca UK Ltd v Albemarle International Corpn [2011] EWHC 1574
(Comm), [2011] All ER (D) 162 (Jun) and see Case analysis. Eg, under a
franchise agreement, the franchisee may be granted a specified territory
(Territory A) in which to exploit the franchise. The franchisee may wish to
have an opportunity to acquire a neighbouring territory (Territory B).
• Option. If the franchisee is granted an option to acquire Territory B, then
on the exercise of that option (depending on the detailed terms of
the option), the franchisee may elect to purchase Territory B during a
specified period.
• Right of first refusal. On the other hand, if the franchisee is granted a right of
first refusal over Territory B, it has no automatic right to acquire Territory
B if the franchisor does not make it available. A right of first refusal over
Territory B might provide, for example, that if the franchisor negotiates
terms with a third party for Territory B, then the franchisor must give the
franchisee an opportunity to match those terms. If the franchisee does
match the terms, the franchisor must grant Territory B to the franchisee
rather than the third party. Sometimes, contracts include both options
and rights of first refusal over the same opportunity.
The terms on which the right of first refusal is offered need to be sufficiently
certain so that the party having the right of first refusal can accept them and
enter into a contract, Accordingly, the right of first refusal amounts to ‘…a
right to receive a contractual offer on terms which the party who has granted
the right of first refusal is prepared to accept, even though the detailed terms
of any contract may require further negotiation and might ultimately not
eventuate in a contract at all’ (Astrazeneca UK Ltd v Albemarle International
Corpn [2011] EWHC 1574 (Comm), [2011] All ER (D) 162 (Jun), see Case
analysis). The party providing the right of first refusal must not only provide
a contractual offer, it also must be making a bona fide offer, ie where it sets
a price for the thing which is the subject matter of the right of first refusal,
the price must be one ‘…which, in good faith, it considers to be one which a
genuinely interested offeree would be prepared to consider’ (QR Sciences Ltd v
BTG International Ltd [2005] EWHC 670 (Ch)).
The wording used by the parties (whether they call their document, clause
etc an ‘option’ or a ‘right of first refusal’) is not determinative as to whether
it is an option or a right of first refusal. A court may interpret a document
labelled an option as a right of first refusal and vice versa (see Woodroffe v Box
[1954] ALR 474, 28 ALJ 90, Australian High Court; Fraser v Thames Television
Ltd [1984] QB 44, [1983] 2 All ER 101).

Time limit to comply with the exercise of an option

A date specified for the exercise of an option must be strictly complied with
otherwise the option will lapse (see eg Millichamp v Jones [1983] 1 All ER 267,
[1982] 1 WLR 1422; Haugland Tankers AS v RMK Marine Gemi Yapim Sanayii

484

M14_Boilerplate_Clauses_O.indd 484 31/08/2017 08:55

 Option and right of first refusal

ve Deniz Tasimaciligi Isletmesi AS [2005] EWHC 321 (Comm), [2005] 1 All ER

(Comm) 679) unless the agreement provides explicitly or by implication that
the option is to be exercised in a reasonable time (Re Kawasaki Kisen Kabushiki
Kaisha v Belships Co Ltd [1939] 2 All ER 108).

Drafting issues

An enforceable, unambiguous option will generally cover the following

matters:
• Is it clear what the option holder is to receive when it exercises the option?
Eg, if it is an option to enter into a further agreement, eg a patent licence,
are the terms of the licence attached to the option agreement, or is there
an enforceable mechanism for agreeing those terms?
• Does the option holder receive an exclusive, first option or a non-exclusive option?
Ie is the giver of the option prevented from granting similar rights to any
other person? This may be implicit in the wording of many option clauses
(eg if it is an option to purchase a specific plot of land), or may not be an
issue given the nature of the deal. In any case, it is preferable to state the
position specifically.
• Does the holder of the option provide consideration for it? Where the option forms
part of a larger agreement, the consideration need not be directly linked
to the option granted and may be found elsewhere in the agreement. If
the option is not within a larger agreement, or it is not clear what is being
provided in return for the granting of the option, then it may amount
to no more than an ‘agreement to agree’ (Walford v Miles [1992] 2 AC,
[1992] 1 All ER 453, HL, see Case analysis; Dany Lions v Bristol Cars Ltd
[2014] EWHC 817 (QB)) or may not be sufficiently certain to create a
binding obligation.
• Is there a clear description of the circumstances when the option holder will have the
right to exercise it?
Are the specific events clearly described which will allow the option holder
to exercise the option? Can the option holder exercise the option at any
time prior to the expiry date of the option?
May it be made conditional upon certain events taking place (eg the grant
of planning consents)?
• Is there a clear statement of how the option may be exercised? Eg must the option
holder give notice to the other contracting party or parties? Is there any
particular form that the notice must take and/or time limits that need
complying with? A requirement for a written notice that refers specifically
to the option agreement may avoid uncertainty.
• Is it possible to exercise the option if one or more of the parties has changed?
Between the time an option is granted and the time it is exercised, one

485

M14_Boilerplate_Clauses_O.indd 485 31/08/2017 08:55

 Option and right of first refusal

or more parties may have assigned their interest in the agreement which
contains the option. The assignee(s) may not be the parties envisaged or
contemplated at the time of exercise. Also, in the event of a dispute, the
courts may interpret the option strictly so that an assignee may not be
permitted to exercise the option (see BP Oil UK Ltd v Lloyds TSB Bank Ltd
[2004] EWCA Civ 1710, [2004] 1 All ER (D) 336 (Dec)) but it is likely
to depend on the words found in the agreement and the surrounding
circumstances (Truegold International Ltd v Questrock Ltd [2010] EWHC 966
(Ch)).
• On how many occasions can the option be exercised? If not clear from the
circumstances, can the option only be exercised once or can it be exercised
on subsequent occasions?
• What happens if the option is not exercised? If the right to exercise an option
arises and the option holder fails to exercise do they lose the right to
exercise after a specific period of time (the option is said to lapse)? Or
will the right to exercise it again exist generally or when some specific
circumstances arise?

Location in the agreement

An Option clause, if contained in a wider agreement that concerns other

matters of substance, will normally be included in the Main Commercial
Provisions section.

Linkage and use

Options

Options and option agreements are widely used. In an agreement that deals
with matters of substance other than the option, the following provisions may
need attention.
• Notices. If any notices are required to be given, do they need to be in a
particular form? The required form is sometimes attached as a schedule
to an agreement.
• Payment. If a specific payment is to be made on grant or exercise of
the option, are any ‘normal’ payment provisions to apply (payment on
invoice, set number days to pay) or are particular requirements to apply
here (ie payment with exercise of the option means the payment must be
in the bank account of the grantor of the option on the exercise date)?
• Termination. In what circumstances will the option terminate? Eg an option
may terminate (eg ‘lapse’) if it is not exercised by the option holder or
terminate on it being exercised if the parties are unable to come to an
agreement (see Precedent 1).

486

M14_Boilerplate_Clauses_O.indd 486 31/08/2017 08:55

 Option and right of first refusal

Sample precedent material

Precedent 1—Option to enter into licence agreement

1 Option
1.1 Subject to the provisions of this Clause 1, the [University] grants
to the [Sponsor] an exclusive, first option (the ‘Option’) to acquire
an exclusive, worldwide licence (with the right to sub-license)
under the Resulting Intellectual Property to develop, manufac-
ture, have manufactured, market, use and sell Products in the
Field (the ‘Licence Rights’).
1.2 The Option shall be exercisable at any time during the continua-
tion of this Agreement, and shall be exercised by the [Sponsor]
giving notice thereof in writing to the [University] (‘Notice of
Exercise of Option’). During the period of the Option and, if the
Option is exercised, during the period referred to in Clause 1.3,
the [University] shall not grant the Licence Rights to any other
person.
1.3 Following the [University’s] receipt of the [Sponsor’s] Notice
of Exercise of Option, the [University] and the [Sponsor] shall
negotiate in good faith, for a period of up to 90 days from the
date of such receipt, the terms of a licence agreement between
them under which the [Sponsor] would be granted the Licence
Rights. Upon agreement of such terms, the Parties shall forth-
with execute a licence agreement between them on such terms.
1.4 If the Parties are unable to agree the terms of a licence
agreement within 90 days of the [University’s] receipt of the
[Sponsor’s] Notice of Exercise of Option, despite negotiating in
good faith, the Option will lapse.

Precedent 2—Option to purchase shares

1 Grant of Option
In consideration of the sum of [£1] (the receipt of which is acknowledged
by the Company) the Company grants the Director the right to subscribe
for the Option Shares [or any of them] at the Subscription Price.
2 Right to exercise Option
2.1 Except where exercise is pursuant to Clause [no] the Option
may not be exercised before [insert first exercise date].
2.2 The Option may not in any circumstances be exercised after
[insert final exercise date].
2.3 The right to exercise the Option shall terminate forthwith upon
the Director ceasing to be a director of the Company.
2.4 The Option is personal to the Director and he may not transfer
assign or charge it.

487

M14_Boilerplate_Clauses_O.indd 487 31/08/2017 08:55

 Option and right of first refusal

2.5 The right to exercise the Option shall terminate forthwith upon
the director being adjudicated bankrupt.
2.6 The Option shall lapse on the earliest of the following dates:
(a) [insert final exercise date];
(b) the expiry date of any period during which the Option
may be exercised;
(c) the date on which the Director ceases to be a director of
the Company;
(d) the date on which a resolution is passed or an order is
made by the court for the compulsory winding up of the
Company; or
(e) the date on which the Director does or omits to do any-
thing as a result of which he ceases to be the legal and
beneficial owner of the Option.
3 Exercise of Option
The Option shall be exercisable in whole or in part [(but if in part then in
respect of not less than [insert minimum percentage] of the Option Shares
or the balance of the Shares comprised in the Option)] by notice in writing
given by the Director to the Company.

Precedent 3—Short form – right of refusal to be added to separate option

clause in franchise agreement
In the event that the Franchisor wishes to grant to a third party a fran-
chise for a new Outlet in that part of the Development Area edged
green on the Map during the Term [(which the Franchisor undertakes
shall not occur prior to the expiry of [number] months from the date of
this Agreement)] the Franchisor shall notify the Franchisee in writing
of such desire and thereupon the Franchisee shall have 90 days from
the date of such notice in which to notify the Franchisor in writing that
it shall exercise the Option in respect of such Outlet failing which the
Franchisor shall be at liberty to grant a franchise to a third party for
such Outlet.

Precedent 4—Short form – right of refusal to licensee of patents before

licensor assigns patents to third party
For so long as the Licensee is the licensee of the Patents, the Licensor
shall not assign the Patents to a third party. If the Licensor wishes to
assign the Patents to a third party it shall first provide an opportunity to
the Licensee to obtain an assignment of the Patents to itself [subject to
the Parties negotiating in good faith and agreeing the terms and condi-
tions of the assignment].

488

M14_Boilerplate_Clauses_O.indd 488 31/08/2017 08:55

 Option and right of first refusal

Precedent 5—Short form – option to extend an agreement for a further

period subject to agreeing a new price
1.1 Subject to the [remaining] provisions of this Clause 1, the Supplier
grants to the Customer an option (the ‘Option’) to extend the period
of this Agreement for a further period of [1 year]:
1.2 At the date that the Customer exercises the Option the Supplier does
not have a right to terminate this Agreement for any of the events set
out in Clause [no], or if the Supplier has previously exercised a right to
terminate it is no longer continuing;
1.3 The Option shall be exercisable at any time by the Customer during
the continuation of this Agreement but no later than 90 days before
the end of the [Term];
1.4 The Option shall be exercised by the Customer giving notice in writ-
ing to the Supplier;
1.5 Following exercise of the Option the Parties shall negotiate in good
faith, for a period of up to 30 days from the date of the notice given
under Clause 1.4 on the Price the Customer shall pay to the Supplier
for the Services if the Agreement is extended for a further period.
1.6 If the Parties reach agreement on the Price then the Parties shall
immediately execute an amendment agreement in the form as set out
in Schedule [1] to this Agreement, which will reflect the agreement
between the Parties on the Price and the further period.
1.7 The Option shall lapse if:
(a) the Customer fails to exercise the Option in accordance with
Clause 1.3 above; or
(b) the Parties are unable to agree the Price in accordance with
Clause 1.5 above, despite negotiating in good faith.

Case analysis

Haugland Tankers AS v RMK Marine Gemi Yapim Sanayii ve Deniz

Tasimaciligi Isletmesi AS [2005] EWHC 321 (Comm), [2005] 1 All ER
(Comm) 679

Facts
1 C (as buyer) and D (as builder) entered into a contract whereby
D designed, built and delivered to C an oil tanker (hull 63).
2 On the same date as the above contract the parties entered into an
option agreement granting C the option to buy an additional, identical
vessel.

489

M14_Boilerplate_Clauses_O.indd 489 31/08/2017 08:55

 Option and right of first refusal

3 The option agreement terms stated (amongst others) that once

C declared the option by serving notice to D then C would be required
to provide D with simultaneous payment of 1% (the ‘Commitment
Fee’) of the contract price for hull 63.
4 C declared the option in a letter to D. The letter did not refer to, nor
did D pay, the Commitment Fee.
5 D contended that the option had not been properly exercised since
the Commitment Fee had not been paid.
6 C sought a declaration concerning the valid exercise of the option.

Held
1 The judge [(Langley J)] stated that the option agreement did not use
the word ‘exercise’ but referred to C ‘declaring’ the option and paying
the fee.
2 He held that the use of the word ‘simultaneously’ was much stronger
than (eg) ‘upon giving notice’: ‘The notice and payment must be given
and made at the same time and so, I think, usually as part of a single
process in this case of exercising the option.’
3 Further, the use of the term ‘Commitment Fee’ also suggested that
the payment of the fee was required in order to secure D’s commit-
ment to the contract. Accordingly, the offer contained in the option
could not be accepted without the payment of the Commitment Fee
at the same time.
4 Therefore the option had not been exercised validly.

BP Oil UK Ltd v Lloyds TSB Bank Ltd [2004] EWCA Civ 1710, [2004] 1 All
ER (D) 336 (Dec)

Facts
1 The defendant bank was the tenant under a lease of office premises.
The claimants were two BP companies and a Mobil company (the ‘Oil
Cos’).
2 The terms of the head lease prevented D from granting an underlease
of a part in the way the Oil Cos desired. Accordingly, the Oil Cos took
an assignment of the lease on terms that D entered into an option
agreement that granted the Oil Cos an option to put the lease back on
to D for no consideration (a ‘put option’). The put option was personal
and non-assignable.
3 At the time of the option agreement the Oil Cos were in partnership,
but this later had to be determined due to competition reasons. The
arrangements included Mobil’s release of its interest in the lease and
the Oil Cos assigned the lease to the two BP companies.

490

M14_Boilerplate_Clauses_O.indd 490 31/08/2017 08:55

 Option and right of first refusal

4 The Oil Cos served notice on D to exercise the put option. D refused
to take the lease back on the grounds that the assignees were not the
original ‘tenant’ under the lease. The Oil Cos disagreed and issued
proceedings.
5 At first instance the judge held (i) that there was not a valid exercise of
the put option and (ii) the option might still be validly exercised if the
lease was reassigned to the Oil Cos. The parties both appealed on
the aspects adverse to them.

Held
1 On a true construction of the option agreement, the Oil Cos were
defined as ‘the purchaser’. The option necessarily involved the pur-
chaser being the tenant. Thus the exercise was invalid and would be
whilst only two were tenants.
2 The option could be exercised if the lease had been reassigned back
to the original three companies by the date of exercise of the option.

Astrazeneca UK Ltd v Albemarle International Corpn [2011] EWHC 1574

Facts
1 The claimant sells an anaesthetic. During the life of the agreement
between the parties the claimant manufactured an ingredient of the
anaesthetic (propofol) by distilling material (2,6 Di-isopropyl-phenol
(DIP)) made by the defendant.
2 The parties entered into a supply agreement in 2005, which was ter-
minated in 2008.
3 At the time the parties entered into the supply agreement, the claim-
ant was already contemplating ceasing distilling DIP, and buying
propofol direct.
4 The supply agreement contained a clause reflecting 3 (the clause
is reproduced below). That if the claimant did wish to directly buy
propofol rather than distilling it then the defendant would have a right
of first refusal to supply propofol.
5 The meaning of the clause and what it covered was the heart of the
dispute between the parties. The defendant claimed that the claimant
was in breach of the clause, and accordingly that the defendant could
terminate the agreement. The claimant argued that the meaning of
the clause had a different meaning to that given by the defendant
and that the claimant gave plenty of opportunities to the defendant to
match an offer made to the claimant by a third party for the supply of
propofol.
The clause dealing with a right of first refusal

491

M14_Boilerplate_Clauses_O.indd 491 31/08/2017 08:55

 Option and right of first refusal

‘H-Switch to Propofol
In the event that at any time BUYER reformulates or otherwise changes
its Diprivan brand to substitute propofol for the PRODUCT, BUYER will so
notify SELLER and will give SELLER the first opportunity and right of first
refusal to supply propofol to BUYER under mutually acceptable terms and
conditions.’

Held
1 The irreducible minimum for a right of first refusal was that it confers a
right to obtain the subject matter of the right:
‘it confers a right to be given an opportunity to match any third party
offer which the grantor of the right might be otherwise minded to accept,
and, in the event that the grantee matches the offer, to be awarded the
business to which the offer relates. That construction of the right of first
refusal is supported by a number of authorities, which, albeit all at first
instance, seem to me to support [what is the above] irreducible minimum.’

2 That the right of first refusal has to amount to a contractual offer,

although the wording of the clause does not need to state that in clear
wording:
‘… that the grantor of the right of first refusal is obliged to make a
contractual offer, even though there is no express covenant to that effect
in the term containing the right of first refusal.’

3 A right of first refusal is a right to receive a contractual offer from the

grantor, even though all the terms and conditions of entering a con-
tract are not settled or the parties will need to negotiate further to
agree those terms and conditions:
‘… that a right of first refusal constitutes a right to receive a contractual
offer on terms which the party who has granted the right of first refusal is
prepared to accept, even though the detailed terms of any contract may
require further negotiation and might ultimately not eventuate in a contract
at all.’

4 In the situation where:

(a) the grantor has received an offer from a third party; and
(b) the grantor wishes to accept that offer;
then the grantor, in order to comply with the obligation to grant a right
of first refusal, has to provide an opportunity to the grantee to match
that offer. It does not matter as “to the substance of the obligation
that the grantor is in the position of accepting as opposed to making
an offer”.
5 The court also recognised that a right of first refusal might also arise
in different circumstances to the grantor refusing an offer from a third
party. For example under a patent licence agreement a patent owner
may be under an obligation not to assign any patent it owned with-
out first offering to assign it to the licensee. Any offer made by the

492

M14_Boilerplate_Clauses_O.indd 492 31/08/2017 08:55

 Option and right of first refusal

owner to the licensee would need to be based on prior contractual

negotiations before the making the offer to assign, and the offer had
to be sufficiently certain to allow the licensee to immediately accept
it (ie just issuing an offer without making it possible for the licensee to
accept would amount to no more than an agreement to negotiate):
‘… the relevant contractual negotiations would precede the making of the
offer which the right of first refusal required, so that the “contractual offer”
had to be one the acceptance of which created an immediately binding
contract…that what is required for the grantor of a right of first refusal
to comply with its obligation is a “contractual offer”, in the sense of an
offer which contains the essential terms on which the grantor is prepared
to enter into a contract. It matters not that detailed terms may require
subsequent negotiation.’

(This point was based on the court’s analysis of an earlier decision in

QR Sciences Ltd v BTG International Ltd [2005] EWHC 670 (Ch) (initial
judgment) and [2005] EWHC 1500 (Ch) (supplemental judgment).
6 The court also held that the grantor had to use good faith by provid-
ing full disclosure to the grantee of the provisions of any agreement
that the grantor was willing to accept from a third party. The court
found that such obligations are ‘inherent or incidents’ of the right of
first refusal:
‘… if there is a third party deal with which the grantor is minded to proceed,
in order to enable the grantee to exercise its right of first refusal and match
that offer, full and fair disclosure of that deal by the grantor is required.
That seems to me to be an incident of the obligation on the grantor to act
in good faith… [Other case law] recognises the importance of providing
full details of whatever contractual “deal” is contemplated, so as to enable
the right of first refusal to be properly exercised.’

7 That an obligation of good faith is in this context is not a generalised

concept:
‘… what is required (consonant with the obligation to provide full and fair
disclosure of any deal the grantor is minded to accept) is good faith in
setting out the precise terms of the offer the grantee has to match and
which the grantor is minded to accept. … without good faith in that
sense, the grantee will not have the opportunity to which the right of first
refusal entitles it contractually, to understand and have the opportunity of
matching the third party proposal.’

8 The clause containing the right of first refusal contains the phrase
‘under mutually acceptable terms and conditions’ and the court
explored what is to happen once the grantee has accepted the con-
tractual offer or has matched the third party offer that the grantor is
willing to accept. It is still possible for there to be no binding contract
because there is difficulty between the parties on the detail of what
will be supplied. The court held that in such circumstances:
‘… what the grantor is not entitled to do is to act in bad faith in relation
to such detailed negotiations, declining ultimately to enter a contract with
the grantee and then enter into a contract on essentially the same terms
with a third party.’

493

M14_Boilerplate_Clauses_O.indd 493 31/08/2017 08:55

 Parties

Purpose of the clause

Every contract should identify the parties to the contract unambiguously.

One important reason for this is if a party wishes to start legal proceedings,
then that party knows to whom (and to where) to serve legal proceedings for
breach of contract.
In agreements made under English law, it is conventional to state at the head
of the agreement, in separate numbered paragraphs:
• the correct (full) legal name of each party;
• if it is not clear from the name, their status, eg a private limited company,
a (unincorporated) partnership or a company limited by guarantee,
incorporated by Royal Charter;
• if appropriate, in the case of incorporated parties, the place of
incorporation and their registration number;
• the address of each party, usually the registered office (in the case of UK
companies incorporated under or regulated by, the Companies Act 2006)
or the principal place of business (in other cases).
Each of these matters is now considered in turn. In relation to non-UK parties,
see Agents for service.

Drafting issues
• Numbering and paragraphing. Conventionally, each party is described in a
separate paragraph and numbered, as in Precedent 1.
Often an agreement will have a shortened form of the name for referral
purposes later in the agreement, such as in Precedent 1 (eg ‘IBM’
for International Business Machines). Alternatively the parties are
more usually referred to by their ‘roles’ in the agreement. If a party is
manufacturing products then it is referred to in the agreement as the
‘Manufacturer’. This is often used where one party is entering a particular
type of agreement on a frequent basis. Such an approach helps to reduce
the number of changes needed for it to be made into a standard form of
agreement.

494

M15_Boilerplate_Clauses_P.indd 494 31/08/2017 09:18

 Parties

However, although describing a party by their ‘role’ is often done, a

contract drafter should avoid this method, where possible, to avoid giving
two parties similar sounding roles, such as ‘licensor’ and ‘licensee’. It is
all too easy to confuse them, and for mistakes to be made in the drafting
or typing as to the party referred to. For example, in a patent licence
agreement, if the parties are described as ‘Licensor’ and ‘Licensee’ then a
warranty found in patent licences might be:
‘The Licensor warrants, represents and undertakes to the Licensee as
follows that the Licensor is entitled to license [the Patents] to the Licensee
and has not previously licensed or assigned them or entered into any
agreement relating to them or to the Technology, which might affect its
ability to license [the Patents] to the Licensee in accordance with the
provisions of this agreement or enter into this agreement or which would
be inconsistent with the Licensor’s warranties and obligations under this
agreement.’

If the contract drafter inadvertently types ‘Licensee’ for “The Licensor

warrants, represents…” then the clause will become a nonsense, and the
Licensee may lose the protection the warranty is designed to provide. The
licensee, in the event of a dispute, will be reliant on a judge deciding
that the incorrect description of the party in the clause was a clerical
slip worthy of correction, if the Licensor was not prepared to agree to a
correction. In such a case it would be better not to describe the parties in
so similar a way.
• Where two differently-named parties are to be treated as one party in an agreement.
If two differently-named parties are to be treated as one party for the
purposes of accepting an obligation or receiving a benefit, the contract
drafter should name each in a separate paragraph at the head of the
agreement, but give the two parties a collective shorthand name (see Joint
and several liability). See Precedent 2.
• Name and status. The main purpose of stating the (full) legal name and
status of a party in detail is to be clear as to their identity. It may also ‘flag
up’ any issues that may arise in relation to their capacity to enter into
contracts, and which may need further investigation. For example, if a
party is an unincorporated trust, it may be necessary to consider whether
it has the legal capacity to enter into a contract of the type contemplated.
The following points are likely to need consideration:
• The full names of the parties should be set out, including any parts of
the names which describe their status, eg ‘PLC’, ‘Limited’, or ‘LLP’.
If a mistake is made in setting out the name of a company, this will
probably be immaterial (F Goldsmith (Sicklesmere) Ltd v Baxter [1970]
Ch 85, [1969] 3 All ER 733, applied in OTV Birwelco Ltd v Technical
and General Guarantee Co Ltd [2002] EWHC 2240 (TCC). See also
Nittan (UK) Ltd v Solent Steel Fabrications Ltd [1981] 1 Lloyd’s Rep 633).
However, it is better to avoid this risk.
• The legal status of a party should be set out (if not obvious from its full
name), for example:

495

M15_Boilerplate_Clauses_P.indd 495 31/08/2017 09:18

 Parties

• if a contracting party is a partnership, state if it is a partnership

and/or it is a firm (see Precedents 7 and 8); or
• if a company is limited by guarantee and/or is exempt from the
use of the word ‘Limited’ in its name) (see Precedent 11); or
• if an individual is a contracting party, sometimes for the avoidance
of doubt, the party clause states that the person is an individual
(see Precedent 13), together with any title that they might have
(such as professor, doctor, etc); or
• if it is a body corporate, state whether it is incorporated by statute
(perhaps stating the statute) or incorporated by Royal Charter
(see Precedent 12); or
• if it is a company based outside England and Wales it is usual
to state the country and (if relevant, eg in the USA) the state
of incorporation and, in appropriate circumstances, for the
avoidance of doubt, indicate that the foreign company has the
capacity to enter into contracts.
• To avoid uncertainty, the official or registered number with which
a company (including a limited liability partnership) is registered
is often stated. At least within the UK, a company/LLP may change
its name, but the number will not change. Organisations and
companies incorporated by statute or Royal Charter do not have
a registered number in the same way as a company incorporated
under a Companies Act. Such organisations are listed by the
Registrar of Companies with companies. The number shown is that
issued by the Registrar, but no other details are held by the Registrar.
For organisations incorporated by Royal Charter the Privy Council
is the body responsible for them. However, the Privy Council shows
a different number (a reference number). Only all organisations
incorporated from 1968 have a reference number; there are very few
prior to that date.
• Address. For different types of party the agreement should state the
following address:
• UK company limited by shares or a LLP: registered office;
• a traditional (unincorporated) partnership: the home address of every
partner and their business address;
• overseas companies: the principal place of business, although this may
be a company’s management headquarters, rather than the foreign
equivalent of a registered office under the Companies Act 2006,
s 287. It would certainly not be wrong to refer to a foreign company’s
‘registered office’: this is the term used, for example, by EC Council
Directive 80/390 (a Listing Particulars Directive). An alternative is an
‘official address’, the term used in the Civil Jurisdiction and Judgments
Act 1982, s 42;

496

M15_Boilerplate_Clauses_P.indd 496 31/08/2017 09:18

 Parties

• a body corporate: its principal or main address; and

• an individual: the individual’s home address.
One reason for stating the parties’ addresses in the contract is to provide
an agreed address for the sending of notices. It is conventional in English
law agreements to state the addresses of the parties in the Parties clause.
In agreements drafted in other countries, the parties’ addresses are often
included in the notices clause rather than at the head of the agreement.
In multi-signatory documents, eg partnership agreements or some
multi-party agreements common in some sectors, such as EU-funded
collaboration agreements, it may be more convenient to list the names
and addresses of the parties in a schedule, so that it is easier to make
additions and subtractions and also to prevent ‘over-burdening’ the front
of the agreement with pages of names and addresses (see Precedent 14
and 16).
• Using descriptive names. In all but the shortest of documents it is more
convenient and clearer to refer to the various parties by such descriptive
terms as ‘vendor’, ‘purchaser’, ‘guarantor’, ‘franchisee’ etc.
These terms are so basic to the agreement that they are invariably set out
at the head of the document as part of the descriptions of the parties,
rather than consigned to the separate ‘Definitions’ clause.
• Meaning of ‘party’ and ‘parties’. In most agreements there will be provisions
which refer to all the parties, eg, many provisions found in the Boilerplate
section are addressed to all the parties (such as Amendment, Assignment,
Law and Jurisdiction, Interpretation etc clauses). For the avoidance of doubt,
an agreement may include a definition to clearly indicate that a reference
to the ‘parties’ is a reference to the parties named in the agreement and
that a reference to a single ‘party’ is a reference to either one of them (see
Precedent 3 for an example).
• Is a person/organisation listed in the parties section in fact a party? Sometimes
a person or an organisation is named whose role is not as a party to the
agreement or at all or only to a limited extent.
For example, in a services contract (such as one where there is the
provision of consultancy or advertising services) the provision of the
services of a particular individual might be critical. They may be named in
the Parties clause. If so, then additional wording elsewhere in the contract
may need adding to clearly indicate that they are not a party to the
contract (or at least have no liability for any of the obligations). A second
example is where a parent is providing a guarantee and the provisions of
the guarantee are included in the contract between the subsidiary and a
third party. Then the parent may be added as a party, but there should be
wording in the contract to clearly indicate the liability etc of the parent
(ie that it does extend to performing or being liable for the obligations of
the subsidiary, except when the guarantee operates).

497

M15_Boilerplate_Clauses_P.indd 497 31/08/2017 09:18

 Parties

Location in the agreement

Definition of ‘Party’ and ‘Parties’

The Definitions section of the agreement will normally include a definition

of the meaning of ‘Party’ or ‘Parties’. Alternatively such a definition might
be located immediately after the names, addresses etc of the Parties (see
Precedent 5).

The names, address, legal status and descriptive names of the

parties

An agreement will include this information:

• normally in the Parties section of the Agreement; and/or
• if there are a large number of parties, there may be a short reference to
the names of the parties in the Parties section but with the full details of
the parties set out in a Schedule.

Linkage and use

The definition of a Party and/or Parties will be used throughout the

agreement and the descriptive names will also be similarly used. The key point
is the consistent use of names (and the correct names), for example:
• if the definitions of ‘Party’ and ‘Parties’ are made and are capitalised, is
the capitalised version used consistently? That is, sometimes ‘Party’ is used
and sometimes ‘party’. In the event of a dispute, a court might find that
the different use is deliberate and different meanings are meant;
• if the descriptive names are close to each other or are not ‘plain’ English
(‘Licensor’, ‘Licensee’, ‘Franchisor’, ‘Franchisee’), are they used correctly
for each obligation/clause in an agreement? Mixing up similar names of
this kind in the agreement is a common drafting error.

Sample precedent material

Precedent 1—Default parties clause

(1) ABC PHARMACEUTICAL DISTRIBUTORS OF LONDON LIMITED a
company incorporated in England and Wales [under company reg-
istration number [ ], and] whose registered office is at 2 Mile End,
London, SW12 0ZA (‘ABC’); and
(2) SMITHSON PHARMACEUTICALS PLC a company incorporated
in England and Wales [under company registration number [ ], and]
whose registered office is at Unit 32, Business Park, Farmland
Avenue, Seedbridge, Worcestershire, KT39 1PQ (‘Smithson’).

498

M15_Boilerplate_Clauses_P.indd 498 31/08/2017 09:18

 Parties

Precedent 2—Where two differently-named parties are to be treated as

one party in an agreement
(1) ABC PHARMACEUTICAL DISTRIBUTORS OF LONDON LIMITED a
company incorporated in England and Wales [under company reg-
istration number [ ], and] whose registered office is at 2 Mile End,
London, SW12 0ZA (the ‘Company’); and
(2) ABC GROUP PLC a company incorporated in England and Wales
[under company registration number [ ], and] whose registered office
is at 2 Mile End, London, SW12 0ZA (the ‘Guarantor’);
(the Company and the Guarantor being referred to below collectively as
the ‘Group’); and
(3) SMITHSON PHARMACEUTICALS PLC a company incorporated
in England and Wales [under company registration number [ ], and]
whose registered office is at Unit 32, Business Park, Farmland
Avenue, Seedbridge, Worcestershire, KT39 1PQ (‘Smithson’).

Precedent 3—Sample definition of ‘Parties’ and ‘Party’ – two parties to

an agreement
‘Parties’ shall mean [Party A] and [Party B], and a reference to a ‘Party’
shall mean a reference to either one of them.

Precedent 4—Sample definition of ‘Parties’ and ‘Party’ – more than two

parties to an agreement
‘Parties’ shall mean [Party A], [Party B] and [Party C] and a reference to a
‘Party’ shall mean a reference to any one of them.

Precedent 5—Sample definition of ‘Parties’ and ‘Party’ – included with

description of party
(1) ABC PHARMACEUTICAL DISTRIBUTORS OF LONDON LIMITED a
company incorporated in England and Wales [under company reg-
istration number [ ], and] whose registered office is at 2 Mile End,
London, SW12 0ZA (‘ABC’); and
(2) SMITHSON PHARMACEUTICALS PLC a company incorporated
in England and Wales [under company registration number [ ], and]
whose registered office is at Unit 32, Business Park, Farmland
Avenue, Seedbridge, Worcestershire, KT39 1PQ (‘Smithson’).
(together the ‘Parties’, and ‘Party’ shall mean either one of them)

Precedent 6—Description of party with reference to particular

department/section
(1) ABC PHARMACEUTICAL DISTRIBUTORS OF LONDON LIMITED a
company incorporated in England and Wales [under company reg-
istration number [ ], and] whose registered office is at 2 Mile End,
London, SW12 0ZA acting through its Department of Pharmaceutical
supplies whose office is at Unit 2, First Industrial Estate, Scarmore
Road, Oxensmall, XP3 3PA (‘ABC’); and

499

M15_Boilerplate_Clauses_P.indd 499 31/08/2017 09:18

 Parties

(2) SMITHSON PHARMACEUTICALS PLC a company incorporated

in England and Wales [under company registration number [ ], and]
whose registered office is at Unit 32, Business Park, Farmland
Avenue, Seedbridge, Worcestershire, KT39 1PQ (‘Smithson’).

Precedent 7—Description of party – partnership

(first names and surnames of all partners) carrying on business in partner-
ship at (place of business) under the [style or name] of (name of partner-
ship firm) (the ‘Partners’).

Precedent 8—Description of party – partnership – alternative

The Partners carrying on business at (place of business) under the [style
or name] (a firm).
And within the agreement a definition of ‘Partners’:
‘Partners’ shall mean the names of the persons [together with their
addresses], which are set out in Schedule 1, and who carry on business in
partnership, and a ‘Partner’ shall mean any one of them.

Precedent 9—Description of party – registered company

(name of company) [Ltd or plc] registered in England and Wales under
[Company Registration No [ ], and] whose registered office is at (address)]
(the ‘Company’).

Precedent 10—Description of party – limited liability partnership

(name of LLP) LLP, registered in England and Wales under number [name,
and] whose registered office is at (address)] (the ‘LLP’).

Precedent 11—Description of party – company limited by guarantee

(name of company) registered in England and Wales under [Company
Registration No [ ], and] whose registered office is at (address)] [and who
is exempt for the use of ‘limited’ in its name) (the ‘Company’).

Precedent 12—Description of party – incorporated by statute or Royal

Charter
(name of organisation/company) a [type of organisation][company] incor-
porated by [statute or Royal Charter] the [chief][principal] office of which
is at (address) (the ‘Company’).

Precedent 13—Description of an individual

[title, such as doctor, professor] [full name of individual, first name, middle
name and last name], an individual of [home address].

Precedent 14—Description of party – single and collective

The several banks and financial institutions, the names and addresses
of which appear on the signature pages of this agreement (each ‘a Bank’
and together the ‘Banks’).

500

M15_Boilerplate_Clauses_P.indd 500 31/08/2017 09:18

 Parties

Precedent 15—Description of party – single and collective – alternative

form
If any party or parties (individually or (if more than one) together the
‘Outgoing Party’).

Precedent 16—Description by reference to schedule

The persons whose signatures are set out in the schedule to this agree-
ment (together the ‘Creditors’) being respectively creditors of (debtor) of
(address) (the ‘Debtor’)

Precedent 17—Description by reference to schedule – alternative form

(1) AB of [address]; and
(2) the several persons whose names and addresses are set out in the
schedule below (together the ‘Parties’).

Precedent 18—Description based on role of party

‘you’ or ‘your’ shall mean the person or organisation to whom we are sup-
plying [goods][services] and who is required to pay for the [goods][ser-
vices] that we are supplying.

501

M15_Boilerplate_Clauses_P.indd 501 31/08/2017 09:18

 Payment terms

Purpose of the clause

Some contracts:
(1) fail to state a price a party will be paid for undertaking contractual
obligations at all, or
(2) state a price or rate for the party undertaking of the contractual obligations,
but then fail to state when or how that price or rate is to be paid.
In the first case, the courts may infer that the seller of goods or supplier of
services should be paid a reasonable amount, for example:
• for goods, where the price of the goods is not stated the buyer must pay a
reasonable price (Sale of Goods Act 1979, s 8); and
• for services, where the price for the services is not stated there is an implied
term that the party contracting with the supplier will pay a reasonable
charge (Supply of Goods and Services Act 1982, s 15).
For (2) a court may be prepared to interpret such a contract as requiring
payment within a reasonable period. However, it is always better to state
specifically what the payment terms are to be.

Drafting issues

The drafter should consider a number of factors when drafting a payment

clause. The precise provisions will be deal specific, depending on the particular
deal that the parties have made (such as the amount that the buyer/customer
will pay for the goods, and whether the payment is made in stages etc), but
other provisions are more ‘routine’ (such as whether any sums are exclusive of
VAT, whether interest is chargeable for late payments). For example:
• The amount one party will pay to the other. This will often be one of the
central commercial provisions of any deal. This figure might be stated in
a number of ways:
• as a specific figure in a simple payment clause (eg, ‘The Buyer shall
pay £5,000 to the Seller on the Date’); or
• by stating the amount in a definition and then using the definition in
the payment clause (eg The Buyer shall pay the Price to the Seller on
the Date); or

502

M15_Boilerplate_Clauses_P.indd 502 31/08/2017 09:18

 Payment terms

• by defining the price to be paid as that stated in a list of prices which

are included elsewhere in an agreement or outside of the agreement,
such as a price list appearing on a supplier’s website (eg ‘The Price of
the Goods shall be the price stipulated in the Seller’s published price
list (at www.xxxx.com/pricelist) current at the date of delivery of the
Goods’).
• Timing and frequency of payments. The agreement might specify, for
example, whether the payments are to be made:
• in advance of the provision of the goods and/or services;
• on the date that the agreement is signed;
• when the goods are delivered or the services are supplied;
• a set number of days after the goods are delivered or the services are
supplied;
• a set number of days after the supplier has sent an invoice; and
• periodically, and if so, how frequently; for example, that the customer/
client:
• needs to make a payment of a certain amount each month;
• needs to make the payment of the price in defined stages (such as
in Precedent 7);
• makes payments as and when they order goods or services (such
as under a long-term supply agreement, see Precedent 8).
The above are just examples.
• The method for calculating payment. If calculation of the amount owing is by
reference to a rate (eg rate per task, per the number of goods sold or for
time spent or as a percentage of sales revenue, as with patent royalties),
the method of calculation of the rate should be clearly specified, eg using
a suitable definition of ‘Net Sales Value’ (see Net Sales Value) or a specified
price list;
If the calculation is other than the most simple kind, then the parties
should consider:
• using a formula with mathematical or algebraic notation rather than
words; and
• providing worked examples (whether the calculation is expressed in
words or in algebraic notation).
Expressing calculations in words can lead to errors particularly if they
are drafted by lawyers (see the comments in London Regional Transport
v Wimpey Group Services Ltd (1986) 280 EG 898) or they are not tested
sufficiently as to whether they produce the right result or whether all
the financial or commercial consequences are shown, particularly for
payments or calculated amounts which may run on for many years. Two of

503

M15_Boilerplate_Clauses_P.indd 503 31/08/2017 09:18

 Payment terms

the most important cases on the interpretation of contracts (Chartbrook Ltd

v Persimmon Homes Ltd [2009] UKHL 38; Arnold v Britton [2015] UKSC 36)
concerned payment clauses (of a type) and lack of clarity in their meaning
(and they were expressed in words rather than as formulas).
• Whether the price stated includes VAT. For business to business transactions
prices are normally exclusive of VAT, which will be charged in addition.
If there is no indication as to whether VAT is included, there may be
an implication that, if the transaction amounts to a taxable supply, the
price includes VAT (Value Added Tax Act 1994, s 19(2)) (see Value
Added Tax).
• Method of making payments. How are the payments to be made (eg by cheque,
letter of credit, credit or debit card, direct transfer etc)? If methods other
than cheque or cash, the (bank) account of details of the receiving party
will need to be specified.
• Interest. Whether interest is to be payable on late payments, including the
rate, at what date it starts being payable, and if interest is not payable,
whether the party who is to receive payment is entitled to some other
substantial benefit, etc (see Interest).
• Time of the essence for payment. Whether time of payment is to be ‘of the
essence’, ie termination of the contract is to be allowed for late payment.
The default position is that time is not of the essence, eg Sale of Goods Act
1979, s 10 (see Time of the essence).
• Currency. The currency in which payments are to be made (in contracts
with an international element), any currency conversion method, and
who is to bear any exchange risk (see Currency).
• Deductions/set-offs. Whether deductions or set-offs are to be allowed (see
Set-off and retention).
• Refunds, deposits and part-payments. Whether any payments are refundable
or to be treated as an advance against future payments (see Deposits and
part-payments).
• Ancillary costs. Who is to bear any ancillary costs, eg packing, carriage,
insurance?
• Statements, receipts, invoices. Whether any statements, receipts or other
documents are required to be provided in support of a payment claim.
• Other records:
• whether a party needs to keep any, and what type of, records;
• how long the party must keep them (whether during the life of
agreement, and also for how long after the agreement is terminated);
• what information must the records contain (such as for a royalty
statement, details on the number of products sold, the costs involved
in selling them, etc; and

504

M15_Boilerplate_Clauses_P.indd 504 31/08/2017 09:18

 Payment terms

• whether the records are available for inspection by the party or only
an agent of the other party.
• Ownership of goods. A Payment clause may also deal with the ownership of
property of goods sold and when it passes in relation to goods (often the
supplier of goods will wish to retain ownership until it receives payment
and/or it has cleared funds). Also the Sale of Goods Act 1979, s 18
provides detailed rules as to when property passes (unless the parties to
an agreement have agreed otherwise) (see Title (or property) and risk).
• Sending of invoices, use of order numbers etc. Do invoices need sending to a
particular location quoting a reference number?
• Guaranteeing of payment etc. Does the seller/supplier require that payment
of the price for the goods or services is guaranteed by a third party? If this
is required, then the agreement will need to include provisions making
the guarantor a party to it as well as the precise provisions of the guarantee
itself. The alternative is that the parties enter into a separate agreement
with the guarantor dealing only with the guarantee. For example, will
the seller/supplier wish the other party to enter into a parent company
guarantee or have some form of insurance to cover a default of the other
party in making payment?

Location in the agreement

A Payment clause is normally located in the Main Commercial Provisions

section of an agreement. In some agreements there will be a definition of the
amount that is to be paid (if not subject to a calculation), often such as ‘Price’.

Linkage and use

A Payment clause will often contain, where appropriate, the following other
payment-related clauses such as:
• Currency (where payment may be made in a currency other than pounds
sterling or payment may be made in more than one currency);
• Interest (where the amount of interest and how and when it will be made is
specified in the event of a late payment);
• Net Sales Value (this definition might be added where a royalty is payable
and the permitted deductions from the invoiced value of goods and
services are specified before the royalty is calculated); and
• Time of the essence (if there is a ‘generic’ boilerplate Time of the essence clause
in the Boilerplate section of an agreement, and the clause relates to the
timing of payment).
Also Termination provisions may specify exactly what is to happen in the event
of non- or late payment in addition to general or other specific provisions

505

M15_Boilerplate_Clauses_P.indd 505 31/08/2017 09:18

 Payment terms

in relation to termination. Whether to use a Retention of Title clause may also

need to be considered.

Sample precedent material

Precedent 1—Simple payment provision

Payment of [the Price or the Seller’s Quoted Price or [specify]] shall be
due within 30 days of the date of the Seller’s invoice.

Precedent 2—Price by reference to list

The Price of the Goods shall be the price stipulated in the Seller’s pub-
lished price list current at the date of delivery of the Goods.

Precedent 3—Payment by confirmed letter of credit

The Buyer shall within [21] days open an irrevocable letter of credit with
a bank to be confirmed in favour of (name of Seller’s bank) payable [30]
days at sight against production of a commercial invoice for the Goods
[and a clean on board bill of lading for the Goods].

Precedent 4—Royalty payment accompanied by statement

On or before [date] in each year during the term of this agreement the
[Licensee] shall make payment of the royalty due to the [Licensor] under
Clause [no] in respect of [specify]. A statement shall accompany the pay-
ment showing the manner in which the total amount of royalty was calcu-
lated.

Precedent 5—Payments to be made without deductions

Payments made under this agreement shall be made without deduc-
tions (including taxes or charges). If the applicable law requires any tax or
charge to be deducted before payment, the amount due under this agree-
ment shall be increased so that the payment made will equal the amount
due to [Party] as if no such tax or charge had been imposed.

Precedent 6—Payments to be converted into sterling

Any sum due under this agreement not expressed in sterling shall be
converted into sterling at the official rate of exchange in London at the
close of business on the [last day of the calendar month] during which
[the Goods were delivered or as the case may be].

Precedent 7—Long form (eg services provided by consultant) – fixed

payments, royalties on sales, VAT, currency and method of payment
1 Fixed amounts
In consideration for the Services, the Company shall pay to the
Consultant the following amounts on the following dates:
1.1 [£100,000] within 30 days of the date of this Agreement; and

506

M15_Boilerplate_Clauses_P.indd 506 31/08/2017 09:18

 Payment terms

1.2 [£100,000] within 30 days of the first anniversary of the

Commencement Date.
2 Royalty
In further consideration for the Services, the Consultant shall pay to
the Company a royalty of 5% (five per cent) of the Net Sales Value of
all Products sold by the Company during the period of 10 years from
the Commencement Date.
3 Payment terms
3.1 Royalties due under this Agreement shall be paid within 60
days of the end of each quarter ending on 31 March, 30 June,
30 September and 31 December, in respect of sales of Products
made during such quarter and within 60 days of the termination
of this Agreement.
3.2 All sums due under this Agreement:
(a) are exclusive of VAT which where applicable will be paid
by the Company to the Consultant in addition;
(b) shall be made by the due date, failing which the
Consultant may charge the Company interest on late
payments on a daily basis at a rate equivalent to [3]%
above the base lending rate of [name] Bank plc then in
force;
(c) shall be paid in pounds sterling by cheque made pay-
able to ‘[name] Offshore Account’, and in the case of
sales income received by the Company in a currency
other than pounds sterling, the royalty shall be calculated
in the other currency and then converted into equivalent
pounds sterling at the buying rate of such other currency
as quoted by [name] Bank plc as at the close of busi-
ness on the last business day of the quarterly period with
respect to which the payment is made; and
(d) shall be made without deduction of income tax or other
taxes, charges or duties that may be imposed, except
insofar as the Company is required to deduct the same to
comply with applicable laws.

Precedent 8—Long form (eg payment for goods for long term supply of
goods)
1 The Prices for the Goods are set out in the [Price List][website] of the
Seller.
2 The Seller shall have the right to increase the Prices on each anniver-
sary of the date of this Agreement at [specify percentage][by some
specified external reference, such as the Retail Prices Index].

507

M15_Boilerplate_Clauses_P.indd 507 31/08/2017 09:18

 Payment terms

3 The Buyer shall make payment to the Seller within [[ ] days of the date
of the Seller’s invoice][[ ] days of the end of the month following the
month in which the invoice is dated].
4 The Seller may submit an invoice for the Goods [on Delivery][at any
time after Delivery of the Goods].
5 Where the Seller delivers the Goods in instalments the Seller shall
have the right to submit to the Buyer an invoice for each instalment.
The Buyer shall pay the invoice for each instalment in accordance
with Clause 3 above.
6 The Buyer shall pay all sums due under this Agreement, without any
discount, deduction, set-off or counterclaim whatsoever.
7 If the Buyer shall fail to make any due payment to the Seller, the Seller
shall have the right, without prejudice to any other right or remedy
(a) not to make further deliveries [under this Agreement][under this
Agreement and any other agreements that the Parties have
entered into or will enter into];
(b) to charge the Buyer interest on late payments on a daily basis at
a rate equivalent to [3]% above the base lending rate of [name]
Bank plc then in force;
(c) to require that the Buyer pays in advance for [any further orders
of Goods][ any further deliveries of the Goods if the Goods are
supplied in instalments];
[8 Time for payment of all sums payable by the Buyer under this
Agreement shall be of the essence.]
9 When making a payment the Buyer shall state the invoice number
and any order or instalment number on any documentation which
accompanies the payment.

Precedent 9—Short form for goods (such as ordered on the internet)

1 The price for the goods you order shall be as stated at the time we
accept your order.
2 We use our best efforts to state the correct prices of goods on our
website [and our catalogues [specify any other places the supplier
lists its goods]]. Our intention is to sell the goods at those prices,
however this is not always possible because of the number of goods
we sell, changes in the prices of the goods that our suppliers charge
us or errors we may make when displaying details of goods and
their prices on the website. The price you will pay will be as stated in
Clause 1 above.
3 If at the time we accept your order, the price of the goods is different
to the price when you placed your order, the following will occur:

508

M15_Boilerplate_Clauses_P.indd 508 31/08/2017 09:18

 Payment terms

(a) if the price is higher, then we will offer you the option to either
pay the higher price or to cancel your order;
(b) if the price is lower, we will charge you the lower price.
4 Our prices are shown inclusive of VAT [at the current rate of 20%].
5 You will need to make payment for the goods at the time you place
your order (although we will not charge your debit or credit card until
we accept your order). By placing your order you are giving your per-
mission to charge the debit or credit card you used when placing your
order.
6 We only accept payment by [debit or credit card][and we do not
accept cheques].

509

M15_Boilerplate_Clauses_P.indd 509 31/08/2017 09:18

 Priority of terms

Purpose of the clause

Often an agreement:
• consists of several, clearly identifiable and separate parts;
ie, such as a part containing standard provisions and another part with
specifically negotiated provisions;
• is amending another agreement;
• is amended by another agreement;
• consists of one or more schedules; or
• contains some provisions which to some extent overlap with other
provisions in the same agreement.
There may be inconsistency or conflict between one part of the agreement or
clause and another. Or even if there is not a (direct) inconsistency or conflict,
but when the parts of the agreement(s) are read together, there may be doubt
as to the meaning of the agreement or a provision.
Eg, an agreement may consist of a set of standard provisions and then a
separate section, which consists of specifically negotiated provisions. Some of
the provisions cover the same issue but do so in different ways. If this is the
case, it may not be clear which prevails.
A Priority of terms clause will help to indicate clearly which:
• part of an agreement; or
• which agreement; or
• which provision of an agreement
takes precedence over the other.
Although the purpose of a Priority of terms clause is clear, that purpose must
be set against how the courts interpret the meaning of inconsistency. If there
is a Priority of Terms clause it appears that the courts will be willing to find
one clause inconsistent with another, although the bar is still high in order
for a court to do so. For a contractual term to be inconsistent with another it
must contradict or be in conflict with another so that ‘effect cannot be fairly
given to both clauses’, or to put it another way, that inconsistency will only

510

M15_Boilerplate_Clauses_P.indd 510 31/08/2017 09:18

 Priority of terms

occur ‘when the provisions cannot sensibly be read together’ (Pagnan SpA v
Tradax Ocean Tansportation SA [1987] 3 All ER 565, CA, applied in Alexander
v West Bromwich Mortgage Co Ltd [2016] EWCA Civ 496 and see Case analysis).
Although the decision in Pagnan SpA indicates that no preference should be
given by a court to finding or not finding inconsistency, however, the likely
reality is that the courts will operate on the following basis:
1 that all the provisions are terms of a contract; and
2 if there is ambiguity between contract terms in one part of a contract to
another; and
3 it is not possible to reconcile them; then (and only then)
4 will a Priority of Terms clause come into effect (eg RWE Npower Renewables
Ltd v JN Bentley Ltd [2014] EWCA Civ 150).
One consequence of this is that if a court can resolve any perceived ambiguity
then, even if there is a Priority of terms clause, it will be of no use. In effect it
will be ignored by the court. A second consequence is that a contract drafter
needs to thoroughly go through different parts of a contract to determine
whether provisions do overlap or conflict with each other, and either amend
the wording which is overlapping or conflicting or make it clear which clause
is subject to another.

Drafting issues

• Does an agreement refer to, deal with or is linked to another document or

agreement? Even where the agreement is, as is usually the case, expressed to
be the whole and final agreement between the parties (through an ‘entire
agreement’ clause), there may be another document connected with the
same transaction by which the parties have agreed also to be bound.
The parties to a shareholders’ agreement, for example, are usually also
bound by the provisions of the company’s memorandum and articles
of association. To avoid doubt in the event of a conflict between the
respective documents, the parties should decide which is to have priority
(as in Precedent 1). In such a case, if there is an entire agreement clause,
its wording will need attention, if it is worded in a standard way such as:
‘This agreement contains the whole agreement between the parties and
supersedes any prior written or oral agreement…’

Either the entire agreement clause will need amending to make it clear
that the agreement under consideration is to be read together with
other agreements or use extra wording to specifically refer to the other
agreements.
• If there is another document or agreement which is referred to etc, to what extent
is it relevant to the agreement, and which is to prevail (if at all)? Where the
provisions of some other document are to prevail, the parties must make
themselves aware of those provisions in detail and as to their effect.

511

M15_Boilerplate_Clauses_P.indd 511 31/08/2017 09:18

 Priority of terms

Eg, in a franchise agreement it is common for the provisions of the

franchisor’s manual (or equivalent document) to be incorporated by
reference, but for the agreement itself to prevail (see Precedent 2).
• If several documents are incorporated into an agreement, does the agreement clearly
state which document’s provisions are to prevail? If several documents are
expressly incorporated into a contract, then it may be necessary to state
the hierarchy of such documents, in case there are conflicting provisions
in each (or between them).
Eg, some construction contracts include standard conditions and
schedules in which further provisions are to be found. In the absence
of a clause specifying which provisions’ terms are to have priority, the
court will need to interpret the contract to determine that priority. The
court’s interpretation might differ from that intended by one or more
of the parties. Case law indicates that ‘special conditions’ will normally
be interpreted as having priority over standard, printed conditions
(Bravo Maritime (Chartering) Est v Alsayed Abdullah Mohamed Baroom,
The Athinoula [1980] 2 Lloyd’s Rep 481; and also Glynn v Margetson &
Co [1893] AC 351, HL. Also see Data Direct Technologies Ltd v Marks and
Spencer plc [2009] EWHC 97 (Ch), [2009] All ER (D) 198 (Jan), where the
court needed to interpret apparently conflicting provisions dealing with
the same subject matter in two schedules).

Location in the agreement

The Boilerplate section of an agreement will usually contain the Priority of

terms clause.

Linkage and use

Such a clause is likely to be relevant in the situations outlined at the beginning

of this section, particularly if the parties are using a standard template (which
may emanate from different sources or parties) and the parties do not engage
in a detailed comparison. Needing particular attention will be:
• whether there are different termination provisions (when termination
can take place, consequences of termination);
• whether the greater or more extensive limitations or exclusions of liability
or warranties take priority;
• whether there is any change to when risk and property passes, a right to
reject or when acceptance takes place in relation to goods; or
• whether there is a change in the timing and methods of payment.
If there is no other agreement (or any schedules or annexes) then such a
clause will not be necessary or appropriate.

512

M15_Boilerplate_Clauses_P.indd 512 31/08/2017 09:18

 Priority of terms

Sample precedent material

Precedent 1—Agreement to prevail

In the event of any conflict between the provisions of this agreement and
the provisions of [the Articles] the provisions of this agreement shall pre-
vail.

Precedent 2—Agreement/Manual to prevail

All the provisions of the Manual as amended or revised from time to time
or any new edition of it are incorporated into and form part of this agree-
ment as though fully set forth in it and in the event of any conflict between
a term of this agreement and a provision in the Manual this agreement
shall prevail.

Precedent 3—Agreement/special conditions to prevail

To the extent that any provision of [this agreement or these Special
Conditions] conflicts with [any provision in any schedule to this agree-
ment or any of the Standard Conditions] [this agreement or these Special
Conditions] shall prevail in all circumstances.

Precedent 4—Agreement/schedules/standard conditions – order in

which they are to prevail
If there is any conflict in meaning between any provision of this Agreement,
its Schedules and the Standard Conditions respectively, effect shall be
given to the main body of this Agreement in preference to its Schedules
or the Standard Conditions, and to the Schedules in preference to the
Standard Conditions.

Precedent 5—Agreement/schedules – particular schedule to prevail over

the agreement and other schedules
If there is any conflict in meaning between the provisions of this Schedule,
the other Schedules or the Agreement then the provisions of this
Schedule shall prevail. [In the event of a conflict between the provisions
of the Agreement and the other Schedules which cannot be resolved by
giving preference to this Schedule then, as between the Agreement and
the other Schedules, the provisions of the Agreement shall prevail.]

Precedent 6—Conveyance/standard conditions to prevail

The Property is sold and conveyed upon the terms of this agreement
and of the [[transfer or conveyance] in the agreed terms or Standard
Conditions of Sale (…… Edition) so far as the same are applicable to a
sale by private treaty and subject to the variations and conditions set out
in the fourth schedule]. In the case of any conflict between [the [transfer
or conveyance] or the Standard Conditions] and this agreement the provi-
sions of this agreement shall prevail.

513

M15_Boilerplate_Clauses_P.indd 513 31/08/2017 09:18

 Priority of terms

Precedent 7—Agreement to prevail – shareholders’ agreement

If any provisions of the memorandum or articles of association of the
Company at any time conflict with any of the provisions of this agreement
the provisions of this agreement shall prevail and the parties shall when-
ever necessary exercise all voting and other rights and powers available
to them to procure the amendment of the memorandum and/or articles of
association to the extent necessary to permit the Company and its affairs
to be carried out as provided in this agreement.

Precedent 8—Agreement/statute law to prevail

Nothing contained in this agreement shall be construed so as to require
the commission of any act contrary to law and wherever there is any con-
flict between any provisions of this agreement and any material statute
law, ordinance or regulation contrary to which the parties have no legal
right to contract then the latter shall prevail but in such event the provi-
sions of this agreement so affected shall be curtailed and limited only
to the extent necessary to bring this agreement within the legal require-
ments and all other provisions shall remain in full force and effect without
change whatever.

Case analysis

Alexander v West Bromwich Mortgage Co Ltd [2016] EWCA Civ 496

This case provides an example of how a court interpreted the provisions
of a contract and found inconsistency between specially agreed terms
and standard conditions.

Key facts
1 The claimant obtained a ‘buy to let’ mortgage from the defendant.
2 An offer document (Offer of Loan) indicated that the mortgage was
for 25 years, with the interest rate fixed for a period until June 2010
and then the interest would be variable, tracking the Bank of England
base rate, with a premium of 1.99%. The Offer to Loan document
also stated that standard terms and conditions applied.
3 The defendant’s standard mortgage conditions (Conditions) allowed
the defendant (in summary):
1 to vary the rate; and
2 to require repayment on one month’s notice.
4 The claimant argued that the Conditions were inconsistent with the
provisions of the Offer to Loan document, and that the provisions
in the Conditions were not terms of the contract. The judge at first
instance disagreed with the claimant.

514

M15_Boilerplate_Clauses_P.indd 514 31/08/2017 09:18

 Priority of terms

5 Clause 1 of the Conditions indicated that in the event of an inconsist-

ency between the Offer of Loan document and the Conditions, the
former were to prevail.
6 Clause 5 of the Conditions dealt with the circumstances when the
defendant could change the interest rate.
7 Clause 17 allowed the defendant to demand repayment in various
circumstances, including a ‘without cause’ right to terminate on one
month’s notice.
(Parts of these three clauses are set out below.)

Application of earlier case law

8 The court applied two earlier cases: Pagnan SpA v Tradax [1987] 3 All
ER 565 and Glynn v Margetson & Co [1893] AC 351.
9 In Pagnan SpA the court considered a contract where there was an
inconsistency between standard terms and terms which were spe-
cific to the contract, together with a clause similar to Clause 1, except
in Pagnan SpA the specific agreed terms were to prevail ‘in so far
as they may be inconsistent’. Particularly relevant were the following
points from Pagnan SpA:
1 That it would be ‘wrong to approach the contract on the
assumption that there is no inconsistency’ since ‘by including
the inconsistency clause the parties have acknowledged that
there may be’.
2 It is also wrong to approach the question of inconsistency on
the basis that there is one, as all the terms are part of the con-
tract which the parties chose to form [their contract], including
making the contract subject to the standard terms.
3 That a court, when interpreting an inconsistency clause, should
avoid pre-conceived assumptions, which will mean that a court
should not strive to avoid or to find inconsistency. A court
should interpret the contract in a ‘cool and objective spirit to
whether there is inconsistency or not’.
4 For a court to find that contract terms are inconsistent: ‘it is not
enough if one term qualifies or modifies the effect of another;
to be inconsistent a term must contradict another term or be
in conflict with it, such that effect cannot fairly be given to both
clauses’, or ‘where the provisions of the contract cannot be
sensibly read together’.
10 In Alexander the court considered the Pagnan SpA case and found:
1 ‘inconsistency’ is not limited to only clear and literal contradic-
tion, but

515

M15_Boilerplate_Clauses_P.indd 515 31/08/2017 09:18

 Priority of terms

2 ‘it extends to cases where clauses cannot “fairly” or “sensibly”

be read together; not merely cases where they cannot literally
be read together. One should approach that question having
due regard to considerations of reasonableness and business
common sense.’
11 In Glynn the court held that a printed standard term must not be used
to override the main object and intent of a contract.
12 For the court in Alexander the Glynn case indicated ‘that the impor-
tance or centrality of the specially agreed term being considered may
be a relevant consideration’:
1 if a specially agreed term contains what can be reasonably
understood ‘to be the main purpose or object of the contract
then a printed standard term which is inconsistent with that pur-
pose or object is likely to be found to be a term which cannot
“fairly” or “sensibly” be read together with it’; and
2 a standard term which gives a wide right or liberty may have the
consequence of being inconsistent and ‘[t]he mere existence of
the right or liberty may undermine and be inconsistent with the
obligation apparently being undertaken by the special term’.

Court’s interpretation of the provisions of the contract

13 The court found in relation to the specific facts of the case:
1 that the Offer to Loan document clearly sets out the ‘specifically
agreed, bespoke terms which describe and define the particular
mortgage contract which is being agreed’ including that the rate
of interest was fixed up to June 2010 and that afterwards that
the variable rate is the same as the Bank of England Base Rate
with a premium of 1.99% until the end of the mortgage term;
2 the Offer to Loan document contained no contrary indication
that the interest rate will be other than the Bank of England
Base Rate.
3 Clause 5 is drafted in wide terms and allows the defendant to
vary the interest rates for a number of reasons including ‘to
make sure our business is carried out prudently, efficiently and
competitively’. There is in effect no limitation on the defend-
ant’s power to vary the interest rate (unless it does so for an
‘improper purpose, capriciously, arbitrarily or in a way which no
reasonable mortgagee, acting reasonably would do’).
14 The court held that Clause 5 is inconsistent with the description of the
mortgage in the Offer to Loan document, because:
1 The description of the mortgage in the Offer to Loan document
states how the defendant can vary the interest rate, but the

516

M15_Boilerplate_Clauses_P.indd 516 31/08/2017 09:18

 Priority of terms

Conditions allow for something completely different. Clause 5

is ‘inconsistent with that specially agreed term to incorporate
a printed standard term which provides for an entirely differ-
ent method of varying the rate. If, for example, Clause 5 had
stated that rates may be varied in accordance with changes in
the LIBOR rate that would be clearly inconsistent with a spe-
cially agreed term for variation by reference to changes in the
Bank of England Base Rate. Variation at the discretion of the
Lender is similarly a different method of varying the rate. It will
no doubt be entirely appropriate when the [Conditions] supple-
ment a standard variable rate or similar mortgage product. It is
not, however, appropriately incorporated where the method of
variation has been agreed in the terms set out in [description of
the mortgage] of the [Offer to Loan document]. In my judgment
variation of the rate at the discretion of the Lender is a different
method of variation to that specially and specifically agreed [the
description of the mortgage] and is inconsistent with it.’
2 The description of the mortgage [in the Offer to Loan document]
states in clear terms what type of mortgage the defendant is
providing, but Clause 5 allows the defendant to provide some-
thing completely different, and its effect is not to modify the
description of the mortgage but allows for the complete over-
riding of the description of the mortgage: ‘… a printed standard
term which confers such a right is inconsistent with the spe-
cially agreed [description of the mortgage]. That is not a matter
of qualification or modification; it is a matter of transforma-
tion and indeed negation. If the Lender has the right or liberty
to replace the mortgage product as described in the specially
agreed terms with some other product then there is effectively
no enforceable obligation to provide that product.
3 The description of the mortgage contains the main purpose of
the contract (for the defendant to provide a mortgage of the
type set out in the description of the mortgage), but Clause 5 as
a standard condition ‘which entitles the defendant to substitute
a different product is inconsistent with that purpose or object’.
15 Clause 14 includes provisions where the Claimant was in breach or
unable to pay the interest but also includes one provision that allows
the defendant to terminate the contract at one month’s notice at its
will. The court found that the Offer to Loan document makes it clear
that the mortgage is for a period of 25 years, and does not indicate
that the contract can be terminated at will, as well as other provisions
which the court found inconsistent with an immediate right to termi-
nate for no reason.
16 The court found that the arrangements put in place by the claimant
(such as that rental income would fund the mortgage payments and
that the claimant would have 25 years to pay off the mortgage, and

517

M15_Boilerplate_Clauses_P.indd 517 31/08/2017 09:18

 Priority of terms

the consequences to the claimant if the defendant gave notice, such

as ending tenancies, selling the property or trying to arrange alter-
native finance at virtually no real notice) all point to inconsistency
between the Offer to Loan document and Clause 14: ‘If one seeks
to put the clauses together, such a clause would be to the effect that
the Lender shall provide the mortgage loan set out in the [Offer to
Loan document] until the end of the mortgage term of 25 years, sub-
ject to the Lender’s right at any time and for any reason to require
repayment of the loan on one month’s notice in accordance with
clause 14 of the Mortgage Conditions. Faced with such a clause a
reasonable borrower would question what was being agreed and
whether there was any obligation to provide the mortgage loan for 25
years. The answer would be that the Lender is only agreeing to pro-
vide the loan for 25 years unless and until he decides to require early
repayment and that accordingly he is effectively under no obligation
to provide it for that term. That again is negation; not modification or
qualification.’

Clauses from the contract

Clause 1
‘These Mortgage Conditions incorporate any terms contained in the Offer
of Loan. If there are any inconsistencies between the terms in the Mortgage
Conditions and those contained in the Offer of Loan then the terms contained
in the Offer of Loan will prevail.’

Clause 5
‘5.1 Interest is payable by you .. .at the rate or rates specified in your Offer of
Loan Letter which, except during any period in which interest is expressed to
be at a fixed rate, may be varied by the [Lender] at any time for any of the fol-
lowing reasons:
if there has been, or we reasonably expect there to be in the near future, a
change in the Bank of England Base Rate or in interest levels generally;
[…]
if investment interest rates have increased or decreased;
to reflect market conditions generally;
at the end of any period during which any fixed rate or concession or alterna-
tive rate (such as the Bank of England Base Rate) is in force;
[…]
to reflect a change in the way the Property is used or occupied;
to make sure our business is carried out prudently, efficiently and competi-
tively’.

518

M15_Boilerplate_Clauses_P.indd 518 31/08/2017 09:18

 Priority of terms

Clause 14
‘14 You may be obliged by us to repay the Loan in full together with any
accrued interest and unpaid Charges and we will become entitled to exer-
cise all the powers conferred on us under Condition 15 of these Mortgage
Conditions immediately if any of the following events occur:
we give you one month’s notice requiring such repayment;
any Payment remains unpaid for longer than one calendar month;
you are in breach of any of the other obligations or conditions contained in
these Mortgage Conditions;
the Property becomes subject to a Compulsory Purchase Order;
you are made bankrupt;
you enter into an arrangement with or for the benefit of your creditors or pro-
pose to do so;
you die or become incapable of managing your affairs;
you do anything which may damage or reduce the value of the Property or you
fail to perform any obligation (whether to pay money or otherwise) imposed
upon you as the owner of the Property;
[…]’.

519

M15_Boilerplate_Clauses_P.indd 519 31/08/2017 09:18

 Receipts

Purpose of the clause

The term ‘receipts’ can mean either:

• a reference to a source of money paid to a party to an agreement (as in
the term ‘Publisher’s Net Receipts’, often found in standard contracts with
authors where royalties are calculated as a percentage of such receipts);
or
• an acknowledgment by a party that it has received a sum of money or
some other item (eg a document); or
• a document which is evidence that the party has paid for something.
The latter two meanings are considered here.
Receipts clauses are occasionally found in commercial agreements, usually as
a formal acknowledgment that a party has received a payment or has made a
payment. Eg:
• in some agreements (such as assignments of intellectual property)
where nominal consideration is provided, it is common to add an
acknowledgment of receipt of the nominal sum;
• in the grant of an option (such as within an agreement), where nominal
consideration is added in order to avoid argument that the option is
not binding because it lacks consideration, an acknowledgment of that
nominal sum will also be added.
Other uses of a receipts clause in a commercial agreement include:
• in a manufacturing agreement the manufacturer may need to indicate it
has insurance to cover for any liability that might arise from the use of its
products, and the clause covering this may require that the manufacturer
produce the receipt showing that payment has been made for the
insurance (in addition to or as an alternative to producing the certificate
of insurance);
• in a patent licence agreement the licensor or the licensee may have the
obligation to maintain the patent in force, and in some licence agreements
the party that has that obligation may need to produce a receipt from the
patent office(s) that it has paid the renewal fees charged by the patent
office(s);

520

M16_Boilerplate_Clauses_R.indd 520 31/08/2017 10:31

 Receipts

• in various types of agreements where a party has to confirm receipt of

materials, documents or information. Sometimes these are often coupled
together with a form of acknowledgment that a party has received all that
it requires in order to perform its obligations (see Precedent 3).

Property transactions

For payments receipted in a deed involving a property transaction, a receipt of

payment contained in a deed, in favour of a subsequent purchaser, is sufficient
evidence that the whole sum has been paid (unless the subsequent purchaser
actually knows that the payment was in fact not paid) (Law of Property Act
1925, s 68). This will normally only apply where there is a (real) property
transaction and the receipt is contained within a deed.

Drafting issues

• Is a receipts clause necessary? A receipts clause will only be appropriate when:

• at the time the agreement is entered into, one or more parties is
required to acknowledge that it has received something; and/or
• during the life of the agreement, a party has an obligation to
acknowledge receipt of a payment, materials, documents or
something else;
• If a receipts clause is needed, is the thing or payment sufficiently identified? Eg, if
the receipt of a ‘disclosure letter’ is being acknowledged:
• is it identified by date?
• does it include details of who provided it?
• does it include details of who it was provided to?
• does it include details of where it can be found (eg as a schedule to
the agreement),
so that there is no doubt later about which document is referred to?
• Other than acknowledgment that a payment (or something) is received, does there
need to be any statement that the obligation is fulfilled?
• If a party needs to provide evidence that it has made a payment, how must they do
so? Does the party who has made the payment need to supply the evidence:
• to the other party as soon the first party receives it or within a set
period?
• when the other party asks for it?
• in a particular form?

521

M16_Boilerplate_Clauses_R.indd 521 31/08/2017 10:31

 Receipts

Location in the agreement

A Receipts clause is usually contained within another clauses. Eg:

• in an assignment of intellectual property, the clause assigning the
intellectual property might include a receipt clause; or
• where one party is providing a supply of materials to another, to enable
the other to manufacture a product using those materials, the receipt of
the materials might be included within a clause dealing with the handling,
storage and use of the materials.

Sample precedent material

Precedent 1—Acknowledgment of sum paid (payment for option)

In consideration of the sum of £1.00 (one pound sterling) paid by the
Company to the Developer (receipt of which the Developer hereby
acknowledges) the Developer grants, subject to the provisions of Clause
[no], to the Company an exclusive option (the ‘Option’) to acquire an
exclusive, worldwide licence to develop, manufacture, have manufac-
tured, market, use and sell the Products.

Precedent 2—Requirement to produce receipts of payment of renewal

fees for maintaining patents in force
The Licensee shall at its own cost and expense pay all renewal fees in
respect of the Patents as and when due and shall provide to the Licensor
the receipts for the fees paid [within [ ] days of making the payment][when
the Licensor requires their production].

Precedent 3—Receipt that supplier has received information necessary

to perform services
At the date of this Agreement, the Supplier confirms that it has received:
1 the signed copy of the Specification; and
2 all the information it requires;
in order for the Supplier to perform the Services.

522

M16_Boilerplate_Clauses_R.indd 522 31/08/2017 10:31

 Recitals

Purpose of the clause

The purpose of a recital is to explain the background to, or some facts about
or relating to, an agreement, eg:
• to set out the history of the negotiations or the relationship between the
parties;
• to explain the status of the agreement and its relationship to other related
agreements.
Eg, if the agreement is an amending agreement then the recitals would
provide details of the original agreement (title, date entered into etc) and
recite the amending agreement is amending the original agreement;
• any resources, skills, experience etc that one or more of the parties are
bringing to the agreement.
Eg, state that a party who provides legal services has lawyers who have
experience in dealing with matters, transactions or disputes which relate
to subject matter of the agreement;
• to describe the nature and effect of the agreement;
• to describe how a party is related to a third party.
Eg, a party may be a subsidiary of another company (that is not a party
to the agreement, but may have provided a guarantee in a separate
agreement);
Recitals are not normally intended to be legally binding. It is bad drafting
practice to include substantive provisions, eg obligations on the parties, in the
recitals.
There is case law on the legal effect of recitals. This case law may not bind a
court in an individual case, as the intended legal effect of a provision set out
in a recital is a matter of interpreting the individual contract. It is best to avoid
the risk by including all substantive provisions only in the main body of the
agreement. Older case law has formulated three rules concerning the legal
effect of recitals (see Re Moon, ex p Dawes (1886) 17 QBD 275, CA at 286):
• if the recitals are clear and the operative part is ambiguous, the recitals
govern the construction;

523

M16_Boilerplate_Clauses_R.indd 523 31/08/2017 10:31

 Recitals

• if the recitals are ambiguous and the operative part is clear, the operative
part must prevail;
• if both recitals and the operative part are clear, but they are inconsistent
with each other, the operative part is to be preferred.
Recent cases have not departed from these propositions developed in the
19th century. See Communication Technology Investments Ltd v International
Environmental Management Ltd [2005] EWHC 3292 (Ch) for a modern example
where the judge was prepared to use a recital to interpret an operative clause
(but found it unnecessary to do so as the operative clause in question was not,
in the judge’s view, ambiguous); Gallaher International Ltd v Tlais Enterprises Ltd
[2008] EWHC 804 (Comm), paras 992–1001, where the judge held that the
operative provisions were clear and therefore it was unnecessary to consider
the recitals.
Accordingly, there is a strong presumption that a recital will not be used in
interpreting the provisions of an agreement or contain any binding obligations
on one or more of the parties to an agreement, particularly if the agreement
is of a formal type (eg such as a document which is only concerned with the
assignment of intellectual property or contains the provisions of a guarantee)
and is prepared by a lawyer on behalf of a client). See Fairstate Ltd v General
Enterprise and Management Ltd [2010] EWHC 3072 (QB), [2011] 2 All ER
(Comm) 497, where the judge stated:
‘… a recital [is] not an operative provision. In a formal contract such as this,
which has been drafted by a lawyer, the section containing the recitals is not the
part of the agreement in which the substantive obligations are usually expressed.
It is therefore inherently unlikely that the parties intended any of the matters
recited to give rise, by itself, to a substantive obligation’.

A court may use the recitals to help in interpreting the provisions of an

agreement where the recitals set out the steps the parties took in preparing
to enter into the agreement (see The Square Mile Partnership Ltd v Fitzmaurice
McCall Ltd [2006] EWCA Civ 1690, [2006] All ER (D) 262 (Dec)).
In modern legal language used by the courts when interpreting contracts,
a recital can form part of the admissible background (the ‘matrix of facts’,
following the case of Investors Compensation Scheme v West Bromwich Building
Society [1998] 1 All ER 98) which a court may use to interpret an agreement (if
relevant, ‘which have affected the way in which the language of the document
would have been understood by a reasonable man’). See Rust Consulting
Ltd v PB Ltd [2010] EWHC 3243, where a recital was used to interpret the
meaning of an agreement; reversed on appeal in [2012] EWCA Civ 1070 but
not relating to this point.
However, although the cases mentioned above indicate that it is possible that
recitals may be used in interpreting the operative provisions, this will normally
only be the case when there is any ambiguity in the operative provisions of the
agreement, not otherwise.
There is other (older) case law where a recital can also have legal impact:
where one party makes a clear statement in a recital clause, that party can later

524

M16_Boilerplate_Clauses_R.indd 524 31/08/2017 10:31

 Recitals

be prevented (estopped) from denying the truth of it (see eg Right d Jefferys v

Bucknell (1831) 2 B & AD 278; Bensley v Burden (1830) 8 LJ (OS) Ch 85; Heath
v Crealock (1874) LR 10 Ch App 22; Re Moon, ex p Dawes (1886) 17 QBD 275 at
286; Poulton v Moore [1915] 1 KB 400, CA).
Eg, in a services agreement the party who is to provide the services may, in
a recital, state explicitly that they have the necessary expertise and facilities
to carry out the services as required by the client party. However the danger
of making clear statements about such matters may mean that, independent
of the provisions of the agreement, such a statement might amount to a pre-
contractual representation. The consequence of which is that a party who has
received services of a low standard might argue that it was induced to enter
into the contract based on the statements made in the recital.
A point to note about the case law in the older cases is that they were concerned
with the use of recitals in deeds and/or in relation to various real property
transactions. Care should also be taken where recitals are used in agreements
or other documents relating to any real property transaction. In some cases the
use of recitals may have unintended consequences (eg the doctrine of ‘feeding
the estoppel’: Re Bridgewater’s Settlement [1910] 2 Ch 342; First National Bank plc
v Thompson [1996] 2 WLR 293, CA) or may not be appropriate (transfer of
registered land).

Drafting issues

• Is a recitals clause needed at all? Often the recitals included in routine

commercial agreements provide no real background information about
the agreement, the parties, the history of negotiation, etc. If there is
nothing particular or specific to be stated, then the inclusion of a Recitals
clause may not add anything to the agreement (also see under Linkage
and use). Recitals may need inclusion where the parties wish to record the
background to a transaction and/or the particular agreement is based
on, varies, is related to or otherwise references other agreements or
documents. If they choose to do so then whatever wording is used should
be no more than what is objectively factual (and preferably explicitly
agreed by both parties).
• Avoiding binding obligations. The main point to emphasise is that the parties
should not include obligations in the recitals. Nor should obligations
appearing later in the contract be summarised, except with qualifying
wording such as:
‘in accordance with the provisions of this Agreement’.

It is also suggested that words such as:

‘the parties have agreed’

are avoided, if all that is meant is that the parties are willing to sign the
agreement of which the recitals form a part, since such words could be
misunderstood as referring to a pre-existing agreement.

525

M16_Boilerplate_Clauses_R.indd 525 31/08/2017 10:31

 Recitals

• Wording that should be included where recitals are used. Wording that the
parties are:
‘willing’

or
‘wish’

or are
‘considering’

etc
to enter into an agreement or undertake an obligation are used (see
Precedent 4 for the recital clauses for the appointment of a consultant).
• Commencing a Recitals clause: A Recitals clause is normally headed with the
following words:
WHEREAS

or
RECITALS

or
BACKGROUND

Which of these terms is used is a matter of personal preference, although

the first two terms are the most conventional, with the first being the most
‘traditional’ and seen in older or more formal documents.
• Layout considerations. Whilst not compulsory, the following suggestions
follow English drafting practice for recitals and help to make the contract
more easily readable:
• if there is more than one recital clause they should be put into separate
paragraphs;
• each separate recital should be numbered, and a different numbering
system should be used for recitals compared to the main part of the
agreement. ‘A, B, C’ etc can be used for recitals, and ‘1, 2, 3’ etc.
can be used for the main part of the agreement. This helps to avoid
confusion when cross-references are made.

Location in the agreement

A Recitals clause will be normally located immediately after the Parties clause.

Linkage and use

Extensive, too specific or wording creating obligations can cause problems

in the event of a dispute. Despite including an Entire Agreement clause and

526

M16_Boilerplate_Clauses_R.indd 526 31/08/2017 10:31

 Recitals

exclusion and limitation of liability clauses, a party may make a claim for pre-
contract misrepresentation citing the matters set out in the Recitals clause.

Sample precedent material

Precedent 1—Sample recital – ‘Whereas’

WHEREAS the Sellers wish to have the Shares allotted to the Nominees
in the proportions mentioned in the schedule below and the Company is
willing to allot and issue the Shares accordingly.

Precedent 2—Sample recital – ‘Recitals’

RECITALS:
A The Owner is the [registered proprietor of or applicant for] the Patents
[(as defined below)].
B The Owner is willing to grant to the Licensee, and the Licensee is
willing to accept, a licence under the Patents in accordance with the
provisions of this Agreement.

Precedent 3—Sample recital – ‘Background’

BACKGROUND:
(1) The Bank has agreed to make available to the Company a facility
upon and subject to the terms and conditions set out in a loan agree-
ment dated (date) and entered into by the Bank as lender and the
Company as borrower (‘the Loan Agreement’).
(2) The Bank may from time to time make available further banking facili-
ties to the Company.
(3) It is a condition of the Loan Agreement that the Company’s obliga-
tions under the Loan Agreement be secured upon and subject to the
terms and conditions contained in this deed.

Precedent 4—Sample recital – Appointment of a consultant

A The Company is considering making an investment in a new business
venture, more fully described in the Business Plan.
B The Consultant is experienced in the provision of business consul-
tancy services.
C The Company wishes to commission the Consultant to investigate the
potential market for the products described in the Business Plan and
to prepare a report and recommendations, as is more fully described
in the Specifications, and the Consultant is willing to provide such
services, all in accordance with the provisions of this Agreement.

527

M16_Boilerplate_Clauses_R.indd 527 31/08/2017 10:31

 Reporting

Purpose of the clause

In certain types of agreement, a party will need to provide regular reports to

the other parties about its activities under the agreement. Eg:
• in a consultancy agreement: the consultant will provide progress reports on
the work they carry out or a report on what they have found, the advice,
conclusions or proposals they wish to make, etc; or
• in an agency agreement: the agent will provide reports as to the activities
carried out and/or leads generated and sales made; or
• in a licence of intellectual property: the licensee will provide reports on the
granting of (sub)licences, sales made of products using the licensed
intellectual property as well as providing information on income, expenses
etc for use in calculating royalties.

Drafting issues

When drafting a reporting clause, the following points will need consideration:
• What information should the report contain?
• Should the agreement contain a general statement that a report is provided as
and when required?
Eg, in a routine consultancy agreement, where a consultant is
providing a limited amount of advice or assistance and only a short
note or report is required, a general statement may be sufficient.
• Should the agreement include a provision that the report(s) contain specific
information?
Eg, where an agent is appointed to sell a product, the principal will
wish to know how well the agent is doing, such as the amount of sales,
who the agent is selling to, at what price the goods are being sold, and
so on.
• Should only particular types of information be supplied?
Eg, should a sales report list only the amount of sales, or should it
name the customers (which in certain situations may give rise to
competition law problems)?

528

M16_Boilerplate_Clauses_R.indd 528 31/08/2017 10:31

 Reporting

• Only written reports? Although the usual requirement (or assumption) is

that reports will be provided in writing, in some cases the requirement to
provide reports will also be linked to meetings to monitor the progress
of an agreement, etc. In some cases some or all of the report may need
making through presentations or with the use of various technical aids or
methods.
• Rights of receiver of the information. Can the receiver of information demand
further information and/or can it inspect the records of the provider
of the report, to verify the accuracy of the information or carry out an
inspection or audit at the premises of the sender?
• Frequency. At what frequency should the supplier of reports do so?
• Format of the report. Should the reports contain:
• a specified set of information?
• be laid out in a particular way?
Eg, a franchisee may have to report on its activities, and, for more
structured franchise operations, the franchisor may have produced a
manual for the operation of the franchise. The manual may not only
specify the content of a report, but also its format (such as layout,
headings, the way particular information must be formatted etc).
• Reports from third parties. In some agreements reports are required from
third parties. It may be necessary to deal with situations where the reports
are either not produced or they do not contain the information or result
that a party wishes to see. In such cases, the agreement should deal with
whether the agreement can be terminated or remedial work be carried
out, at one party’s expense, etc.
For example, when entering into a lease of a property, a party may wish to
obtain reports from surveyors, environmental consultants, searches with
local authorities, and so on.
• To what extent is any information given, confidential?

Location in the agreement

Where the provision of reports is important to the operation of an agreement,

a Reporting clause will usually be located with other Main Commercial
Provisions. If the provision of reports is of less importance then it will be
located with other Secondary Main Provisions or Boilerplate section clauses.

Linkage and use

Although a Reporting clause is often related to a discrete activity, other clauses

will or could affect the operation of a reporting requirement:

529

M16_Boilerplate_Clauses_R.indd 529 31/08/2017 10:31

 Reporting

• Ownership of the reports. There should be a provision in the agreement to

specify who is to own the intellectual property in the report and what use
can be made of the report by either party. Most reports will be subject
to copyright law (whether relating to written materials, sound, pictures
etc), and the default position is that the creator of the report owns the
intellectual property in the report. In the absence of specific wording to
state otherwise, then in addition to the creator owning the intellectual
property in the report, the party for whom any report was created will only
get a minimal licence to use the report (which may not cover all the uses
that the party has in mind for what it wishes to do with the report). That
party will wish:
• (best option), to own the intellectual property in the report (a simple
clause is provided as Precedent 3); or
• (second best option), to have a very wide licence to the intellectual
property in the report, eg
‘The Consultant grants an exclusive, irrevocable, fully-paid licence to
the intellectual property in the Reports.’

If the agreement otherwise deals with the creation, licensing or

management of intellectual property then it is likely the issue of the
ownership/use of the reports would be dealt within these clauses.
• Confidentiality. To what extent is the information that is provided in the
reports confidential? If the reports provided are based on, or incorporate,
confidential information provided by a party, then the Confidentiality
clause should be checked so that it covers reports generated under the
agreement.
• Completion/Expiry/Termination. Mainly in a consultancy services type of
agreement the supplier of the service may need to provide a final report.
Wording in some agreements will provide:
• from the point of view of the party receiving the services:
• that the agreement will not terminate until this report is provided;
• that the party supplying the report will not be paid some or the
entire price until the report is provided;
• from the point of view of the party supplying the services:
• that the obligations of that party under an agreement will
terminate/cease when that report is provided;
• that the other party will be liable for any uses made by it of the
report or any information contained in the report.
• Consequences of termination. The provision of reports may involve the
generation of data and information, documents etc. In order to write the
reports the party producing them may receive information and documents
(on paper and electronically) from the other party. On termination, a
Consequences of Termination clause might provide that all information and

530

M16_Boilerplate_Clauses_R.indd 530 31/08/2017 10:31

 Reporting

documents provided (including copies) are returned and that information

and data etc generated (including copies) should be destroyed or handed
to the other party.

Sample precedent material

Precedent 1—Reports etc to be provided on request

[Party B] shall supply such reports, returns and other information as [Party
A] from time to time requests including sales forecasts and information
with regard to products competing with or likely to compete with the
(subject matter) in the Territory.

Precedent 2—Alternative short form – reports to be provided at fixed

periods
[Party B] shall send to [Party A] every six months during the continuation
of this Agreement and within 30 days of its termination for any reason, a
written report giving details of its activities under this Agreement over the
previous six-month period. The report shall be substantially in the form of,
and give details of the matters described in, Schedule [1].

Precedent 3—Ownership of intellectual property in reports

The Consultant undertakes that all intellectual property in the Reports
shall belong to the Client. In consideration of the Fees paid by the Client
to the Consultant under this Agreement, the Consultant shall assign forth-
with on demand from the Client all intellectual property in the Reports at
any time after their coming into existence [including after termination of
this Agreement].

Precedent 4—Short form – report for where party carrying sales of

products etc type of activities (such as agent, distributor)
[At the end of each calendar] or [On the last day of each] month the
Supplier shall supply to the Seller information on the sales the Supplier
has made in the previous month. The Seller may specify the form in
which the information is provided to it as well as such other information it
requires.

Precedent 5—Alternative short form – report for where party carrying

sales of products and related activities, etc (such as agent, distributor)
[At the end of each week] or [At the end of each calendar month] or [On
the last day of each month] (the ‘Period’) the Supplier shall supply, in writ-
ing, to the Seller:
1 what activities it has carried out in relation to the Products for the
Period; and
2 what activities it intends to undertake in the [following [week] or
[month]] or [next [specify period]] regarding the Products; and

531

M16_Boilerplate_Clauses_R.indd 531 31/08/2017 10:31

 Reporting

3 how the activities mentioned in 2. above differ from those stated in

the Plan.

Precedent 6—Alternative short form – report for where party carrying

sales of products etc (such as licensee of software)
[At the end of each calendar] or [On the last day of each] month the
Licensee shall supply to the Licensor information regarding:
1 orders for the Software;
2 projected orders for the Software;
3 licences or sub-licences to the Software that the Licensee has
granted.
The Licensee shall supply such information to the Licensor as the Licensor
may reasonably require.

Precedent 7—Report where consultancy or advice is provided

1 Provision of reports [The Consultant shall supply to the Client
reports [at the times set out in the Specification] or [at the times set
out in the Schedule]] or [The Consultant shall supply a report on the
Consultant’s completion of the Service].

2 Supply and use of the report(s)

(a) The Consultant shall supply to the Client one copy of each
report;
(b) The Client shall only use any Report supplied [[for its own inter-
nal business purposes] or [in relation to the Purpose]];
(c) The Client shall not, whether directly or indirectly, allow or cause
the publication, sale or supply of any report (or the contents of
any report) to any third party;
(d) The Consultant shall own all intellectual property rights (includ-
ing but not limited to copyright and the database right) in any
reports supplied (or any other documents, information or mate-
rial created or supplied) by the Consultant to the Client.
3 The contents and format of the report(s) shall be in the form set out in
the Specification.

532

M16_Boilerplate_Clauses_R.indd 532 31/08/2017 10:31

 Retention of title

Purpose of the clause

Background
Under a retention of title clause, a seller of goods seeks to retain ownership
(property) of the goods until it receives payment for the goods. The wish to
retain ownership in such a circumstance will continue even if the seller has
delivered the goods to the buyer.
Principally under the Sale of Goods Act 1979 property in goods passes from
the buyer to the seller when the parties intend it to (determined by their
contract, the circumstances of the case or their conduct) (Sale of Goods Act
1979, s 17).
A retention of title clause will usually vary the general rule found in the Sale
of Goods Act 1979, s 18, rule 1 (which will apply unless the parties express
a different intention and make their choice about when property passes in
goods). This rule provides that ownership of the goods will pass to the buyer
at the time the contract is made, irrespective of whether the buyer has paid for
the goods or the seller has delivered the goods. This rule will apply as long as
the goods are in a deliverable state. The parties are free to vary or dis-apply the
rule (as a retention of title clause seeks to do).
From a seller’s point of view, it is particularly important to retain ownership
of goods where the buyer becomes bankrupt or goes into liquidation before
paying for them. Other than in the simplest cases, retaining title to goods can
lead to complex legal issues and difficulties, some of which are summarised
below. The more ambitious types of clause will often create a charge over the
goods, which will be void unless registered (where it is possible to register
it). In most cases it is impractical to register a charge in respect of every sale.
Within particular industries (such as construction, see eg, ‘Who owns unpaid
goods?’ Construction Law, July 2005, p 20) there are also difficulties upon which
expert advice should always be sought.

Principle of retention of title

Retaining title to goods has resulted in much discussion and comment (see eg,
Aluminium Industrie Vaasen BV v Romalpa Aluminium Ltd [1976] 2 All ER 552,
[1976] 1 WLR 676, CA (the Romalpa case)). The limits on the efficacy of such

533

M16_Boilerplate_Clauses_R.indd 533 31/08/2017 10:31

 Retention of title

provisions will need careful explanation to the seller, proceeding from basic
principles.
Firstly, what is retention of title and what is its significance? It is the right of the
seller to retain ownership of the goods sold until payment, notwithstanding
that the seller has parted with possession of the goods to the buyer. As a
general rule, where the parties have entered into a contract for the sale of
goods and where goods are in a deliverable state, under the Sale of Goods Act
1979, the ownership of the goods will pass to the buyer at the time the contract
is made, irrespective of whether the buyer has paid for the goods or the seller
has delivered them (Sale of Goods Act 1979, s 18, rule 1).
Obviously retaining ownership in goods delivered to the buyer, but not paid
for, is an extremely important right in the event of the buyer becoming
bankrupt or going into liquidation. In the event of an insolvency and an
insolvency practitioner who disposes of the goods or interferes with them,
the seller could bring legal proceedings against the practitioner for wrongful
interference with the goods and claim damages for their market value.
There are, however, a number of practical problems, as are discussed below.
In particular, many types of retention of title clauses create a charge over the
goods and (in the case of a corporate buyer) that charge will be void unless
registered with the Registrar of Companies. Registration is often considered
not practical.

Classification of retention of title clauses

Clauses concerning retention of title are sometimes described in the

following ways:
• simple clauses: the buyer of the goods does not obtain ownership of the
goods until they have paid for them;
• ‘all moneys clause: this is a variation of a simple clause. Here the buyer does
not obtain ownership of the goods until they have paid for them as well as
paying any other sums owing to the seller (Romalpa case, Armour v Thyssen
Edelstahlwerke AG [1991] 2 AC 339, HL);
• product or tracing clause: the buyer does not obtain ownership of the goods
even if the goods are mixed with other goods, either by them becoming
part of a new product or that they are used to make a new product. The
essential point is that the goods the buyer has bought have lost their
unique identity. The seller in effect is claiming ownership of what the
goods now form part, or which the buyer has made using the goods;
• tracing of proceeds clause: the seller wishes to have the right to the money
that the buyer obtains in selling the goods to another person.
These are not set categories but simply convenient labels to attach to different
types of retention of title clause.

534

M16_Boilerplate_Clauses_R.indd 534 31/08/2017 10:31

 Retention of title

Legal problems with retention of title clauses

The area of law concerning retention of title clauses is complicated and

no clause should be drafted or included in an agreement without the help
of a legal adviser with experience of drafting retention of title clauses.
However, it is possible to give a number of pointers to the issues involved in
the use of a more comprehensive clause than as set out in Precedent 1 for
example:
• The most obvious remedy is recovering possession of goods on the buyer’s
premises which are clearly identifiable as belonging to the seller (a
‘simple’ retention of title clause) (the Romalpa case). In Clough Mill Ltd v
Martin [1984] 3 All ER 982, [1985] 1 WLR 111, CA, the Court of Appeal
confirmed that a simple retention of title provision does not constitute a
registrable charge.
Often, however, a seller will wish to go further than a ‘simple’ clause. A typical
clause will seek to provide further extension of the rights of the seller as
follows:
• the clause may seek to secure not just the price of the particular goods
sold, but all other goods supplied, which will include goods supplied
and paid for by the buyer, but which are still identifiable (an ‘all monies’
or ‘current account’ clause). Such provisions are likely to be effective,
provided that the goods are unused and still in the buyer’s possession (see
the Romalpa case above; Clough Mill Ltd v Martin above). Such a clause is
also likely not to constitute a registrable charge;
• a provision may entitle the seller to trace the proceeds of sale of goods
sold by the buyer which are the subject of the retention of title clause (a
‘tracing of proceeds’ clause). Such a provision is effective (see the Romalpa
case above), but as its exercise is dependent on the seller establishing a
‘fiduciary relationship’ with the buyer (arguably not a common feature of
a buyer/seller relationship) such clauses are usually resisted by insolvency
practitioners.
Furthermore, the courts will not readily infer the necessary fiduciary
relationship (see Hendy Lennox Ltd v Grahame Puttick Ltd [1984] 2 All
ER 152, [1984] 1 WLR 485). Where a fiduciary relationship is established,
it means that the seller of the goods does have a proprietary claim or
vested right to money, typically in a bank account, which represents the
sale proceeds of the goods. In practice, this right is not going to be of much
value. The reason for this is that if the buyer is insolvent, it is unlikely to
have a credit balance in its bank account. It will also not help if the buyer
has factored its debts or charged debts to a bank.
• Clauses commonly seek to extend a claim to retain ownership of goods
that have become mixed, processed or applied to other goods supplied by
other suppliers (a ‘product’ or ‘tracing’ clause). This raises complicated
issues of personal property law.

535

M16_Boilerplate_Clauses_R.indd 535 31/08/2017 10:31

 Retention of title

If the goods sold have only suffered minor adaptation, then there is some
prospect of asserting a valid claim (see Hendy Lennox Ltd v Grahame Puttick
Ltd above). If the process goes further than this so that the goods lose their
original identity, then the courts are likely to hold that the true nature
of the arrangement between the parties with regard to such downstream
products was not one of sale and purchase, but that the buyer was creating
a charge over goods supplied to secure sums owing to the seller (see
Re Peachdart Ltd [1984] Ch 131, [1983] 3 All ER 204; Borden (UK) Ltd v
Scottish Timber Products Ltd [1981] Ch 25, [1979] 3 All ER 961, CA). This
charge would only be effective in law as against a limited company buyer
if registered as such at Companies House under the Companies Act 2006,
ss 860, 875. If the buyer is not a company incorporated in the UK or not
a company at all but an individual, an organisation incorporated by Royal
Charter etc then it would not be possible to register any type of charge.
Wording such as in Precedent 8 may be appropriate to be included in sale
conditions.
It is, however, extremely unlikely that either the buyer or the seller
would have taken the trouble to register unless the contract is financially
significant or important to one of the parties.
• Creation of a charge: Clauses such as a product clause or a tracing clause (and
as discussed in the last two bullet points) are likely to be interpreted as
an equitable charge over the goods supplied (as the legal ownership of
the goods passes to the buyer) (re Bond Worth Ltd [1979] 3 All 919) and
accordingly the seller has no longer any legal title to the goods s/he has
sold (see Clough Mill Ltd v Martin [1984] 3 All ER 982 at 990). As noted
above, a failure to register will make the charge void against a liquidator
or an administrator or a creditor of a company (Companies Act 2006,
s 871(1)).

Drafting issues
• Retain full title. A retention of title clause should retain both the legal and
equitable or beneficial title to goods.
• Equitable or beneficial title only is to be retained. If the debtor:
• is a company, will a charge be registered with the Registrar of
Companies under the Companies Act 2006, ss 860 and 875?
• is an individual, will the requirements of the Bills of Sale Acts 1878
and 1882 be complied with?
• Is it set out clearly what a purchaser can do with the goods? It must be made
clear whether the purchaser can:
• re-sell the goods; or
• intermingle them with other goods; or

536

M16_Boilerplate_Clauses_R.indd 536 31/08/2017 10:31

 Retention of title

• incorporate them into other goods

prior to payment being made.
• Identifying the goods. Are the goods subject to a retention of title clause
clearly identifiable when they have been delivered to the purchaser? Eg, is
the purchaser required:
• to store the goods separately from others?
• to mark the goods as being the property of the seller?
• to allow the seller the right to inspect where the goods are stored from
time-to-time?
• If the goods are to be sold on before expiry of any time for payment by the purchaser.
Is the seller entitled to reprocess goods during the period between delivery
of goods and the expiry of time for payment?
• If the goods are to be sold on whether before expiry or after expiry of any time for
payment by the purchaser. Does the seller have the right to the proceeds
of any sub-sale? (Title is likely to pass to the sub-buyer under the Sale
of Goods Act 1979, s 21(1) or 25(1).) Is there a fiduciary duty between
the buyer and seller? If not, does the agreement specify that there is a
fiduciary duty?
Note: there is authority that express provision in an agreement may
in fact create a charge over the buyer’s property (see Tatung (UK) Ltd
v Galex Telesure Compaq Computer Ltd (1988) 5 BCC 325; Re Weldtech
Equipment Ltd [1991] BCLC 393; Compaq Computer Ltd v Abercom Group Ltd
[1993] BCLC 603, [1991] BCC 484). But also, it appears that the courts
will look at the true nature of the relationship between the parties rather
than what is stated in the agreement.

Location in the agreement

A simple Retention of title clause will often be included with Payment provisions.
A lengthier version is often set out separately as part of the Boilerplate section
of an agreement.

Linkage and use

In addition to the points made above, the use of a Retention of title clause will
often require the consideration of the following:
• Risk. A retention of title clause often comes coupled with wording that
states which party shall be responsible for the risk if something happens to
the goods (and when they become responsible for the risk, such as when
the parties enter into a contract, or when goods are ready for delivery (but
still the possession of the seller) or on physical delivery to the buyer). See
Precedents 2 and 4, and Title (or property) and risk.

537

M16_Boilerplate_Clauses_R.indd 537 31/08/2017 10:31

 Retention of title

• Payment. On a failure to pay or dealing with the goods in a way not

permitted by the Retention of title clause, whether any of the provisions
relating to payment should operate, such as charging interest.
• Termination. Whether, and when, termination of the agreement (in part or
in whole) can take place where there is a failure to pay or there is dealing
with the goods in a way not permitted under a Retention of title clause.
• Warranties. When a person:
• selling goods; or
• transferring ownership in them, for example, when a business is being
sold with its assets
is required to give a warranty, inter alia, that the goods are not subject to
any retention of title.
• Main Commercial Provisions. If:
• there is a failure to pay for some goods; or
• there is dealing with the goods in a way not permitted
under a Retention of title clause, should other goods be supplied or should
the agreement be ‘suspended’?

Sample precedent material

Precedent 1—Short clause

The Seller retains ownership in the goods delivered as against the Buyer
until the full purchase price has been paid.
Or
All goods shall remain the property of the Seller until the full purchase
price of such goods shall be paid.
Or
Ownership of the goods which are subject of this contract shall not pass
to the Buyer until they are fully paid for, but the risk in the goods shall be
borne by the Buyer from the date of the delivery by the Seller or its agents
to the Buyer.

Precedent 2—Detailed clause

1 The Goods shall be at the Buyer’s risk as from delivery.
2 In spite of delivery having been made, property in the Goods shall not
pass from the Seller until:
(a) the Buyer shall have paid the Price plus VAT in full; and
(b) no other sums whatever shall be due from the Buyer to the
Seller.

538

M16_Boilerplate_Clauses_R.indd 538 31/08/2017 10:31

 Retention of title

3 Until property in the Goods passes to the Buyer in accordance with

Clause [1] the Buyer shall hold the Goods and each of them on a fidu-
ciary basis as bailee for the Seller. The Buyer shall store the Goods
(at no cost to the Seller) separately from all other goods in its posses-
sion and marked in such a way that they are clearly identified as the
Seller’s property.
4 Notwithstanding that the Goods (or any of them) remain the prop-
erty of the Seller the Buyer may sell or use the Goods in the ordinary
course of the Buyer’s business at full market value for the account
of the Seller. Any such sale or dealing shall be a sale or use of the
Seller’s property by the Buyer on the Buyer’s own behalf and the
Buyer shall deal as principal when making such sales or dealings.
Until property in the Goods passes from the Seller the entire pro-
ceeds of sale or otherwise of the Goods shall be held in trust for the
Seller and shall not be mixed with other money or paid into any over-
drawn bank account and shall be at all material times identified as the
Seller’s money.
5 The Seller shall be entitled to recover the Price (plus VAT) notwith-
standing that property in any of the Goods has not passed from the
Seller.
6 Until such time as property in the Goods passes from the Seller the
Buyer shall upon request deliver up such of the Goods as have not
ceased to be in existence or resold to the Seller. If the Buyer fails to
do so the Seller may enter upon any premises owned occupied or
controlled by the Buyer where the Goods are situated and repossess
the Goods. On the making of such request the rights of the Buyer
under clause 4 shall cease.
7 The Buyer shall not pledge or in any way charge by way of secu-
rity for any indebtedness any of the Goods which are the property
of the Seller. Without prejudice to the other rights of the Seller, if the
Buyer does so all sums whatever owing by the Buyer to the Seller
shall forthwith become due and payable.
8 The Buyer shall insure and keep insured the Goods to the full Price
against ‘all risks’ to the reasonable satisfaction of the Seller until the
date that property in the Goods passes from the Seller, and shall
whenever requested by the Seller produce a copy of the policy of
insurance. Without prejudice to the other rights of the Seller, if the
Buyer fails to do so all sums whatever owing by the Buyer to the
Seller shall forthwith become due and payable.

Precedent 3—Short agreement for sale of goods

The Goods shall become the property of the Buyer on payment by the
Buyer to the Seller of the cash price balance with interest to the date of
payment at the stipulated rate and any other money payable to the Seller
under this agreement. The Goods shall remain the property of the Seller

539

M16_Boilerplate_Clauses_R.indd 539 31/08/2017 10:31

 Retention of title

until payment of all such money and the Buyer shall be a mere bailee of
the goods.

Precedent 4—Short form retention of title clause – eg long-term supply

agreement
Notwithstanding that risk in the Products shall pass to [Party B] upon
delivery, full legal and equitable title and interest in all and any Products
supplied to [Party B] shall remain in [Party A] and shall not pass to [Party
B] until [Party A] shall have received payment in full of all amounts due
and owing from [Party B] to [Party A] for the time being (including any
interest accruing and owing to [Party A]) and from time to time in respect
of all such Products [and all other goods supplied by [Party A] to [Party B]
at any time].

Precedent 5—Full form retention of title clause – sale of goods

agreement
1 The Goods shall be at the Buyer’s risk as from delivery.
2 In spite of delivery having been made property in the Goods shall not
pass from the Seller until:
(a) the Buyer shall have paid the Price plus VAT in full; and
(b) no other sums whatever shall be due from the Buyer to the
Seller.
3 Until property in the Goods passes to the Buyer in accordance with
Clause [2] the Buyer shall hold the Goods and each of them on a fidu-
ciary basis as bailee for the Seller. The Buyer shall store the Goods
(at no cost to the Seller) separately from all other goods in its posses-
sion and marked in such a way that they are clearly identified as the
Seller’s property.
4 Notwithstanding that the Goods (or any of them) remain the prop-
erty of the Seller the Buyer may sell or use the Goods in the ordinary
course of the Buyer’s business at full market value for the account
of the Seller. Any such sale or dealing shall be a sale or use of the
Seller’s property by the Buyer on the Buyer’s own behalf and the
Buyer shall deal as principal when making such sales or dealings.
Until property in the Goods passes from the Seller the entire pro-
ceeds of sale or otherwise of the Goods shall be held in trust for the
Seller and shall not be mixed with other money or paid into any over-
drawn bank account and shall be at all material times identified as the
Seller’s money.
5 The Seller shall be entitled to recover the Price (plus VAT) notwith-
standing that property in any of the Goods has not passed from the
Seller.
6 Until such time as property in the Goods passes from the Seller the
Buyer shall upon request deliver up such of the Goods as have not

540

M16_Boilerplate_Clauses_R.indd 540 31/08/2017 10:31

 Retention of title

ceased to be in existence or resold to the Seller. If the Buyer fails to

do so the Seller may enter upon any premises owned occupied or
controlled by the Buyer where the Goods are situated and repossess
the Goods. On the making of such request the rights of the Buyer
under Clause [4] shall cease.
7 The Buyer shall not pledge or in any way charge by way of secu-
rity for any indebtedness any of the Goods which are the property
of the Seller. Without prejudice to the other rights of the Seller, if the
Buyer does so all sums whatever owing by the Buyer to the Seller
shall forthwith become due and payable.
8 The Buyer shall insure and keep insured the Goods to the full Price
against ‘all risks’ to the reasonable satisfaction of the Seller until the
date that property in the Goods passes from the Seller, and shall
whenever requested by the Seller produce a copy of the policy of
insurance. Without prejudice to the other rights of the Seller, if the
Buyer fails to do so all sums whatever owing by the Buyer to the
Seller shall forthwith become due and payable.
9 The Buyer shall promptly deliver the prescribed particulars of this con-
tract to the Companies Registrar in accordance with the Companies
Act 2006, Part 25. Without prejudice to the other rights of the Seller,
if the Buyer fails to do so all sums whatever owing by the Buyer to the
Seller shall forthwith become due and payable.

Precedent 6—Full form retention of title clause – eg franchise supply

agreement
1 The Products and any other goods delivered by the Franchisor to
the Franchisee shall remain the sole and absolute property of the
Franchisor as legal and equitable owner until such time as all money
due to the Franchisor has been paid to the Franchisee but shall be at
the Franchisee’s risk from the time of delivery to it.
2 The Franchisee acknowledges that it is in possession of all such
goods as bailee for the Franchisor until such time as they are deliv-
ered to a purchaser under the terms of this agreement.
3 Until delivery to a purchaser the Franchisee undertakes to store such
goods on its premises separately from its own goods or those of any
other person and in a manner which makes them readily identifiable
as the Franchisor’s goods.
4 The Franchisee’s right to possession of such goods shall cease if it
does anything or fails to do anything which would entitle a receiver to
take possession of any assets or which would entitle any person to
present a petition for the winding up of the Franchisee.
5 The Franchisor may for the purpose of examination or recovery of its
goods enter upon any premises where they are stored or where they
are reasonably thought to be stored.

541

M16_Boilerplate_Clauses_R.indd 541 31/08/2017 10:31

 Retention of title

6 The entire proceeds of such goods shall be held in trust for the
Franchisor and shall not be mingled with any other money paid into
any overdrawn bank account and shall at all times be identifiable as
the Franchisor’s money.
7 The Franchisee warrants that it is not at the time of entering into this
agreement insolvent and knows of no circumstance which would
entitle any creditor to appoint a receiver or to petition for winding up
or to exercise any other rights over or against its assets.

Precedent 7—Full form retention of title clause – eg long-term supply

agreement
1 Notwithstanding that risk in the Products shall pass to B upon deliv-
ery, full legal and equitable title and interest in all and any Products
shall remain in [Party A] and shall not pass to [Party B] until [Party A]
shall have received payment in full of all amounts due and owing from
[Party B] to [Party A] for the time being (including any interest accru-
ing and owing to [Party A]) and from time to time in respect of all such
Products [and all other Products supplied by [Party A] to [Party B] at
any time].
2 During such time as title in the Products remains in [Party A], [Party B]
shall store or otherwise keep the Products in such a way as clearly to
indicate at all times that the Products are owned by [Party A]and shall
not remove, obscure or delete any mark placed on the Products by
[Party A] which may enable the Products to be identified.
[3 If during such time as title in the Products remains in [Party A] any of
the Products are incorporated in or attached to or used as material
for or in the manufacture of other goods the property in the whole of
such goods shall vest in and remain with [Party A] and [Party B] shall
hold such goods as bailee of and to the order of [Party A] until [Party
A] has received payment in full in respect of the Products and all
[Party A]’s rights in relation to the Products (including its rights under
this agreement) shall extend to such goods.]
4 During such time as title in the Products remains in [Party A], [Party B]
shall have power to deal with or use the Products (and other goods in
which the Products are incorporated) as fiduciary bailee of [Party A]
in the normal course of its business and to dispose of the Products or
such goods by way of bona fide sale at full market value.
5 If [Party B] shall sell any of the Products it shall hold all the proceeds
of sale as trustee for [Party A] and shall (until payment of amounts due
to [Party A]) place such proceeds in a separate bank account and hold
the same to the order of [Party A] and if [Party B] shall sell any goods
incorporating the Products it shall hold so much of the proceeds of
sale as relate to the Products as trustee for [Party A] and shall (until
payment of amounts due to [Party A]) place such proceeds in a sepa-
rate bank account and hold the same to the order of [Party A].

542

M16_Boilerplate_Clauses_R.indd 542 31/08/2017 10:31

 Retention of title

6 Upon any such sale by [Party B] of the Products or goods incorpo-

rating the Products all rights which [Party B] may have against the
purchaser of them shall automatically vest in [Party A]. [Party B] shall
indemnify and keep indemnified [Party A] in respect of any proceed-
ings, action or claim of any nature whatever made or brought by the
said purchaser against [Party A] in respect of the Products or any
of them.
7 Without prejudice to any other rights or remedies arising out of any
breach of contract by [Party B], [Party A] shall be entitled to repos-
sess all or any of the Products and to take possession of all or any of
the goods incorporating such Products upon the happening of any of
the events specified in Clause [no].
8 For the purpose of any repossession pursuant to sub-clause [7] [Party
A] or its agent shall be entitled to enter upon any relevant land or
buildings with such transport as may be necessary. All costs incurred
by [Party A] or its agent in such repossession shall be borne by
[Party B].
9 The risk in all Products supplied under this agreement shall remain
with [Party A] [during transportation to [Party B]’s place of business
or as the case may be]. Notwithstanding that the title in the Products
may not have passed in accordance with the provisions of this clause,
the risk in all Products shall pass to [Party B] upon delivery of the
item concerned [to [Party B]’s place of business]. [Party B] shall at its
own expense take out and secure the continuance of an all-risk insur-
ance policy in respect of all Products supplied in accordance with
this agreement to their total value at replacement cost. Such policy
shall cover the goods from and including the date on which they are
delivered to [Party B]’s place of business. [Party B] shall procure that
[Party A]’s interest in the Products shall be recorded by an endorse-
ment on the policy specifying [Party A] as loss payee (and shall pro-
vide [Party A] with a copy of it) and (to the extent that [Party A] has not
received full payment in respect of any Products) any sums which are
received under any such policy may be credited against any sums
owing from [Party B] to [Party A].
10 B warrants that it is not at the time of entering into this agreement
insolvent and knows of no circumstance which would entitle any
creditor to appoint a receiver or to petition for winding up or to exer-
cise any other rights over or against its assets.

Precedent 8—Duty to register charge with the Companies Registrar

The Buyer shall promptly deliver the prescribed particulars of this con-
tract to the Companies Registrar in accordance with the Companies Act
2006, Part 25. Without prejudice to the other rights of the Seller, if the
Buyer fails to do so all sums whatever owing by the Buyer to the Seller
shall forthwith become due and payable.

543

M16_Boilerplate_Clauses_R.indd 543 31/08/2017 10:31

 Schedules

Purpose of the clause

Deciding if schedules are part of the agreement

A schedule to an agreement usually contains information about specific
aspects of the agreement, such as:

• a list of property to be sold under the agreement;

• the specification for the creation of a software program;

• a list of key staff (and their qualifications and experience) who are to
perform a service; and sometimes

• operative provisions of the agreement.

Substantive operative provisions are occasionally set out in a schedule to ensure

that the logical flow of the main part of the agreement is not interrupted and
obscured with a great deal of detail.
For example, in a research collaboration agreement, the detail of the research
work the contractor will carry out, and the dates by which when the contractor
needs to complete certain stages, are commonly set out in a schedule.

A further use is where a party trades on an unchanging set of terms and

conditions. The specific commercial terms are set out in one document (such
as an order form or an email, with the names of the parties, price, number of
items to be sold, due dates, etc) and reference is then made to the detailed
terms and conditions by reference to their location in a schedule.

Whether or not a schedule contains obligations on a party (but particularly

so if a schedule does), it is important to state in the main body of the
agreement that the provisions of the relevant schedules form part of the
agreement. This is to avoid argument that these obligations (because they
are contained in a schedule) are not part of the agreement or that they are
not legally binding on the parties. Sometimes a distinction is made between
a schedule, which contains provisions affecting the parties’ rights and
obligations under the agreement, and an attachment or annex, which is not
part of the present agreement but is included for a special reason, eg to show
the format of a licence that the parties will sign if certain conditions are met.

544

M17_Boilerplate_Clauses_S.indd 544 31/08/2017 11:13

 Schedules

Terminology

There is no special significance in the use either of the term ‘schedule’ or the
term ‘annex’; but what is more important is to state clearly the legal status
of any documents attached to the main part of the agreement. Other terms
used include ‘annexures’ and ‘appendices’. Wording such as that set out in
Precedent 1 is commonly (and should be) included in the main body of the
agreement with regard to the legal status of a schedule or schedules.

Drafting issues

• Does the agreement contain more than one schedule? Are the schedules clearly
and separately identifiable, eg Schedule 1, Schedule 2? Is the identification
or numbering schemes used consistently throughout the agreement?
• Is the status of the schedule(s) clearly stated? If the schedules contain
obligations, is there clear wording in the main part of the agreement to
that effect? Eg:
• there might be a short statement in the main part of the agreement
that the provisions relating to certain obligations are dealt with in a
schedule; or
• a particular clause might in outline state the main obligation, and
then refer to a schedule containing more detailed provisions relating
to the main obligation, eg:
‘The Client shall pay the Price in accordance with the provisions of
Schedule 2’ (with the Schedule setting out the timing of payment, what
happens if payment is not made, VAT etc).

• Are there any schedules which are not attached to the agreement but are referred
to in the agreement. What is their status? An agreement may make reference
to a schedule which is not attached to the agreement. As with any other
schedule, its status (as to whether it is part of the agreement or not) needs
making clear.
For example, a long-term supply of services contract states that the
services the supplier will provide are in accordance with those set out in a
document which is available from the supplier on request or are displayed
on the supplier’s website. The benefit to the supplier is that the specific
support services it offers are set out in one place, and if they change,
the details will need changing only in one place (such as the supplier’s
website). It would not need, therefore, to inform all customers/clients
about the change (unless the contract required this). The agreement
might include a definition:
‘Services shall means the services set out on the Supplier’s website at
http://www.extra1services.eu/services.htm [in the document named
‘Services we provide’ [dated [ ]][version [ ]].’

545

M17_Boilerplate_Clauses_S.indd 545 31/08/2017 11:13

 Schedules

As noted above, the status of this type of document needs stating clearly.
Additionally, as its provisions are not ‘fixed’ in a physical document and
can be changed by the supplier (without notice), the agreement should
state precisely whether:
• the services described in this separate document are those in the
version of a document at a particular date (ie at the date of the
agreement); or
• the supplier may vary the details of the services as described in the
document named [ ] which the supplier may vary from time-to-time.
• If there is more than one schedule, is there any overlap in the issues they deal
with? This is a slightly different issue to that of whether there is an overlap
between a clause in an agreement and a clause in the schedule, but rather
if provisions in two schedules overlap or conflict (for which see Priority of
terms).
Eg an agreement may contain a number of schedules, such as in a
software licence and maintenance agreement, where one schedule deals
with the specific software licensed (including licence fee information
and whether upgrades are covered) and another with the maintenance
of that software (and the annual costs of doing so). The wording in each
may overlap on one issue or may not be clear as to a particular outcome.
For example in one recent case (Data Direct Technologies Ltd v Marks
and Spencer plc [2009] EWHC 97 (Ch), [2009] All ER (D) 198 (Jan)) it
was not clear whether the annual maintenance fee was automatically
renewed (as provided in one schedule) or whether the licensee had
to opt to have it renewed (as provided in another schedule), or which
schedule was to prevail. There was wording in the agreement that
the provisions of one schedule would prevail over the terms of the
agreement, but there was not wording as to which schedule should
prevail over the other.

Location in the agreement

The clause indicating that the schedules are part of the agreement usually
appears in the Boilerplate section of an agreement or together with other
provisions in an Interpretation clause.
The actual schedules will either appear:
• after the last clause of the substantive provisions (such as after the
Boilerplate section) but before the execution and signature block clauses;
or
• after the execution and signature block clauses.
The second alternative is more common in agreements drafted in the United
States.

546

M17_Boilerplate_Clauses_S.indd 546 31/08/2017 11:13

 Schedules

Linkage and use

Usage

Some of the detailed uses of a schedule are, for example:

• if the contract involves performance of work, for setting out:
• a detailed description of that work;
• any standards or acceptance criteria;
• a detailed timetable for completions of the work;
• lists of materials and equipment a party will use or provide;
• list of personnel who will carry out the work or provide the services
(sometimes including their qualifications and experience); and
• a detailed payment schedule;
• if after the signature of the main agreement the parties need to sign or use
further documents, the schedules may set out the agreed form of these
documents, for example:
• (formal) assignments;
• (formal) licences;
• press releases and announcements;
• format and layout of reports to be provided during the course of the
agreement;
• for setting out standard terms and conditions of a contract:
Eg, an agreement may have outline provisions or specially negotiated
provisions in the main part of the agreement and the standard provisions
attached as a schedule;
• for setting out information, such as:
• technical specifications;
• lists of parts, services or facilities;
• lists of assets to be used, licensed or sold, eg:
• a list of the patents which are the subject of a licence agreement;
• agreements for the sale of companies often have schedules that
specify the shareholdings of each of the sellers, the subsidiaries of
the company being sold and the land and buildings held by that
company and its subsidiaries, and the lengthy representations
and warranties about the commercial and financial position of
the company or business;
• for removing transaction-specific details so that the main document can be
more easily used as a standard form. Standard form distributor or agency

547

M17_Boilerplate_Clauses_S.indd 547 31/08/2017 11:13

 Schedules

agreements, for example, usually place details of the products, territories

covered and sales targets within schedules.

Linkage

If the schedules include any obligations a Priority of Terms clause may need to
be included to indicate which part of the agreement will prevail in the event of
a conflict or overlap in provisions.

Sample precedent material

Precedent 1—Schedules to be part of the agreement

The provisions of Schedules 1, 2 and 4 to this Agreement shall form part
of this Agreement as if set out here.

Precedent 2—Schedules to be part of agreement

The schedules to this Agreement are and shall be construed as being part
of this Agreement.

Precedent 3—Schedules to be part of agreement – alternative form

The schedules to this agreement are an integral part of this agreement
and references to this agreement include references to such schedules.

Precedent 4—Schedules to be part of agreement – alternative form

References to clauses and the schedules shall be to clauses of and the
schedules to this Agreement.

Precedent 5—Schedules to be part of agreement – alternative form

Clauses and schedules are references to clauses of, and schedules to,
this agreement, and references to this agreement include its schedules.

Precedent 6—Schedules to be part of agreement – alternative form

The schedules to this instrument form part of it and shall have the same
full force and effect as if expressly set out in the body of it.

Precedent 7—Agreement to include schedules, annexures etc

‘Agreement’ means this agreement and any and all schedules, annexures
and exhibits attached to it or incorporated in it by reference.

Precedent 8—References to numbered schedules

Save where otherwise stated, references to numbered clauses and
schedules are references to the clauses and schedules of this agreement
that are so numbered.

548

M17_Boilerplate_Clauses_S.indd 548 31/08/2017 11:13

 Set-off and retention

Purpose of the clause

Set-off in general
A set-off refers to the following type of situation:
• Party A is under an obligation to pay a sum under a contract to Party B;
• before Party A makes payment it deducts part of that sum before paying
the balance to Party B.
This might occur because Party B owes Party A some money or has not
performed some obligation to Party A as required under the contract. A set-off
is in effect a deduction.
There are situations where a party can retain a sum or some other right or
benefit under the contract. For example:
• where the contract provides for the retention of a sum (ie is it ‘held back’).
The contract can provide that a party will not pay part of the total price
until the contract work is successfully completed; or
• where the title to goods is retained by the seller until the price for those
goods has been paid. See Retention of title for this topic.
The advantages to a party to a contract to whom money is owed under that
contract being able to set the debt off against sums owed by it to the other
party are both practical and procedural (see further 42 Halsbury’s Laws of
England (4th Edn) para 401 ff).
In general, whether there is power to set-off amounts owing will depend on the
bargaining strength of the parties during negotiation. A seller of goods, for
example, will obviously want a clause prohibiting set-off by the buyer, whereas
buyers will wish to retain such a right.
A set-off clause is valid as long as it satisfies the requirement of reasonableness
under the Unfair Contract Terms Act 1977, s 3 (as extended by s 13) (see
eg Stewart Gill Ltd v Horatio Myer and Co Ltd [1992] QB 600, [1992] 2 All
ER 257, CA (an equipment supply contract); Fastframe Ltd v Lohinski (3 March
1993, unreported), CA (a franchise agreement); Axa Sun Life Services plc
v Campbell Martin Ltd [2011] EWCA Civ 133; Rohlig (UK) Ltd v Rock Unique
Ltd [2011] EWCA Civ 18). Accordingly, a party must take care, in all the
circumstances, to avoid producing an agreement that is too one-sided.

549

M17_Boilerplate_Clauses_S.indd 549 31/08/2017 11:13

 Set-off and retention

Under court rules

The defence of set-off is available under English law. Where a defendant

contends that it is entitled to money from the claimant, and relies on this as
a defence to the whole or part of the claim, the contention may be included
in the defence and set-off against the claim, whether or not it is also a
counterclaim (see Civil Procedure Rules 16.6).
A discussion of the detailed circumstances in which set-off (and a related
defence of ‘abatement’) are available under English law is beyond the scope
of this book. Generally, the claim for set-off must be in some way related to
the claim made by the claimant. Thus if the two claims concern unrelated
contracts, set-off may not be available.

Drafting issues

• Should a party have the right to set off sums owed?—no right of set-off. Where
payments are to be made in full, with no set-off, this must be expressly
stated in the clearest possible terms.
Eg, a supplier of goods or services may wish that the purchaser will not
have a right to set-off.
• What situations should a no set-off provision cover? A statement that a party
cannot deduct any sum may not cover all situations, and some provisions
cover other possible ways. Therefore, it is usual also to rule out ‘counter-
claims’, as that term is wider in scope than ‘set-off’ and may comprise
a non-monetary claim, such as a claim for an injunction or specific
performance.
Eg, a provision that payments must be made without any discount,
deduction, set-off or counterclaim whatsoever has been held to be valid
(see Hong Kong and Shanghai Banking Corpn v Kloeckner & Co AG [1990]
2 QB 514, [1989] 3 All ER 513, applied in Coca-Cola Financial Corpn v
Finsat International Ltd [1998] QB 43, [1996] 3 WLR 849, CA, but
distinguished in National Bank of Saudi Arabia v Skab (23 November 1995,
unreported)).
The word ‘set-off’ does not need to be used. For example, a lease which
provided that rent should be paid ‘without deduction’ had the effect of
excluding by agreement any right of set-off (see Famous Army Stores Ltd
v Meehan [1993] 1 EGLR 73). But there are also contrary decisions: a
provision in a lease that rent was to be paid ‘without any deduction’ was
insufficient to exclude a tenant’s right of equitable set-off (Connaught
Restaurants Ltd v Indoor Leisure Ltd [1994] 4 All ER 834, [1994]
1 WLR 501).
• Express right of set-off. Where one or both parties are to have the right to
set-off debts owing to the other, it is nevertheless preferable, to avoid any

550

M17_Boilerplate_Clauses_S.indd 550 31/08/2017 11:13

 Set-off and retention

possibility of uncertainty, to state this clearly in the agreement. The right

of set-off may be framed widely, applying to all sums owing, whether under
that particular agreement or otherwise, or it may be stated to apply only in
relation to eg ‘the purchase price’.
• Extending right of set-off. A provision extending the right of set-off to
include all claims that one party may have against another (eg arising
under an unrelated contract) is valid (see eg Watson v Mid Wales Rly Co
(1867) LR 2 CP 593 at 600, and Newfoundland Government v Newfoundland
Rly Co (1888) 13 App CAs 199 at 210).
If the right is to be extended, the clause will need careful drafting, for
example to address whether:
• interest on a debt can be deducted; and
• contingent or unascertained debts are to be included, and if so, how
they are to be calculated.
If it is too broad, the clause may be interpreted as a penalty, in which case it
will be unenforceable (see eg Gilbert-Ash (Northern) Ltd v Modern Engineering
(Bristol) Ltd [1974] AC 689, [1973] 3 All ER 195, HL; considered in Linden
Gardens Trust Ltd v Lenesta Sludge Disposal Ltd [1994] 1 AC 85, [1993] 3 All
ER 417, HL). The clause may also amount to an exclusion clause under
the Unfair Contract Terms Act 1977 (see Stewart Gill v Horatio Myer & Co
Ltd [1992] QB 600, [1992] 2 All ER 257, CA, and Fastframe Ltd v Lohinski
(3 March 1993, unreported), CA).
A further issue is if a contractual provision relating to a set-off clause
tries to reach through to a liquidator of a creditor who is bankrupt: such
wording is unlikely to be effective (see Goode on Commercial Law (5th Edn,
2016, LexisNexis) at pp 679–681.

Location in the agreement

The Payment clause will normally include the Set-off clause. Alternatively the
Set-off clause might be located separately in the Boilerplate section.

Linkage and use

See above discussion.

Consumer issue

A Set-off clause is likely to be unfair when used in a contract with a consumer

(Consumer Rights Act 2015, Sch 2, para 1(b)).

551

M17_Boilerplate_Clauses_S.indd 551 31/08/2017 11:13

 Set-off and retention

Sample precedent material

(a): Set-off not allowed

Precedent 1—No set-off – general clause

[Party B] agrees with [Party A] throughout the term not to set-off for any
reason any money payable by [Party B] to [Party A] [for supplies of the
products or under this agreement].

Precedent 2—No set-off or deduction – general clause

[Party A] agrees with [Party B] to pay promptly without demand, deduc-
tion or set-off any sum payable by [Party A] to [Party B] under the terms of
this agreement.

Precedent 3—No discount, deduction, set-off or counterclaim – all sums

[Party A] shall pay all sums due under this Agreement without any dis-
count, deduction, set-off or counterclaim whatsoever.

Precedent 4—Waiver of set-off – sale agreement

The Purchaser waives all or any existing or future claims and set-offs
against any payment of the purchase price due under this agreement and
agrees to pay the same regardless of any equivalent set-off or counter-
claim on the part of the Purchaser against the Vendor.

Precedent 5—No set-off – seller’s clause

All payments made by the Buyer under this agreement shall be made in
full without any set-off or counter-claim whatever.

Precedent 6—No set-off – seller’s clause – alternative form

The Buyer may not withhold payment of any invoice or other amount due
to the Seller by reason of any right of set-off or counterclaim which the
Buyer may have or allege to have or for any reason whatever.

Precedent 7—No set-off – guarantee agreement

All payments to be made by the Guarantor under this guarantee shall be
made in full without set-off or counterclaim [(where the guarantor is situ-
ated outside the UK:) and free and clear of and without deduction of or
withholding for or on account of any tax of any nature now or subse-
quently imposed by any country or any subdivision or taxing authority of
any country or any federation or organisation of which any country is a
member].

(b): Set-off allowed

Precedent 8—Right of set-off – general clause

Where [Party B] has incurred any liability to [Party A], whether under this
agreement or otherwise and whether such liability is liquidated or unliqui-

552

M17_Boilerplate_Clauses_S.indd 552 31/08/2017 11:13

 Set-off and retention

dated, [Party A] may set-off the amount of such liability against any sum
that would otherwise be due to [Party B] under this agreement.

Precedent 9—Right of set-off – buyer’s clause

The Buyer may set-off against the price (including any applicable VAT
payable) amounts due from the Seller whether under the applicable con-
tract of sale or otherwise.

Precedent 10—Right of set-off – buyer’s clause – alternative form

The Buyer may set-off against any sums due to the Seller whether under
this contract of sale or otherwise any lawful set-off or counterclaim to
which the Buyer may at any time be entitled.

Precedent 11—Right of set-off – sale agreement

Without prejudice to any of its other rights and remedies, the Purchaser
shall be entitled to set-off all or any of its liabilities to the Vendor against
all or any of the Vendor’s liabilities to the Purchaser under this agreement
or any other agreement or account.

Precedent 12—Right of set-off/consolidation/currency conversion – loan

agreement
Following an [Event of Default] the Lender may without notice to the
Borrower combine, consolidate or merge all or any of the liabilities of the
Borrower and any associate of the Borrower and may set-off or trans-
fer any sums from time to time owed to the Borrower or any associate
of the Borrower in or towards the satisfaction of any of the liabilities of
the Borrower and any associate of the Borrower and notwithstanding that
the liabilities may not be expressed in the same currency the Lender is
authorised to effect any necessary currency conversions at the rates then
prevailing.

553

M17_Boilerplate_Clauses_S.indd 553 31/08/2017 11:13

 Severance and invalidity

Purpose of the clause

An agreement will include a severance clause to provide for the eventuality of

a provision being held:
• unenforceable; or
• unlawful; or
• void.
The aim of a severance clause is that, if a judge or a law finds some wording
illegal or unenforceable, the offending words are removed leaving the
remaining part of the contract in operation, as far as it is possible to do so (see
Precedent 1 for an example of a short version of such a clause).
The effectiveness of a severance clause depends on the consequence of
removing the words or provision(s) from the agreement. It is important to
note what the courts will not do. The courts will:
• only sever a provision or wording where it is possible simply to strike it out
without further modification or rewriting of the agreement (Re Davstone
Estate Ltd’s Leases, Manprop Ltd v O’Dell [1969] 2 Ch 378, [1969] 2 All
ER 849);
• not sever a provision if severance would completely alter the scope and
intention of the agreement (Attwood v Lamont [1920] 3 KB 571, CA;
Chemidus Wavin Ltd v Société pour la Transformation et l’Exploitation des
Resines Industrielles SA [1978] 3 CMLR 514);
• not remove one of the essential components of a contract, eg the
consideration (see Goodinson v Goodinson [1954] 2 QB 118, [1954] 2 All
ER 255, CA);
• only sever parts if the severed parts are independent of each other and
the severing will not affect the meaning of the parts which are remaining
(Attwood v Lamont [1920] 3 KB 571);
• not sever a provision in a contract where there is deliberate illegality (see
eg Bennett v Bennett [1952] 1 KB 249, Frank W Clifford Ltd v Garth [1956]
1 WLR 570), such as the illegality touching the consideration or going
against public policy (Royal Boskalis Westminster NV v Mountain [1997] 2 All
ER 929 at 947, CA).

554

M17_Boilerplate_Clauses_S.indd 554 31/08/2017 11:13

 Severance and invalidity

There is also the so-called ‘blue pencil test’ developed by the courts. In
certain circumstances the offending words (ie those containing the unlawful
provision) are struck from the clause and if the remaining words of the clause
make sense as a contractual provision, the remaining words will remain (and
continue to operate) (eg Kall Kwick Printing (UK) Ltd v Rush [1996] FSR 114;
Hashwani v Jivraj [2009] EWHC 1364 (Comm), [2010] 1 All ER 302). However,
by doing so, the rest of the contract cannot be modified or be affected by the
effect of applying the ‘blue pencil test’ (Francotyp-Postalia Ltd v Whitehead
[2011] EWHC 367 (Ch), which applied the first three bullet points above, and
see Case analysis below).
Otherwise, the entire clause containing the unlawful provision is removed
from the contract. If the unlawful provision forms a major part of the purpose
of the contract, the whole contract may, in extreme cases, be held invalid.

Drafting issues

• Illegality and unenforceability. For obvious reasons, the parties should

describe the eventuality in wording of wide effect, eg:
‘If any provision in this agreement shall in whole or in part be held to any
extent to be illegal or unenforceable under any enactment or rule of law
…’

or, wider still, to cover decisions by non-judicial authorities:

‘In the event that any provision of this agreement is declared by any judicial
or other competent authority to be void, voidable, illegal or otherwise
unenforceable or indications to such effect are received by either of the
parties from any relevant competent authority…’.

• Severance and enforceability of remainder. The words used to indicate the

parties’ desire for severance in general vary little, eg:
‘… such provision shall to the extent required be severed from this
agreement and rendered ineffective as far as possible without modifying
the remaining provisions of this agreement and shall not in any way
affect any other circumstances or the validity or enforcement of this
agreement’

or, in simpler form:

‘such provision shall to that extent be deemed not to form part of this
agreement and the enforceability of the remainder of this agreement shall
not be affected’.

• ‘Rescuing’ defective clauses. However, attempts are sometimes made to

provide for the ‘rescue’ of a defective clause by subsequent amendment
of it by the parties, although it is doubtful whether this type of provision is
enforceable under English law. The following words may at least indicate
a declaration of intent by the parties:
‘… the parties shall amend that provision in such reasonable manner as
achieves the intention of the parties without illegality’.

555

M17_Boilerplate_Clauses_S.indd 555 31/08/2017 11:13

 Severance and invalidity

• Allowing one party to sever a clause. Where one party is in a stronger

bargaining position, it may wish to retain an option to sever by adding to
the above:
‘… or at the discretion of [party] it may be severed from this agreement’.

• Providing for negotiation to take place if a clause is severed. Where the parties
are on an equal footing and would wish the agreement to stand despite
the deletion of a clause (eg in a joint venture type of agreement) they may
provide for future negotiation to resolve the problem, although this is
unlikely to be enforceable:
‘in the event of any such deletion the parties shall negotiate in good
faith in order to agree the terms of a mutually acceptable and satisfactory
alternative provision in place of the provision so deleted’.

• Right to terminate if clause is severed. A party in a stronger bargaining position

may wish to retain the power to terminate the agreement entirely if a key
clause is declared unenforceable. In this case, the dominant party may
wish that the remainder of the agreement is to remain effective unless it
gives notice to terminate, eg:
‘the remaining provisions of this agreement shall remain in full force and
effect unless A, in A’s discretion, decides that the effect of such declaration
is to defeat the original intention of the parties in which event A shall be
entitled to terminate this agreement by [30] days’ notice to B and the
provisions of Clause [no] (termination provisions in agreement) shall apply
accordingly’.

Location in the agreement

A Severance clause is usually located in the Boilerplate section of an agreement.

Linkage and use

A Severance clause may be useful, for example, in relation to:

• post-termination restrictions in employment contracts;
• restraint of trade clauses generally and clauses containing anti-competitive
provisions that may be void under UK or EC competition laws;
• industries that are subject to extensive and/or intensive regulatory control
(such as those involving the development and testing of pharmaceuticals
and chemicals);
• agreements that contain provisions which reference or contain obligations
subject to international treaties and laws (eg provisions dealing with the
movement and carriage of goods internationally);
• clauses requiring the performance of a criminal act; and
• limitations of liability and exclusion of liability and warranties.

556

M17_Boilerplate_Clauses_S.indd 556 31/08/2017 11:13

 Severance and invalidity

Depending on the clause that is severed, there may be implications for:

• whether some or all of the obligations owed or tasks to be performed will
continue;
• whether some payments will still need to be made (and the timing of such
payments); and
• whether the agreement (or some part of it or some of the obligations
under it) should be terminated.

Sample precedent material

Precedent 1— Short clause

If any provision of this agreement is prohibited by law or judged by a court
to be unlawful, void or unenforceable, the provision shall, to the extent
required, be severed from this agreement and rendered ineffective as far
as possible without modifying the remaining provisions of the agreement,
and shall not in any way affect any other circumstances of or the validity
or enforcement of this agreement.

Precedent 2—Short clause

If any term or provision in this agreement shall in whole or in part be held
to any extent to be illegal or unenforceable under any enactment or rule
of law that term or provision or part shall to that extent be deemed not to
form part of this agreement and the enforceability of the remainder of this
agreement shall not be affected.

Precedent 3—Severance – alternative short clause

If any provision of this agreement shall be prohibited by law or adjudged
by a court to be unlawful, void or unenforceable such provision shall to
the extent required be severed from this agreement and rendered ineffec-
tive as far as possible without modifying the remaining provisions of this
agreement and shall not in any way affect any other circumstances of or
the validity or enforcement of this agreement.

Precedent 4—Severance and negotiated alternative

If any provision of this agreement is held by a court or other competent
authority to be unlawful, void or unenforceable, it shall be deemed to be
deleted from this agreement and shall be of no force and effect and this
agreement shall remain in full force and effect as if such provision had not
originally been contained in this agreement. In the event of any such dele-
tion the parties shall negotiate in good faith in order to agree the terms of
a mutually acceptable and satisfactory alternative provision in place of
the provision so deleted.

557

M17_Boilerplate_Clauses_S.indd 557 31/08/2017 11:13

 Severance and invalidity

Precedent 5—Amendment – option for one party to sever

If any provision of this agreement is declared by any judicial or other com-
petent authority to be void, voidable, illegal or otherwise unenforceable
[or indications to that effect are received by either of the parties from any
competent authority] the parties shall amend that provision in such rea-
sonable manner as achieves the intention of the parties without illegality
or at the discretion of [Party A] it may be severed from this agreement.

Precedent 6—Severance – option for one party to terminate

If any provision of this agreement is declared by any judicial or other com-
petent authority to be void, voidable, illegal or otherwise unenforceable
[or indications to that effect are received by either of the parties from
any competent authority] the remaining provisions of this agreement
shall remain in full force and effect unless [Party A] in [Party A]’s discre-
tion decides that the effect of such declaration is to defeat the original
intention of the parties in which event [Party A] shall be entitled to termi-
nate this agreement by [30] days’ notice to [Party B] and the provisions of
Clause [no] (termination provisions in agreement) shall apply accordingly.

Precedent 7—Severance – restraint of trade clauses

1 Each covenant contained in Clause [no] (restraint provisions) shall
be construed as a separate covenant and if one or more of the cov-
enants is held to be against the public interest or unlawful or in any
way an unreasonable restraint of trade the remaining covenants shall
continue to bind the Vendor.
2 If any covenant contained in Clause [no] would be void as drawn but
would be valid if some part of the covenant were deleted the cov-
enant in question shall apply with such deletion as may be necessary
to make it valid and effective.

Case analysis

Francotyp-Postalia Ltd v Whitehead [2011] EWHC 367 (Ch)

1 The parties entered into a franchise agreement.
2 The agreement contained a number of post-termination covenants
(Clause 21) and a severance clause (Clause 33). These are set out
below.
3 The claimant (franchisor) acknowledged that the covenant in Clause
21.1.1 was too wide and in restraint of trade.
4 The claimant wished to apply the blue pencil test and remove the
words after Territory in Clause 21.1.1, ie to change the end of the
clause from:
“For the purpose of this clause 21 the “Restricted Area” means the
Territory, the territory (in the UK) of any other franchisee of the Franchisor

558

M17_Boilerplate_Clauses_S.indd 558 31/08/2017 11:13

 Severance and invalidity

carrying on the Business and any other territory (in the UK) covered (in
relation to the supply of Products) by the Franchisor and/or any dealer or
distributor of the Franchisor;”
to:
“For the purpose of this clause 21 the “Restricted Area” means the
Territory;”

5 ‘Territory’ was defined elsewhere as various postcodes.

6 Both parties agreed that the non-solicitation clause was valid (Clause
21.1.3), although it referred to the Restricted Area, which would be
affected by the removal of wording under the blue-pencil test.
7 The judge held that:
1 if Clause 21.1.1 was considered on its own, then it could be
subject to the blue pencil test (as argued by the claimant);
2 the definition of Restricted Area is also found in other provi-
sions: Clause 21.1.2 (competition provisions) and Clause 21.1.3
(non-solicitation provision).
3 if the wording from Restricted Area is removed as proposed
by the claimant then there would be impact on the meaning of
Clause 21.2.3.
4 for the wording of the Franchise Agreement to be sensible there
can only be one definition of Restricted Area.
5 If the meaning of Restricted Area is changed then its new mean-
ing would also be applied to Clause 21.2.3.
6 If the new definition was applied to Clause 21.2.3 then it is mod-
ifying that clause:
‘28 … that seems to me to be a modification of that clause. The
clause as it stands is valid and the consequent modification of
that clause means that the extent of the non-solicitation clause is
similarly cut down. This is despite the fact that the extended clause
is accepted as being valid and freely entered into by both parties.
Thus the submission of the Claimant is that the blue pencil test
can simply be applied to clause 21.1.1 there is then a consequent
changed meaning given to the phrase Restricted Area in the
following clauses. That means that the court has rewritten a part of
the contract which is (a) accepted as valid and is thus (b) a variation
of what the clause means.”
31. The fundamental difficulty facing the Claimant is that the
Territory definition applies to all the covenants even those which
are accepted as enforceable. It follows that if one applies the blue
pencil test and excises the offending parts in the area covenant
that necessarily has an impact on the other covenants. As they
incorporate the definition of Territory from the area covenant the
wording of the other covenants is necessarily reduced to a similar
extent.

559

M17_Boilerplate_Clauses_S.indd 559 31/08/2017 11:13

 Severance and invalidity

32. The effect of that therefore is necessarily to cut down a provision

which the parties fully agreed and which is valid.
33. By transposing the same definition therefore into the valid
covenants it seems to me clear that the proposed excision will fail
to satisfy limb 1 [that the court will not make a new contract for
the parties (from Chitty on Contracts volume 1 paragraph 16-196)]
because it is modifying the wording of what remains by implication.
34. It also seems to me to fall foul of the clearly established principle
that when the court is asked to apply the blue pencil test it will not
make a new contract for the parties (Chitty ibid paragraph 16-196
above).
35. Further in my view that proposed amendment would mean that
the contract is radically different because the area is cut down. It is
however not necessary to come to that conclusion because in my
view the proposed excision falls foul of limb 1 [that the court will
not make a new contract for the parties (from Chitty on Contracts
volume 1 paragraph 16-196)].’

Clauses 21 and 33
21 POST-TERMINATION COVENANTS
21.1 The Franchisee agrees that it shall not for the period of one year after the
expiration or termination of this agreement (howsoever arising) whether itself
or together with any other person firm or company directly or indirectly:-
21.1.1 be engaged interested or concerned in the Restricted Area in any
capacity in any business venture which is competitive with the Business as
previously carried on pursuant to this agreement (or with the business in the
Restricted Area of any other franchisee, dealer or distributor of the Franchisor).
For the purpose of this clause 21 the “Restricted Area” means the Territory, the
territory (in the UK) of any other franchisee of the Franchisor carrying on the
Business and any other territory (in the UK) covered (in relation to the supply of
Products) by the Franchisor and/or any dealer or distributor of the Franchisor;
21.1.2 be engaged interested or concerned in the Restricted Area in the supply
of the Products or any goods competitive with the Products;
21.1.3 solicit in the Restricted Area customers or former customers of the
Business (being persons who are at the date of termination a customer of the
Business or who have been a customer of the Business during the period of 12
months prior to termination, and such customers shall include any person to
whom Products have been supplied by the Franchisor pursuant to this agree-
ment) for the purposes of supplying them with goods competitive with the
Products nor divert or seek to divert any custom (for Products) in the Restricted
Area from the Franchisor or any other franchisee, dealer or distributor of the
Franchisor nor to solicit any of their respective customers for Products;
[…]
21.2 The Franchisee shall procure that none of its employees (involved to any
material extent in the sales and/or marketing of the Products) senior managers
or directors (including without limitation the Individual(s)) shall: (a) for a period
of one year after the expiration or termination of this agreement howsoever
arising, or (b) in the case that any such person ceases to be connected with the
Franchisee during the period of this agreement, for a period of one year after
he ceases to be so connected:-

560

M17_Boilerplate_Clauses_S.indd 560 31/08/2017 11:13

 Severance and invalidity

21.2.1 be directly or indirectly engaged interested or concerned in the

Restricted Area in any capacity in any business venture which is competitive
with the Business as previously carried on pursuant to this agreement or with
the business in relation to the Products in the Restricted Area of any other fran-
chisee, dealer or distributor of the Franchisor;
21.2.2 be directly or indirectly engaged interested or concerned in the
Restricted Area in the supply of the Products or any goods competitive with
the Products;
21.2.3 directly or indirectly solicit in the Restricted Area customers or former
customers of the Business (being persons who are at termination (or as the
case may be at the date upon which such person ceased to be connected as
aforesaid) a customer of the Business or who have been a customer of the
Business during the period of 12 months prior to termination (or as the case
may be the date upon which such person ceased to be connected as afore-
said) and such customers shall include any person to whom Products have
been supplied by the Franchisor pursuant to this agreement) for the purposes
of supplying them with goods competitive with the Products nor divert or seek
to divert any custom for Products in the Restricted Area from the Franchisor or
any other franchisee, dealer or distributor of the Franchisor nor to solicit any of
their respective customers for Products;
[…]
33 SEVERANCE
33.1 Each of the restrictions and provisions contained in this agreement and in
each clause and sub-clause shall be construed as independent of every other
restriction and provision and each shall be capable of being severed without
prejudice to the remaining provisions of this agreement, subject to clause 33.2.
It is nevertheless agreed that if any of the restrictions or provisions contained
in this agreement shall taken together or separately be held to be void or inef-
fective for any reason but would be held to be valid and effective if part of the
wording were deleted, or the period or area of application be reduced, that
restriction shall apply with such deletions or with such reduced period or area
of application as may be necessary to make it valid and effective.
33.2 In the event that any restriction or provision of this agreement shall be
held to be invalid and/or unenforceable by a court of law or any other com-
petent authority in a way in which in the sole opinion of the Franchisor materi-
ally adversely affects the right of the Franchisor to receive payment of fees or
other remuneration or the terms on which the Franchisor supplies goods or
services to the Franchisee or any territorial exclusivity conferred hereunder or
the Method or the Business or the Trade Name then the Franchisor without
any liability whatsoever shall be entitled to terminate this agreement by notice
in writing to the Franchisee to that effect and in such circumstances the provi-
sions of clauses 20 and 21 shall apply.”

561

M17_Boilerplate_Clauses_S.indd 561 31/08/2017 11:13

 Stamp duty (and Stamp Duty Land Tax)

Purpose of the clause

Background
Certain types of written agreement and other ‘instruments’ attract stamp duty
(Finance Act 1999, s 112). An ‘instrument’ is ‘every written document’ (Stamp
Act 1891, s 122). Where a document attracts stamp duty the contract should
state which party will be responsible for having the document stamped.
Although a matter for commercial negotiation, usually it is the purchaser who
wishes to rely on the stampable document in court, and it will be that party who
will pay the stamp duty. A court will not admit documents which are stampable
but have not been stamped. Also there are penalties for late stamping.

When is stamp duty not payable (when it was in the past)?

Stamp duty is now payable in limited situations, following:

• the abolition of stamp duty for transactions relating to intellectual
property; and
• the replacement of stamp duty by the Stamp Duty Land Tax for conveyances
of real property (see below).

Instances when stamp duty will be payable

Stamp duty will now be payable principally only for instruments relating to
some stock and marketable securities (see Finance Act 2003, s 125 and Sch 13;
the Finance Act 1999 should also be consulted). Note: the commentary in this
section is no more than a very limited outline of the types of subject areas
which attract stamp duty. The rules relating to stamp duty are highly complex
and change frequently, and specialist tax advice should always be taken.

Intellectual property

Although of lesser importance given the passing of time, stamp duty ad

valorem as a conveyance on sale is no longer payable in respect of transfers

562

M17_Boilerplate_Clauses_S.indd 562 31/08/2017 11:13

 Stamp duty (and Stamp Duty Land Tax)

of intellectual property: ‘No stamp duty is chargeable on an instrument for

the sale, transfer or other disposition of intellectual property’ (Finance Act
2000, s 129(2)(a)). ‘Intellectual property’ is defined as covering, inter alia, any
patent, trademark, registered design, copyright, or design right, including any
licence or right in regard to these forms of intellectual property (Finance Act
2000, s 129(2)).
This change of the law applies to all instruments executed on or after
28 March 2000 (s 129(5)). If a certificate of value is needed to reduce or
exclude the payment of stamp duty, the value of intellectual property is to be
disregarded for the purposes of the certificate (Finance Act 2000, s 129(3),
Sch 34, para 4).

Stamp Duty Land Tax (SDLT)

SDLT is payable by a purchaser of an interest in, or right over, land, on the

chargeable consideration paid or deemed to be paid (Finance Act 2003, s 85).
SDLT is payable whether or not:
• an instrument is executed; or
• the parties are resident or present
in the UK (Finance Act 2003, s 42(2)(b), (c)). But the land (or land over
which the rights exist) must be situated in the UK in order for SDLT to be
imposed (Finance Act 2003, s 48(1)(a)).
SDLT replaced the type of stamp duty described above from 2003. The
purchaser (ie, the person acquiring the subject matter of the transaction) is
liable for SDLT and is either:
• a party to the transaction; or
• has provided consideration for it (Finance Act 2003, s 85).
SDLT is a compulsory tax and the purchaser must account to the HM Revenue
and Customs on a self-assessment basis (Finance Act 2003, s 76(3)) through
the completion of a form (SDLT1). SDLT is a tax on land transactions
(Finance Act 2003, s 43) and will be chargeable on a sale, purchase, grant,
creation, lease, variation, surrender or other transaction (Finance Act 2003,
s 43(3)) of any estate, interest, right or power in or over land in the UK or the
benefit of any obligation, restriction or condition affecting the value of that
estate, interest, right or power (Finance Act 2003, s 48(1)(a)) where the estate,
interest, right or power is not exempt from the charge for actual or deemed
chargeable consideration (Finance Act 2003, s 43(1)) where the effective date
of the transaction is on or after the implementation date and where there is no
relief from SDLT.
There are certain exemptions and reliefs from SDLT which needed to be
claimed when the form is completed, including (the most likely to arise in a
commercial agreement):

563

M17_Boilerplate_Clauses_S.indd 563 31/08/2017 11:13

 Stamp duty (and Stamp Duty Land Tax)

• Exemptions:
• sales and leasebacks of property;
• certain transactions involving partnerships;
• transfers involving public bodies or their wholly-owned companies; or
• compliance with planning obligations;
• Reliefs:
• group relief;
• acquisition relief;
• reconstruction relief;
• disadvantaged relief; or
• charities relief.
Guidance should always be sought before claiming any exemption or relief.

Drafting issues

• Does the document/instrument attract stamp duty? Stamp duty is now payable
only in limited circumstances (see above). Advice should always be sought
in circumstances where stamp duty is likely to apply;
• If stamp duty or SDLT is payable, who is to pay the stamp duty? Will convention
be followed as indicated (ie the purchaser will pay) or will the parties
provide otherwise? Where convention is followed then wording such as in
Precedent 1 might be used;
• Does the present agreement rely on or is it linked to other transactions? In
such circumstances, it may be appropriate to include a warranty in the
agreement that prior transactions have been duly stamped. A clause to
this effect might be in the form of Precedent 2.

Location in the agreement

The Boilerplate section of an agreement will normally contain a Stamp duty

clause.

Linkage and use

See above.

564

M17_Boilerplate_Clauses_S.indd 564 31/08/2017 11:13

 Stamp duty (and Stamp Duty Land Tax)

Sample precedent material

Precedent 1—Which party is responsible for paying any stamp duty?

[Party A] shall [pay] [be responsible for paying] any stamp duty payable on
this Agreement or on the [transfer of the Shares].

Precedent 2—Stamp duty warranty

[Party A] warrants and represents that:
(a) all documents in its possession or under its control to which it has
been a party and which attract stamp duty or stamp duty reserve tax
have been properly stamped;
(b) no documents are presently subject to adjudication of claims for
exemption or relief; and
(c) there are no circumstances which may result in [Party A] [or the
Purchaser] becoming liable for any interest or penalties in respect of
any such duty or tax.

565

M17_Boilerplate_Clauses_S.indd 565 31/08/2017 11:13

 Sub-contracting

Purpose of the clause

Background
A sub-contract occurs where a party to an agreement (the contractor)
arranges for another person (the sub-contractor) to perform some or all of
the contractor’s obligations under an agreement. However, the contractor:
• remains responsible for the performance of those obligations which the
sub-contractor will perform; and
• remains (contractually) liable if the sub-contractor fails to perform those
obligations (unless the contract specifies otherwise).
In this context, the term ‘sub-contract’ has a meaning similar to ‘delegation’
although delegation has a broader meaning (eg the right of a board of
directors to delegate authority to senior management).
If the sub-contractor does not carry out the obligation properly, the customer
will be entitled to sue the contractor.

Whether sub-contracting is permitted

It is a matter of interpretation of the contract as to whether the contractor

is permitted to sub-contract any of its obligations. Usually this will be
allowed, unless expressly prohibited in the contract or the contract was
one for personal services (see eg British Waggon Co and Parkgate Waggon
Co v Lea & Co (1880) 5 QBD 149; Nokes v Doncaster Amalgamated Collieries
Ltd [1940] AC 1014, [1940] 3 All ER 549, HL; Davies v Collins [1945] 1 All
ER 247 at 249, CA, per Lord Greene MR; Southway Group Ltd v Wolff (1991)
57 BLR 33, CA; Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd,
Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd and Imperial
Portland Cement Co Ltd [1903] AC 414, HL; Stevenson & Sons v Maule & Son
1920 SC 335). In particular industries, terms may be implied preventing sub-
contracting (eg an estate agent may not appoint any sub-agent without the
client’s consent).

566

M17_Boilerplate_Clauses_S.indd 566 31/08/2017 11:13

 Sub-contracting

Drafting issues

• Does a party need to sub-contract some or all of its obligations? Does a party need
to have some of its obligations performed by a third party, or simply wishes
to have the option to do so?
Nowadays many industries rely extensively on the use of sub-contractors.
Building is perhaps the most obvious, but many others will too. Accordingly,
a general prohibition may be unrealistic or cause difficulties later on.
For example: a catering company which a customer hires to cater an event
may obtain:
• the waiting staff from an agency; and
• the food from a company that cooks food for events; and
• cutlery and linen service etc from a supplier of such things.
In effect, the engaged catering company being no more than a number
of office workers whose role is to co-ordinate the activities of all the sub-
contractors. A party when it is entering into a transaction with another
company may wish to consider whether, in the circumstances, having a
blanket no-subcontract clause is appropriate. In these circumstances
attention may be better focussed on specifying the standards that the
various sub-contractors will need to meet and the detail of how the
catering company will meet its obligations so that everything works on the
day of the event.
• If one party will allow another to sub-contract obligations, on what terms and
conditions will it do so?
• will there be a general provision allowing one party to sub-contract?
Or
• will there be a provision which specifies what particular tasks and/or
obligations a party can sub-contract?
Eg, a software developer may need to sub-contract the writing of a
particular routine to another software developer who has expertise with
those types of routines. The agreement could specify that only that aspect
of the software development can be sub-contracted, but no other.
Bear in mind that if there is confidential information involved, then it
might not be appropriate for this to be passed on to a sub-contractor (see
further below).
• Can the party who wishes to sub-contract obligations choose the sub-contractor
without consulting the customer?
• Does the client wish the contractor to carry out its obligations personally? If
there is a particular person that a client wishes to carry out the tasks/
obligations under an agreement, then a no sub-contracting provision may
be insufficient, as it will not deal with the circumstances when that person
is no longer available. Eg:

567

M17_Boilerplate_Clauses_S.indd 567 31/08/2017 11:13

 Sub-contracting

• will the agreement terminate?

• is a replacement acceptable?
• should the client have a right of veto over a replacement, etc?
• Where a contractor wishes to sub-contract obligations, will it be providing any
confidential information of the customer? If any confidential information is
disclosed under the agreement, then:
• should the contractor be permitted to disclose to a sub-contractor the
confidential information?;
• if permitted, must the contractor enter into confidentiality
provisions with the sub-contractor before disclosing the confidential
information?
In some agreements where the use of sub-contractors is permitted, there is
an obligation that the contractor will enter into confidentiality obligations
of a similar or the same nature as that between the contractor and the
customer.
If the confidential information of the client is particularly sensitive and/
or valuable then the contract between the client and the contractor may
need to allow the client to enter into confidentiality obligations with the
sub-contractor directly.
• If the sub-contractor creates any intellectual property, who is to own it? Where an
agreement concerns the creation or use of intellectual property, if any
work is given to a sub-contractor, there should be wording which requires
the contractor to ensure that any intellectual property created by the sub-
contractor shall belong to the customer or contractor (depending on the
wording of the agreement) and/or that the sub-contractor is required to
assign the rights it has in that intellectual property. This should include
Further Assurance wording as well.
• If a party is not permitted to sub-contract but does so, what are the consequences? If
a party is not permitted to sub-contract its obligations but does so without
informing the other party, the other party may never learn about some
sub-contracting. If the other party does learn about such sub-contracting,
it can have concerns particularly about the following issues:
• if the other party has provided any confidential information to the
contractor, whether that information is provided under obligations of
confidentiality to the sub-contractor;
• if the other party wishes to have ownership of intellectual property
created by the contractor, it will also wish to control the ownership of
the intellectual property created by the sub-contractor;
• if the quality of the work produced by the contractor is critical
(whether the contractor needs to comply with a detailed or very
specific specification, or there is a high level of regulatory control)

568

M17_Boilerplate_Clauses_S.indd 568 31/08/2017 11:13

 Sub-contracting

then the other party will wish that such obligations are also imposed
on the sub-contractor.
If the contractor has sub-contracted in breach of an obligation to the
customer not to do so, then the customer may wish to terminate the
agreement. If this is the case then clear wording may be necessary (rather
than just a non-sub-contracting clause) together with more detailed
termination wording.
In appropriate cases, the customer may require that any provisions as
between the contractor and the sub-contractor include a right for the
customer to directly enforce any provisions. Accordingly, the contract
between the contractor and the sub-contractor will need not to use a
‘standard’ Contracts (Rights of Third Parties) Act 1999 clause, but one which
allows the customer to directly enforce some or all of the provisions of the
sub-contract.

Location in the agreement

• If a particular sub-contractor is identified or specified then a definition

should be included in the Definitions provisions of an agreement.
• Where the default provision is that no sub-contracting is permitted then
a clause forbidding sub-contracting is usually included with an Assignment
clause.
• Where there is a general permission to sub-contract then a Sub-contracting
clause will usually be included with other Boilerplate section clauses in an
agreement.
• Where specific sub-contracting provisions are required, then such a clause
might be included with other Main Commercial Provisions.

Linkage and use

Where sub-contracting is permitted (whether generally or in relation to

specific tasks) then:
• the tasks or work to be carried out by the sub-contractor should be
specified in a clause in the Main Commercial Provisions (or detailed in a
specification set out in a Schedule, eg:
‘The Contractor shall carry out the Services in accordance with the
Specification except for the Services which the Parties have agreed shall
be performed by the Sub-Contractor’.

• confidentiality and Intellectual Property issues should be addressed (see

above);

569

M17_Boilerplate_Clauses_S.indd 569 31/08/2017 11:13

 Sub-contracting

• if the clause dealing with sub-contracting does not deal with the issue
of liability of the sub-contractor, etc then the Exemption clauses should
address this issue.
Terms allowing or preventing sub-contracting are also found as part of a clause
dealing with assignment (see Assignment).

Sample precedent material

Precedent 1—‘Sub-contractor’ – definition

‘Sub-Contractor’ means any person whose services the Company
engages or makes use of to perform the whole or any part of the services
the subject of this contract.

Precedent 2—‘Sub-contractor’ – alternative definition

‘Sub-Contractor’ means any person, firm or company (other than the
Contractor) to whom is sub-contracted any part of the Project.

Precedent 3—Sub-contractor – supervision

All work undertaken or services provided by the Contractor, or by any
sub-contractor to the Contractor, under the provisions of this agreement,
will be done or performed by, or under the personal supervision and
direction of, the Contractor.

Precedent 4—Sub-contractor to be third party

It is hereby declared that any sub-contractor of the [Carrier] and the
employees and agents of the [Carrier] and any such sub-contractor and
also any person deriving title to the goods from the [Customer] are third
parties to this contract within the meaning of the Contracts (Rights of
Third Parties) Act 1999 and shall be entitled to enforce the same accord-
ingly.

Precedent 5—Permitted (subject to consent) sub-contracting

With the prior written consent of [Party B] (such consent not to be unrea-
sonably withheld or delayed) [Party A] may perform any or all of its obliga-
tions under this Agreement through agents or sub-contractors, provided
that [Party A] shall remain liable for such performance [and shall indem-
nify [Party B] against any loss or damage suffered by [Party B] arising from
any act or omission of such agents or sub-contractors].

Precedent 6—Permitted (subject to consent) sub-contracting –

alternative form
You may sub-contract any of your obligations under this Agreement as
long as you obtain our prior written consent first. We will not unreasonably
withhold our consent. If you sub-contract any of your obligations under
this Agreement you will still responsible for the performance of those obli-

570

M17_Boilerplate_Clauses_S.indd 570 31/08/2017 11:13

 Sub-contracting

gations. You will also not be relieved from liability for the performance of
those obligations.

Precedent 7—Permitted sub-contracting of specific parts of a contract

1. The Specification as set out in Schedule [ ] indicates the parts of the
Services that the Consultant shall have the right to sub-contract, subject
to the following:
1.1 At least 7 working days prior to the Consultant wishing to enter into
legally binding obligations with a sub-contractor, the Consultant shall
notify the Client in writing of the following matters:
(a) the name of the proposed sub-contractor;
(b) the part of the Services that the Consultant proposes to sub-contract
to the proposed sub-contractor;
(c) the provisions of the contract that the Consultant proposes to enter
into with the proposed sub-contractor;
1.2 After notifying the Client under Clause 1.1, the Consultant shall con-
sult with the Client and give good faith consideration to any recommen-
dations made by the Client.
1.3 The Consultant shall remain liable for the performance of those parts
of the Service which the Consultant shall sub-contract [and shall indem-
nify the Client against any loss or damage suffered by the Client arising
from any act or omission of the sub-contractors].

571

M17_Boilerplate_Clauses_S.indd 571 31/08/2017 11:13

 Subject to contract (and other denials of a
legally-binding contract)

Purpose of the clause

Meaning of ‘subject to contract’

The phrase ‘subject to contract’ is often used in correspondence or draft
agreements. It normally means that the parties do not intend that the wording
set out in their document is legally binding; and that they will not enter
into legally-binding obligations until they execute a formal, written contract
or comply with some formality (such as by signing a document containing
the final version of what they have agreed). Once used, the phrase will
normally extend to any negotiations between the parties and any subsequent
documentation they generate or exchange.
The main problem with using this phrase in a document arises in
circumstances where the parties start carrying out obligations etc, but they
have not reached final agreement as to the provisions of their contract and/
or complied with any specified formalities. The key problems that result from
such conduct are:
• whether they have entered into a contract at all (although they are
carrying out what is envisaged to be the subject matter if there was a
contract); and
• what are the terms and conditions on which the parties perform what
is envisaged to be the subject matter if there were a contract? These
might be:
• the terms and conditions they have actually agreed up to the date that
they start performing the rights and obligations;
• the terms and conditions of what they finally agree (if there are
negotiations and the parties enter into an agreement subsequent to
them starting to perform the subject matter);
• neither of the above two alternatives, because the parties have not
finally agreed any terms and conditions and consequently none of
them apply; and if there is a contract, then the terms and conditions
are those which are found in legislation or which will be implied.
See further below under ‘Starting work before concluding the contract’.

572

M17_Boilerplate_Clauses_S.indd 572 31/08/2017 11:13

 Subject to contract (and other denials of a legally-binding contract)

Contracts relating to land

By convention all documents that relate to negotiations for the sale of land
contain the words ‘subject to contract’ (other than the formal contract,
which is executed). Such wording is no longer necessary following the
implementation of the Law of Property (Miscellaneous Provisions) Act 1989,
s 2. This section provides that many land transactions cannot come into
existence until a written contract is signed by parties (or on their behalf). (See
Extracts from legislation, below, for the wording of s 2.)
Despite the clear wording of the Act, documentation relating to land
transactions is almost always marked ‘subject to contract’. This is often for no
other reason than the avoidance of doubt, but also to ensure that any possible
ancillary but binding contract will not come into operation, such as an option,
lockout agreement, or an equitable interest. For example, in Kinance v Mackie-
Conteh [2004] EWHC 998 (Ch), [2004] 19 EGCS 164 a lender provided £50,000
to a borrower. The borrower agreed to give a charge over a house (as security).
The agreement to provide the charge did not comply with s 2 of the 1989 Act.
It was held that the agreement was sufficient to create an equitable charge and
was enforceable for the purposes of the Law of Property Act 1925, s 53.

Commercial parties and non-binding documentation

Commercial parties often wish to conduct negotiations before entering into

a contract, and accordingly will usually wish that whatever they say or write
before they enter into the contract will not bind them. This wish not to commit
themselves will extend to drafts of an agreement. Their intention will usually
be that the only agreement that is binding is the final version that is signed by
the parties.
However negotiations or documents of this kind do not have any automatic
legal status as to whether they are binding on the parties. If the parties do
not wish such preliminary documentation to be legally binding, then the
conventional practice is to use a phrase such as ‘subject to contract’. Equally,
negotiations taking place orally may often be held subject to one or both the
parties stating that they are ‘subject to contract’. In neither case is there any
requirement to make or write such a statement (see eg Winn v Bull (1877)
7 ChD 29; Whitehead Mann Ltd v Cheverny Consulting Ltd [2006] EWCA Civ
1303, [2007] 1 All ER (Comm) 124. It is possible to use other wording with the
intention to lead to the same result: that there is no binding contract until the
parties wish there to be so.
By implication it may be clear that the parties are negotiating, whether orally
or in writing, ‘subject to contract’.
Parties involved in pre-contract negotiations often generate preliminary
documents. These documents are designed for use in negotiations and/or to
summarise the main commercial terms of a proposed contract. They are often
labelled as:

573

M17_Boilerplate_Clauses_S.indd 573 31/08/2017 11:13

 Subject to contract (and other denials of a legally-binding contract)

• Heads of agreement; or
• Heads of terms; or
• Term sheet; or
• Letter of intent; or
• Comfort letter; or
• Memorandum of understanding, or
• Memorandum of agreement.
None of these are indicative of whether they are binding or not, unless the
document itself spells out if it is binding or not. Best practice will be to label
them with the phrase ‘subject to contract’ at a minimum, or to use clear
wording as to the nature and effect of such a document. Better still is to set out
in more detail:
• the purpose of the document;
• that it is not intended to create legally binding obligations;
• the circumstances in which legally binding obligations will arise (such that
a binding agreement will only come into being on signing of an agreement
containing all of the terms and conditions); and
• that the parties are under no legal obligation to each other regarding
the document they have signed (so far) and that they need not continue
negotiations, and are free to withdraw from negotiations.
Precedents 2 and 3 are examples.
For parties that are wholly based in England there is not normally any
obligation to continue negotiations once started, nor any penalties if they
wish to withdraw from negotiations (whether or not the parties have labelled
their negotiations or documents with a phrase such as ‘subject to contract’).
Documents such as those listed above and any negotiations, or any wording
that the parties use in order to attempt to reach agreement (such as using
reasonable endeavours to reach agreement, or use good faith to reach
agreement) are not normally binding, for lack of certainty (eg Walford v Miles
[1992] 2 AC 128, HL).
However, if a party operates or is incorporated in another country, the position
can be different, such as if a party pulls out of negotiations after the parties
have reached a certain stage or have signed a preliminary document, such as
a letter of intent

Drafting issues

The following points are primarily directed to ‘heads of agreement’ type of

documents:

574

M17_Boilerplate_Clauses_S.indd 574 31/08/2017 11:13

 Subject to contract (and other denials of a legally-binding contract)

• At a minimum, documents that are not intended to be legally binding or to create

legal relations should state (clearly) they are ‘subject to contract’. Without such
minimal wording it may be unclear from the documents and actions of the
parties whether an agreement has come into existence (see DMA Financial
Solutions Ltd v BaaN UK Ltd [2000] All ER (D) 411, for an illustration of
this (see also Case analysis below)). Where the phrase ‘subject to contract’
appears in a document:
• such a document and subsequent documents and negotiations will
usually not lead to any binding legal relationship; but
• there should be nothing in the conduct of the parties (whether
by express agreement or implication) to make any documents or
communications between the parties legally binding (ie an offer
being made by one party which is capable of being, and is, accepted,
by the other party).
See Confetti Records v Warner Music UK Ltd [2003] EWHC 1274 (Ch) (see
also Case analysis below).
• Indicating the status of a document with more certainty. Rather than just
inserting the words ‘subject to contract’ at the head of the document, state
more specifically what is the status of the document (as in Precedent 2).
• Do not use phrases like ‘heads of agreement’ in a document or other similar
wording without specifying the legal effect of the document. If the wording of
the document does not contain at least the phrase ‘subject to contract’
then a court might interpret the document as legally binding (see Beta
Investment SA v Transmedia Europe Inc [2003] EWHC 3066 (Ch) and Case
analysis below).
• Avoid, where possible, the more formal style and wording used in legally binding
documents. In Petromec Inc v Petroleo Brasileiro SA Petrobras [2004] All ER (D) 10
(Feb), paras 26–30, the judge noted that in a memorandum of agreement
the parties had used a formal drafting style, and the use of wording such as
‘…in consideration of the mutual covenants contained herein the parties
hereto agree as follows…’ might mean that the parties were ‘seeking to
achieve something beyond the recital of good intentions’. The case was
limited to preliminary issues, but the judge, after consideration, found
that the memorandum of agreement was not binding, but only, it appears,
because of the complexity of the overall relationship between the parties.
The avoidance of ‘traditional’ agreement wording might have removed
such doubt (plus the use of words such as ‘subject to contract’).
• Is there an intention that the one or more of the parties will be carrying out some
obligation before the parties enter into a final binding agreement? The parties
to a ‘heads of agreement’ document may while they are negotiating,
wish to start work on some of the activities etc envisaged in the heads of
agreement document or the draft agreement before the latter is actually
signed. Sometimes the heads of agreement document itself will provide
that the parties will carry out those activities.

575

M17_Boilerplate_Clauses_S.indd 575 31/08/2017 11:13

 Subject to contract (and other denials of a legally-binding contract)

In either case it may not be clear as to the extent to which any document
such as a ‘head of terms’ or any provisions within it is, or are, binding on
the parties or if the activities are not dealt with in the heads of agreement
document whether the carrying out of those activities or any agreed
payment for them is binding (and on what precise terms).
Clear wording should be added to set out which is which. This point is
considered further below.
• Is the document with a party who is not based in England and Wales? Where the
transaction is wholly within England and Wales (eg with English parties
and with performance to take place in England and Wales etc), some
of the provisions in Precedent 2 may be unnecessary. In international
contracts, the law in some countries in Continental Europe may provide
that a party is liable if it withdraws from negotiations without good reason
after a defined stage, eg after signature of a Heads of Terms.
• Is wording being used that could allow a binding contract to come into effect? If
there is wording in the document, eg ‘subject to survey’, then if the thing
or task which is specified is undertaken it may be held that a binding
contract has come into effect.
• Is the pre-contract documentation to contain some binding obligations? If the
parties wish their negotiations and any negotiation to be ‘subject to
contract’ but nevertheless wish some provisions to be binding, should
the binding provisions and the other non-binding provisions be located
in the same document? For example, the parties wish to keep their
negotiations secret and confidential, and also possibly prevent one party
to the negotiations negotiating with a third party for a defined period.
The parties will wish to make these matters binding. They both might be
included with a document that is ‘subject to contract’, and the wording
of the document might make it clear that these provisions are binding.
Rather than put all of these matters together in one document it might be
better to create one document which only has binding provisions (such as
a separate confidentiality agreement) and to put the non-binding matters
in a second document, and to link to the two by reference to each to
other.

Starting work before concluding the contract

A common problem is that parties will:

• start performing some of the obligations of the agreement; or
• carry out the subject matter of the proposed agreement,
before they have entered into an agreement or even where they have not
agreed all the terms and conditions, and never do so. The are many dangers
with doing this and no wording in a document labelled ‘subject to contract’,
‘heads of terms’, ‘letter of intent’ etc can avoid them.

576

M17_Boilerplate_Clauses_S.indd 576 31/08/2017 11:13

 Subject to contract (and other denials of a legally-binding contract)

Despite any wording in such a document, if the parties act differently to the
wording, then a court may decide, objectively, that there is a contract. Perhaps
the real danger will be not that there is a contract but determining what its
terms and conditions are. They may be different to what the parties agreed
while they were negotiating ‘subject to contract’ (or that is recorded in their
‘subject to contract’ document). The case of RTS Flexible Systems Ltd v Molkerei
Alois Muller GmbH & Company KG (UK Production) [2010] UKSC 14 (see Case
analysis below) is a perfect illustration of this. In this case, three different
courts came to different conclusions on whether there was a contract and what
its terms and conditions were.
The best position is always to not start performing any obligations until
the terms and conditions of a full contract are agreed. As the judgment in
RTS Flexible stated:
‘The different decisions in the courts below and the arguments in this court
demonstrate the perils of beginning work without agreeing the precise basis
upon which it is to be done. The moral of the story is to agree first and to start
work later.’
In the event that the parties agree to start performing some or all of the
obligations of a proposed contract a court is likely to look at the following
points to establish whether there is a contract between the parties:
• examining what the parties have communicated to each other and what
they have agreed and whether the result of the examination leads to the
view that the parties intended to create legal relations and what is agreed
is sufficient to form a contract;
• whether it is possible to waive any requirement in any document (such as
a draft version of the agreement) that a contract can only come into being
by complying with a particular formality (such as by signing a final version
of the agreement). Such a waiver may be by conduct;
• the stage the parties have arrived in their negotiations regarding the terms
and conditions they have agreed, before they started work;
• in the circumstances of a particular case it may be commercially unrealistic
to assume the parties did not intend to create legal relations;
• in creating a legally-binding relationship it is not necessary for the parties
to agree all the provisions that are of economic or other significance (ie it
is not a condition precedent that all or specific points need agreement
before the parties can enter into binding legal relationships).
In essence, the court will take an objective view of what the reality is of the
position the parties are in, irrespective of the documentation generated by
the parties and what they have said or communicated to each other. From a
commercial point of view, having a third party (a judge) decide on whether
there is a contract, or what its terms and conditions are, and what one party
will have to pay is likely to disappoint one or more of the parties.
Best practice is always for the parties to explicitly enter into a contract on
specifically agreed terms and conditions prior to starting any work. However,

577

M17_Boilerplate_Clauses_S.indd 577 31/08/2017 11:13

 Subject to contract (and other denials of a legally-binding contract)

this approach will not always be possible. The reality is that the commercial
imperatives of a deal make such an approach impossible. The parties may
simply wish to get on with performing it but cannot agree all the detailed terms
and conditions, or there may be commercial or financial imperatives that force
them to get on with performing the subject matter of the proposed contract.
In the face of such factors, the second best approach is that if there are parts of
the subject matter of the proposed contract that need performing first, then
the parties specifically agree that those aspects of the deal be performed and
they reach agreement on the status and the terms and conditions of those
discrete aspects in the document which are ‘subject to contract’. For example:
• the supply of manufacturing plant may first call for the supplier to carry
out a survey, or
• the creation of a software program may first require the supplier to analyse
what software the putative licensee is using and how the putative licensee
uses it and/or write a specification; or
• an advertising agency may need to discuss with the putative client the details
of the proposed advertising campaign (details about a product’s launch,
target audience, etc) and prepare a report with its recommendations.
All of these might form a discrete project before the ‘main’ part of the project
needs to start operating or the terms and conditions of it are agreed (ie making
and installing the equipment, writing the software or creating the adverts and
purchasing advertising space respectively).

Location in agreement

The phrase ‘subject to contract’ will normally appear at the top of a document.
Additional wording such as in the Precedents is normally seen in documents
such as ‘heads of agreement’ or other documentation which are purely for
the basis of negotiation, rather than documents which contain the draft of the
final wording of an agreement.

Linkage and use

See above.

Sample precedent material

Precedent 1—Subject to contract

At the top of all correspondence (emails, text messages, letters, and other
documents):
‘Subject to contract’

578

M17_Boilerplate_Clauses_S.indd 578 31/08/2017 11:13

 Subject to contract (and other denials of a legally-binding contract)

or
‘Subject to contract. This document (or any other document) or any negotia-
tions are not intended to create a legally binding relationship between us.’

or
‘Subject to contract. A contract will only come into existence when a written
agreement is signed by us and you.’

Precedent 2—Sample clause

These Heads of Terms set out the main commercial principles of a pro-
posed agreement between (parties) (the ‘Parties’) relating to (subject
matter). The Parties intend to negotiate and (subject to obtaining approval
from their respective Boards of the negotiated terms) execute a full writ-
ten agreement (the ‘Agreement’), no later than [90] days from the date
on which they sign these Heads of Terms. The parties intend that the
Agreement will include provisions based on the principles of these Heads
of Terms and other provisions. However, [except for paragraph X below,]
these Heads of Terms are not intended to be legally binding, nor to
create, evidence or imply any contract, obligation to enter into a contract
or obligation to negotiate. Either party may withdraw from the negotia-
tions without incurring any liability to the other party, at any time prior to
the execution by both parties of the Agreement.

Precedent 3—Heads of terms not to be legally binding – sale of business

This document sets out the terms which have been agreed, subject to
contract, for the sale and purchase of certain assets and rights in respect
of the Business by the Vendor to the Purchaser. It is not intended to
create a legally binding contract save for the terms of paragraph [no] [and
paragraph [no]] which are intended to be legally binding on the Vendor
[and the Purchaser respectively], nor does it set out an exhaustive list of
matters to be incorporated into a legally binding contract to be prepared
in relation to the sale and purchase by the Purchaser’s solicitors.
Without prejudice to the foregoing, the purchase is subject to the results
of the Purchaser’s due diligence and review of the Business (including
title to the property and assets of the Business, review of contracts debt-
ors employee and pension obligations and information to be requested
by the Purchaser’s advisers). The Vendor will produce and co-operate in
producing such information as is thought necessary by the Purchaser to
complete its due diligence work.

Precedent 4—Clause in ‘lock-out’ agreement for sale of land

This Agreement:
1 does not commit the parties to the Sale;
2 does not form part of any other contract; and
3 is personal to the Buyer and may not be dealt with by the Buyer in
any way.

579

M17_Boilerplate_Clauses_S.indd 579 31/08/2017 11:13

 Subject to contract (and other denials of a legally-binding contract)

Precedent 5—Letter of intent

I hope this letter gives you the assurance you need, but please note that it
is not intended to be legally binding.

Case analysis

Confetti Records v Warner Music UK Ltd [2003] EWHC 1274 (Ch)

Facts
1 C was the owner of the copyright in a music track.
2 D wished to use the music track on a compilation disk called ‘Crisp
Biscuit’.
3 After negotiations, D sent to C a facsimile headed ‘Re Crisp Biscuit –
Subject to Contract’.
4 At the bottom of the facsimile were words stating ‘Read and Agreed’
and a space for signature by C.
5 C signed the facsimile and sent it back to D.
6 C then sent the music track to D, stating it was a ‘cleared track’ and
with an invoice.
7 The invoice stated that the music track was ‘Licensed to “Crisp
Biscuit”. Granted for 3 years non-exclusive’.
8 Before payment was tendered and before any longer form agreement
was entered into C wished to stop D using the music track and rene-
gotiate payment. But D had already used the music track and had
had some compilation disks manufactured.
9 D contended that despite the wording ‘subject to contract’ that there
was a binding contract.

Held
1 The judge held that there was no binding agreement and that the
words ‘subject to contract’ as used in the facsimile had the normal
meaning (that is there was no binding agreement):
‘91. […] practices within the music industry cannot, in my judgment,
change the law. I consider that I must decide, as a matter of construction
of the deal memo in this particular case, whether a legally binding
contract was created. I am unpersuaded that the phrase “subject to
contract” has a meaning within the music business which is precisely
the opposite of the meaning that it bears in general commerce, and
particularly in relation to land contracts. Nor am I persuaded that a
document that looks like a bilateral contract (apart from the heading
“subject to contract”) can properly be construed as an option. The

580

M17_Boilerplate_Clauses_S.indd 580 31/08/2017 11:13

 Subject to contract (and other denials of a legally-binding contract)

licensee’s commercial freedom to choose not to use a track and not to

pay an advance is preserved by holding that the deal terms “subject to
contract” are not a contract at all.
92. I do not therefore accept that in the music industry (or in that part of
it consisting of licensing music for inclusion on compilation albums) the
phrase “subject to contract” bears a different meaning to its conventional
meaning.
93. The use of the phrase “subject to contract” construed objectively,
means, in my judgment, that the parties must be taken to have intended
that the deal memo should not be binding. There is nothing in the deal
memo itself which is inconsistent with that. As [counsel for C] said, it
would be a strange contract which simultaneously bound the licensor to
give a licence for the territories stated in the [facsimile] yet at the same
time contemplated that the licensor might not control rights in all the
stated territories.
94. In my judgment no contract was created by the signature of the
[facsimile] […]
95. The remedy for the future lies entirely in the Defendant’s hands. All
it has to do is to change its standard form to include a statement that
the deal memo is to be binding and/or to omit the “subject to contract”
heading, as many of its competitors do.
96. I should also add that in many cases an implied contract would come
into existence when a putative licensee pays the licensor a royalty, or
advance, which the putative licensor then accepts. So in many cases it
may not matter very much when a contract is made. The problem in this
case is that by the time the Defendant tendered payment of the advance,
the Claimants had made it clear that they no longer wanted [the music
track] to be included on the album.’

2 The judge also considered whether the delivery of the facsimile or

the sending of the music track and an invoice amounted to a unilat-
eral offer which was accepted when the defendants started compiling
their record.
3 As regards the facsimile, the judge found that it was not a unilateral
offer:
‘99. …The whole point of the label “subject to contract” is to prevent a
“subject to contract” communication from being capable of maturing into
a contract by acceptance. In my judgment it is not an offer at all.’

4 As to the sending of the music track and the invoice, the judge
held that:
‘100. So far as the delivery of the track and the sending of the invoice are
concerned, there is, I think, more force in [the defendant’s] point. In the
ordinary way, once negotiations are begun “subject to contract”, that label
governs all subsequent communications between the parties unless the
label is expunged by express agreement or necessary implication (Cohen
v Nessdale Ltd [1982] 2 All ER 97). I do not see any evidence that the
“subject to contract” label was expunged by express agreement. Was it
expunged by necessary implication? […]that the sending of an invoice,
together with the track, is regarded in the music licensing business, as an
offer capable of acceptance. Having regard to the fact that [the facsimile]
had been signed, the offer must, by necessary implication, be an offer to

581

M17_Boilerplate_Clauses_S.indd 581 31/08/2017 11:13

 Subject to contract (and other denials of a legally-binding contract)

contract on the terms of the signed [facsimile]. On that footing, if the offer
is accepted, it seems to me that the “subject to contract” label on the deal
memo is expunged by necessary implication.’
5 The judge found that in this case the ‘subject to contract label’ had
been lifted:
‘I consider that signing of the [facsimile], and the sending of the cleared
track plus the sending of the invoice did amount to a representation that
the licence had been granted. To put it another way, it was a representation
that the “subject to contract” label attached to the facsimile could be
disregarded.’

Beta Investment SA v Transmedia Europe Inc [2003] EWHC 3066 (Ch),

[2003] All ER (D) 133 (May)

Facts
1 C lent D a sum of money against a promissory note.
2 C and D also entered into an agreement where D pledged as collat-
eral all of its shares in another company, E.
3 The loan was not repaid.
4 C auctioned the shares.
5 But C was unable to control E effectively.
6 Negotiations took place regarding the repayment of the loan.
7 A document was produced entitled ‘Heads of Agreement—subject to
more complete documentation’.
8 It provided, among other things:
(a) that the transfer of shares would continue without interruption;
and
(b) that the parties would use their best endeavours to negotiate
and agree a final settlement within 90 days.
9 This document replaced another document entitled ‘Settlement
Agreement—subject to contract and without prejudice’.
10 Negotiations collapsed.

Issue
Did the Heads of Agreement have binding effect? D argued that the Heads
of Agreement was binding and required the parties to reach some form of
agreement. C argued that the use of the words ‘Heads of Agreement’
meant the same, in effect, as ‘subject to contract’ or alternatively that
there was an ‘agreement to agree’.

582

M17_Boilerplate_Clauses_S.indd 582 31/08/2017 11:13

 Subject to contract (and other denials of a legally-binding contract)

Held
1 There were provisions in the document which were not conditional
and were to be implemented.
2 These provisions included survival of agreement clause, entire agree-
ment clause and ‘term and law’ clauses.
3 These provisions were held to be inconsistent with the document
being not binding.
4 The use of the words ‘subject to more complete documentation’ did
not stop the document having binding effect if the document as a
whole was intended to have binding effect.
5 But the effect of the ‘heads of agreement’ document, although bind-
ing, was binding to a limited extent: that of the parties to use their
best endeavours to negotiate to try to agree a settlement, but the par-
ties were not bound to enter into a more specific form, or indeed any
form of actual agreement. At the end of the period of negotiation, the
parties were unable to agree.

DMA Financial Solutions Ltd v BaaN UK Ltd [2000] All ER (D) 411

Facts
1 D produced a software program called Coda.
2 D wished to outsource training for the Coda computer program to C.
3 C and D had satisfactory dealings in the past.
4 Negotiations began, held by meeting, then email and telephone and
a further meeting. Apparently all the provisions of a contract were
agreed.
5 After the last meeting D sent a fax with what D thought was the
agreed position between the parties. C and D spoke the next day to
agree minor changes in the date for payments.
6 D consulted with their parent company and communicated with C by
message to indicate ‘there are no problems on the agreement. The
US team are studying the legal details. All should proceed as planned,
by the end of the month’.
7 Then the parent company spoke with C on 16 December 1998, and
agreed one minor change to the fax that was sent.
8 D was apparently supposed to produce an agreement but did not
do so.
9 C and D started implementing the ‘agreement’.
10 Eventually a standard form agreement was produced by D and sent
to C, but differed from what had been agreed.

583

M17_Boilerplate_Clauses_S.indd 583 31/08/2017 11:13

 Subject to contract (and other denials of a legally-binding contract)

11 There were some further exchanges about the written agreement to

be produced. D then wished to pull out of the agreement.

Issue for determination

1 For C: Was a contractual agreement formed between C and D for
C to provide training to customers of an accounting software system
owned by D?
2 For D: Was the case rather one in which pre-contractual negotiations
took place but never reached the stage of a concluded contract?

Held
1 The judge found that there was a binding contract:
‘51. […] C submits that the change agreed on the telephone on
16 December 1998 […] was the last change to be made, and that there
was then a fully binding agreement concluded between DMA and BaaN.
I agree with him. There was nothing left unresolved, and there was nothing
missing which was essential. The parties did expect that the agreement
would be translated into a formal document drawn up by lawyers, […]
I consider on the facts of this case that this expectation did not mean
that there was not yet a binding contract. I also agree with [C] that the
existence of an agreement is confirmed by the way that the parties were
acting. […] stopped providing proprietary training itself, and supplied
to DMA everything which DMA needed from it (including the assistance
of BaaN personnel) to be able to provide the training itself BaaN had
announced that DMA was taking over the proprietary training role, and
BaaN passed on to DMA enquiries from customers about it.’
‘52. For the foregoing reasons I conclude that there was a binding
contract formed between DMA and BaaN, and that it came into effect on
16 December 1998.’

2 The judge’s comments about the negotiations not being ‘subject to

contract’ and whether any provision was missing from the agreement
provide a useful analysis of the type of negotiations that commonly
take place between commercial organisations:
‘35. No need for a formal written agreement. There was no evidence of it
ever having been said in the negotiations, on behalf of either party, that
the parties would not be legally bound until a formal written agreement
had been drawn up and signed. No conventional expression understood
as having that meaning – like “subject to contract” – was ever used. There
was no evidence to satisfy me that, in the computer software industry, it
is the generally understood usage that agreements are never binding until
they have been drawn up by the lawyers and signed. […]I believe that this
was a case where, if the parties did conclude their negotiations and did
agree everything which had to be agreed, there was an immediate binding
contract, ahead of the reduction of the contract into formal written terms.’
‘37 …was there any matter which was not agreed, the presence of which
would have been crucial to the existence of a binding contract? Putting
it the other way round, did the agreement which DMA says was formed
by the negotiations omit any element without which the alleged contract

584

M17_Boilerplate_Clauses_S.indd 584 31/08/2017 11:13

 Subject to contract (and other denials of a legally-binding contract)

was not a contract at all, probably because it would have been void for
uncertainty? An example would be if some crucial element, like the price
payable by DMA to BaaN for the training rights, was left over for future
negotiation and agreement. I stress, however, that, if there was some point
which was not raised in the negotiations but (and this is the critical matter)
it was not an essential point, that would not prevent a contract from having
been concluded. That remains so even if the point would in all probability
have been covered by a written agreement, drafted by lawyers, had the
matter gone to the stage of a written agreement. An example of this would
be a proper law clause. BaaN’s lawyers would undoubtedly have put such
a clause in a draft written agreement, and I imagine that DMA would not
have jibbed at signing an agreement merely on the ground that it had in it
a proper law clause which had not featured in the earlier negotiations. But
the fact that the negotiators did not deal with the proper law would not in
any way be fatal to their having reached a binding contract.’

3 The judge went through the course of negotiations and listed the mat-
ters which were discussed and agreed:
(i) the subject matter of the (proposed) contract: the provision by
C of training for users of the Coda proprietary software systems;
(ii) withdrawal by D from proprietary training;
(iii) territory;
(iv) duration;
(v) price and payment dates;
(vi) accreditation;
(vii) use of D’s materials;
(viii) access to and use of D’s staff;
(ix) passing on customer enquiries;
(x) promotion and endorsement by D of C’s training courses
in order to reach his conclusion that the essential provisions of an
agreement were in place.

RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH & Company KG
(UK Production) [2010] UKSC 14
1 The parties entered into a letter of intent for the supply of machinery
by the claimant to the defendant (project). The letter of intent con-
tained some binding and non-binding provisions. The letter of intent
included the price to be paid for the whole project.
2 The claimant commenced work on the project almost immediately
after the signature of the letter of intent.
3 The letter of intent provided that the parties were to negotiate the full
terms of a contract within a period of four weeks from the date of the
letter of intent. The full terms of the agreement were to be based on
the defendant’s standard template agreement.

585

M17_Boilerplate_Clauses_S.indd 585 31/08/2017 11:13

 Subject to contract (and other denials of a legally-binding contract)

4 The defendant was to pay the expenses of the claimant prior to the
signing of the full contract.
5 The full terms of the contract were not agreed within the four-week
period.
The parties continued to negotiate the terms of the contract and the
expiry period of the letter of intent was extended by agreement.
6 Eventually the terms of the contract were agreed (on 5 July with some
variations on 20 August), but the parties never signed it.
7 The claimant carried on working throughout the period.
8 The template contract contained a provision that a contract would
only come into existence when signed by the parties (Clause 48).
9 Essentially the issue before the court was whether there was a bind-
ing contract and what were the terms on which it was concluded. The
problem was particularly acute, as work started before the negotia-
tions were concluded or a final contract was signed.
10 The court held that the terms on which such work was being carried
out were not necessarily the same as those terms agreed ‘subject to
contract’:
‘[45] The general principles are not in doubt. Whether there is a binding
contract between the parties and, if so, upon what terms depends upon
what they have agreed. It depends not upon their subjective state of mind,
but upon a consideration of what was communicated between them by
words or conduct, and whether that leads objectively to a conclusion that
they intended to create legal relations and had agreed upon all the terms
which they regarded or the law requires as essential for the formation
of legally binding relations. Even if certain terms of economic or other
significance to the parties have not been finalised, an objective appraisal
of their words and conduct may lead to the conclusion that they did not
intend agreement of such terms to be a pre-condition to a concluded and
legally binding agreement.
[46] The problems that have arisen in this case are not uncommon, and
fall under two heads. Both heads arise out of the parties agreeing that the
work should proceed before the formal written contract was executed in
accordance with the parties’ common understanding. The first concerns
the effect of the parties’ understanding (here reflected in cl 48 of the
draft written contract) that the contract would ‘not become effective
until each party has executed a counterpart and exchanged it with the
other’--which never occurred. Is that fatal to a conclusion that the work
done was covered by a contract? The second frequently arises in such
circumstances and is this. Leaving aside the implications of the parties’
failure to execute and exchange any agreement in written form, were the
parties agreed upon all the terms which they objectively regarded or the
law required as essential for the formation of legally binding relations?
Here, in particular, this relates to the terms on which the work was being
carried out. What, if any, price or remuneration was agreed and what were
the rights and obligations of the contractor or supplier?
[47] …in a case where a contract is being negotiated subject to contract
and work begins before the formal contract is executed, it cannot be said

586

M17_Boilerplate_Clauses_S.indd 586 31/08/2017 11:13

 Subject to contract (and other denials of a legally-binding contract)

that there will always or even usually be a contract on the terms that were
agreed subject to contract. That would be too simplistic and dogmatic an
approach. The court should not impose binding contracts on the parties
which they have not reached. All will depend upon the circumstances…’

11 The court held that there was a binding agreement and that an under-
standing between the parties that there would only be a binding con-
tract on signature of a final contract was waived by their conduct. In
effect the final version of the unsigned agreement was made without
the ‘subject to contract’ understanding:
‘[55] In our judgment [in a subject to contract … case, the question is
whether the parties have nevertheless agreed to enter into contractual
relations on particular terms notwithstanding their earlier understanding
or agreement. Thus, in the Galliard Homes case Lindsay J, giving the only
substantive judgment in the Court of Appeal, which also comprised Evans
and Schiemann LJJ, at 236 quoted with approval the statement in Megarry
and Wade The Law of Real Property (5th edn, 1984) pp 568–569 that it
is possible for an agreement ‘subject to contract’ or ‘subject to written
contract’ to become legally binding if the parties later agree to waive that
condition, for they are in effect making a firm contract by reference to
the terms of the earlier agreement. Put another way, they are waiving the
‘subject to [written] contract’ term or understanding.
[56] Whether in such a case the parties agreed to enter into a binding
contract, waiving reliance on the ‘subject to [written] contract’ term or
understanding will again depend upon all the circumstances of the case,
although the cases show that the court will not lightly so hold.
…
[86] … Had the parties agreed to be bound by the agreed terms without
the necessity of a formal written contract or, put another way, had they
agreed to waive that requirement and thus [Clause 48]? We have reached
the conclusion that they had. The circumstances point to the fact that
there was a binding agreement and that it was not on the limited terms
held by the judge. The price had been agreed, a significant amount of
work had been carried out, agreement had been reached on 5 July and
the subsequent agreement to vary the contract so that […] the variation
was agreed subject to contract. The clear inference is that the parties
had agreed to waive the subject to contract clause, viz cl 48. Any other
conclusion makes no commercial sense. RTS could surely not have
refused to perform the contract as varied pending a formal contract being
signed and exchanged. Nobody suggested that it could and, of course, it
did not. If one applies the standard of the reasonable, honest businessman
suggested by Steyn LJ, we conclude that, whether he was an RTS man
or a Müller man, he would have concluded that the parties intended that
the work should be carried out for the agreed price on the agreed terms,
including the terms as varied by the agreement of 25 August, without the
necessity for a formal written agreement, which had been overtaken by
events.
[87] By contrast we do not think that the reasonable honest businessman in
the position of either RTS or Müller would have concluded as at 25 August
that there was no contract between them or that there was a contract on
some but not all of the terms that had been agreed on or before 5 July as
varied by the agreement of 25 August. …[I]nstead of signing the contract
the parties here simply let sleeping dogs lie or, […] neither party wanted
the negotiations to get in the way of the project. The project was the

587

M17_Boilerplate_Clauses_S.indd 587 31/08/2017 11:13

 Subject to contract (and other denials of a legally-binding contract)

only important thing. The only reasonable inference to draw is that by

or on 25 August, the parties had in effect agreed to waive the ‘subject to
contract’ provision encapsulated by cl 48…’

Extracts from legislation

Law of Property (Miscellaneous Provisions) Act 1989, s 2:

‘(1) A contract for the sale or other disposition of an interest in land
can only be made in writing and only by incorporating all the terms which
the parties have expressly agreed in one document or, where contracts are
exchanged, in each.
(2) The terms may be incorporated in a document either by being set out
in it or by reference to some other document.
(3) The document incorporating the terms or, where contracts are
exchanged, one of the documents incorporating them (but not necessarily
the same one) must be signed by or on behalf of each party to the contract.’

588

M17_Boilerplate_Clauses_S.indd 588 31/08/2017 11:13

 Successors and assigns

Purpose of the clause

Use in general
Contracts sometimes include a provision stating that references to a
contracting party include its ‘successors and assigns’. These references are
typically included as part of the definitions of the parties, or in a separate
boilerplate clause. Provisions of this kind are often useful for at least two
reasons:
• to avoid any doubt as to whether the agreement is only referring to the
original contractual party in particular clauses. Eg, if the contract includes
an indemnity against losses suffered by a party to the contract, does that
indemnity apply to losses suffered by an assignee of that party?
• to clarify whether the agreement is intended to be binding on and ‘endure
to the benefit of’ a party’s successors in title. This is particularly relevant to
contracts with individuals, where there may be uncertainty as to whether
the contract is intended to benefit and bind the estate of that individual,
following the individual’s death. It may also be relevant to a company’s
successors in title, eg following a merger. However, most UK company
reorganisations are structured in such a way that a completely separate
entity, rather than a ‘successor in title’ acquires the company’s assets or
shares. In practice, there would probably be an assignment or novation of
the company’s contracts.

Use in the UK and USA

Provisions such as in Precedents 1 and 2 are not usually encountered in

commercial contracts drafted by English lawyers; they are far more common in
US contracts, perhaps because mergers are more often structured in a way that
creates a genuine ‘successor in title’ to the merged company. Nevertheless,
such provisions are sometimes useful in a UK context, either as:
• (briefly) with the Party clause; and
• as a stand-alone clause, such a provision might be included in an Assignment
clause.

589

M17_Boilerplate_Clauses_S.indd 589 31/08/2017 11:13

 Successors and assigns

Drafting issues

It is useful to consider the following points when drafting a Successors and

assigns clause:
• Not contradicting any prohibitions on assignment. The ‘successors and assigns’
wording should not contradict any prohibitions on assignment set out
elsewhere in the agreement. In Precedent 2 this is made clear.
Without this specific wording, most agreements will contain a non-
assignment clause (such as those found in Assignment and Novation). If
the intention is to include a successors and assigns clause then the non-
assignment clause will need amendment to permit the circumstances
when the successors and assigns situations will apply.
• Altering or increasing an indemnity. Whether any successor or assignee of
one party will alter or increase an indemnity given by another party to an
agreement. Eg:
• if Party A indemnifies Party B in respect of certain tax liabilities which
might fall on Party B,
• Party B assigns the agreement to Party C,
• Party C becomes liable for tax of the type covered by the clause, but
• if Party B had stayed as a party to the transaction, Party B would not
(owing to its different tax position) have incurred the liability at all or
would have done so but in a lesser amount than Party C.
Here Party C should be able to recover under the indemnity.
• Operation of law. Whether the operation of law (such as in bankruptcy)
rather than the terms of the contract will affect a successor or assign.
• Foreign parties. If one or more parties is domiciled or incorporated in a
country whose succession and insolvency procedures have no English
counterparts, then a Successor and assigns clause may not be appropriate
or effective.

Location in the agreement

Wording that a party includes its successors and assigns is normally included
with the relevant Parties clause. Where an agreement calls for detailed wording,
then the clause will contain that wording.

Linkage and use

Further discussion of these topics generally will be found in Assignments.

590

M17_Boilerplate_Clauses_S.indd 590 31/08/2017 11:13

 Successors and assigns

Sample precedent material

Precedent 1—Successors and assigns wording with a party clause

(1) XYZ LIMITED whose registered office is at 36 The Court Road,
Richwood, Surrey TW99 6AN (the ‘Company’ which expression
includes its successors and assigns).

Precedent 2—Successors and assigns wording as part of an assignment

clause
This agreement shall be binding upon, and endure to the benefit of, the
parties to this agreement and their respective successors and permitted
assigns, and references to a party in this agreement shall include its suc-
cessors and permitted assigns.
However, none of the parties to this agreement shall be entitled to assign
or transfer this agreement or any of its rights and obligations under this
agreement except:
(a) as may be approved in writing by the other party or parties to this
agreement; and
(b) (in either case) on terms that the transferee shall covenant with the
other party or parties to this agreement to perform all the obligations
of the transferor under this agreement.

Precedent 3—Comprehensive successors and assigns clause (but not

including or cross-referring to any prohibitions on assignment)
In this Agreement references to the Company include references to a
person:
(a) who for the time being is entitled (by assignment, novation or other-
wise) to the Company’s rights under this Agreement (or any interest in
those rights); or
(b) who, as administrator, liquidator or otherwise, is entitled to exercise
those rights;
and in particular those references include a person to whom those rights
(or any interest in those rights) are transferred or pass as a result of a
merger, division, reconstruction or other reorganisation involving the
Company. For this purpose, references to the Company’s rights under
this Agreement include any similar rights to which another person
becomes entitled as a result of a novation of this Agreement.

Precedent 4—Party to include successors and assigns

1 HUMMEL MOZART BEETHOVEN PLC, incorporated under company
registration number [ ], and whose registered office is [ ] (the ‘Company’
which expression includes its successors and assigns).

591

M17_Boilerplate_Clauses_S.indd 591 31/08/2017 11:13

 Successors and assigns

Precedent 5—Party to include successors and assigns – alternative form

‘The Bank’ means [name of bank] acting through its branch at [address]
and shall include its successors and assigns.

Precedent 6—Party to include associates, assignees etc

[name of party] (the ‘Licensee’ which expression shall include all associ-
ates, sub-licensees and assignees and other persons with the prior writ-
ten consent of the Company deriving title through or from the Licensee).

Precedent 7—Successors to be bound

This agreement shall be binding upon and endure to the benefit of the
Contracting Parties and their respective successors and assigns.

Precedent 8—Successors to be bound – alternative form

Except where expressly provided to the contrary this Agreement and all
provisions of this Agreement shall inure to the benefit of and be binding
upon the parties to this Agreement their successors, assigns and licen-
sees.

Precedent 9—Power to assign

[Party A] may assign all or any part of its rights or benefits under this
deed without the consent of [Party B] and, thereafter, relevant references
in this deed to [Party A], wherever used in this deed, shall include any
assignee of [Party A], and every successor in title of any such assignee or
of [Party A].

592

M17_Boilerplate_Clauses_S.indd 592 31/08/2017 11:13

 Termination for breach

Purpose of the clause

Background
Most commercial agreements include provisions allowing for their termination
in particular circumstances (such as if a party is in breach of some or all of its
obligations). If the agreement does not contain express provisions, a court
may imply a provision allowing termination on reasonable notice. This will
depend on how a court will interpret the contract. There are some general
principles that a court is likely to follow, such as:

• where an agreement is for a fixed period, a court is likely to find that it

is not possible to terminate the agreement before the end of that period,
except under an express termination provision or with the consent of all
the parties (see eg Cutlan v Dawson (1897) 14 RPC 249, CA, and Guyot v
Thomson [1894] 3 Ch 388, CA);

• where an agreement involves a continuing relationship between the

parties then it may be possible to terminate the agreement on reasonable
notice, such as a distribution agreement or a patent or know-how licence
agreement, which contain no provisions for termination (see eg Martin-
Baker Aircraft Co Ltd v Canadian Flight Equipment Ltd (1955) 72 RPC 236;
Jackson Distribution Ltd v Tum Yeto Inc [2009] EWHC 982 (QB), [2009] All
ER (D) 107 (May), see Case analysis below). The law in this area is complex
and is very likely, in each case, to turn on its facts. The latter case provides
an illustration of the type of issues a court is likely to take into account.

In any agreement with obligations of a continuing nature, one party will wish
to be able to terminate the agreement if the other party is in serious default,
such as if a party is not paying for the goods and/or services it receives.
While common law provides that one party may rescind the contract where
the other party has committed a serious or fundamental breach by defective
performance or has repudiated the contract, it is best for the parties to specify
expressly for the circumstances in which either party may treat the contract as
at an end. In the absence of such a provision, it is not always clear whether a
particular breach would entitle the innocent party to rescission; each contract
will be interpreted on a case-by-case basis.

593

M18_Boilerplate_Clauses_T.indd 593 04/09/2017 08:31

 Termination for breach

Types of termination clause

A termination provision in a contract will typically contain one or more of the

following categories:

• termination for breach (sometimes known as ‘termination for cause’);

• termination in the event of insolvency, bankruptcy, liquidation etc of one

of the parties (see Insolvency);

• termination ‘by effluxion of time’; eg if the contract is stated to be for a

fixed period of time, then the agreement terminates at the end of that
period;

• termination without cause (or for ‘convenience’), eg allowing one party,

or either party, to terminate the contract at any time on 30 days’ notice
if the terminating party wishes to do so (ie without needing any specific
reason, such as a breach, to occur);

• termination as a consequence:

• of the parties having a disagreement (eg deadlock provisions in joint

venture agreements); or

• of the parties being unable to come to agreement on some matter

(eg in an agreement containing an option and on exercise of the
option, the parties needing to negotiate in good faith a further
agreement but are unable to agree on terms); or

• of some event occurring or not occurring which is not in the control

of the parties (eg if the parties wish one party to manufacture
products, but that party first needs to build a factory to do so,
which is dependent on receiving planning permission from a local
authority).

Often, it will be appropriate to include clauses that deal with what is to happen
after termination occurs, that is describing the consequences of termination.
Some terms (eg confidentiality provisions) may survive or there may be various
matters that can only happen after the agreement is terminated (eg if a patent
licensee has made products up to the date of termination, it may have stock
left but not sold; the ‘consequences of termination’ clause can deal with what
is to happen to the stock, such as the licensee being allowed to sell it after the
date of termination) (see Consequences of termination).

The drafter may wish to include wording in the termination clause stating
that the right of termination is without prejudice to any other right or remedy
that the terminating party may have. This is to avoid the argument that, for
example, terminating the contract on grounds of breach is the terminating
party’s only remedy, and that the party is prevented from claiming damages
for the breach.

594

M18_Boilerplate_Clauses_T.indd 594 04/09/2017 08:31

 Termination for breach

Specifying the ‘quality’ of a breach

Typically a commercial agreement will set out the specific circumstances when
a party can terminate an agreement. Although the particular circumstances
will vary from contract to contract, the following are the common situations:
• a failure to make a payment: eg:
‘Without prejudice to any other right or remedy it may have, either party
may terminate this agreement at any time by notice in writing to the other
party (‘Other Party’). The notice to take effect as specified in the notice:
(a) where the Other Party fails to pay any amount due under this
agreement in full within [5] days of any due date and fails to remedy such
failure within [3] days of receipt of written notice to do so’;

• a failure to meet a specified date:

‘Without prejudice to any other right or remedy it may have, the Customer
may terminate this agreement at any time by notice in writing to the
Supplier. The notice to take effect as specified in the notice:
(a) where the Supplier fails to deliver any order for Goods made under
this agreement within [5] days of any due date for that Order of Goods
and fails to remedy such failure within [3] days of receipt of written notice
to do so’; or

• a failure to fulfil an important obligation:

‘Without prejudice to any other right or remedy it may have, either party
may terminate this agreement at any time [immediately and without the
need to provide notice] where a Receiving Party discloses any Confidential
Information of the Disclosing Party in breach of any provisions of this
Agreement’; or

• a party becoming insolvent:

‘Without prejudice to any other right or remedy it may have, either party
may terminate this agreement at any time by notice in writing to the other
party (‘Other Party’), such notice to take effect as specified in the notice:
[…]
2 if the Other Party becomes insolvent, or if an order is made or a
resolution is passed for the winding up of the Other Party (other than
voluntarily for the purpose of solvent amalgamation or reconstruction),
or if an administrator, administrative receiver or receiver is appointed in
respect of the whole or any part of the Other Party’s assets or business,
or if the Other Party makes any composition with its creditors or takes or
suffers any similar or analogous action in consequence of debt.’

These types of provisions deal with specific instances where a party is in

breach and this gives the other party a right to terminate. The other main
approach is not to specify particular types of breach but to indicate that only
if the breach by a party reaches a seriousness or certain level then the other
party can terminate. Although in one of the examples above, a specific type of
breach is accompanied by a ‘seriousness’ standard; only when the party under
an obligation to make a payment has failed to do so for a specified period then
the party not in breach has the right to terminate.

595

M18_Boilerplate_Clauses_T.indd 595 04/09/2017 08:31

 Termination for breach

To indicate the level of seriousness but not specify any particular type of
breach is to state that a party may terminate for the other party’s breach, but
the breach has to be more than minor, ie it must be significant, but without
further specifying what will constitute a breach. The words most often used
are that the breach must be a ‘material’ or ‘substantial’ breach. The objective
is to stop the party not in breach terminating the agreement where the other
party has failed to perform an obligation, but that party’s breach is of an
insignificant or a minor nature. For example:
• a party provides social media and public relations services, which includes
making a specific number of tweets on behalf of a client every week; and
• the party is under an obligation that ‘the Supplier shall provide to the
Client a Report by 6pm each Friday during the Period’. The Report needs
to state the number of tweets made and responses generated by those
tweets;
• during the course of the year on two occasions the party fails to provide
the reports until the Monday morning (ie 2 of 52 occasions, 4%
approximately);
• the client never reads the reports until the middle of the next week.
To avoid doubt as to whether these two failures are sufficiently serious to
amount to a breach, and whether a delay of one working day is serious enough
to entitle the party not in breach to terminate the agreement, the agreement
should include clear wording, such as:
‘The Supplier shall provide to the Client a Report by 6pm each Friday during the
Period (‘Deadline’). If the Supplier shall fail to provide the Reports on 2 or more
occasions by the relevant Deadline during the period, then the Client shall have
the right to terminate this Agreement.’

If the supplier has multiple obligations to fulfil and if the parties needed to
specify the circumstances as to when a breach would be sufficient for the party
not in breach to terminate for each obligation, then their agreement would
be significantly lengthened or more detailed. As mentioned above, another
approach is to specify that a party may terminate in more general terms; that
the party not in breach can only terminate if the other is in ‘material’ or
‘substantial’ breach of any obligation; such as:
‘Without prejudice to any other right or remedy it may have, either party may
terminate this agreement at any time by notice in writing to the other party
(“Other Party”). The notice to take effect as specified in the notice:
(a) if the Other Party shall commit any [material][substantial] breach of any
of its obligations under this agreement and shall fail to remedy such breach (if
capable of remedy) within 30 days after being given notice by the first party so to
do or…’

Such a clause does not specify further the meaning of ‘material’ or ‘substantial’.
If the parties do not wish to specify the meaning of ‘material’ or ‘substantial’,
then if there is a dispute as to whether the breach by one party is sufficiently
serious (ie that it comes within the meaning of ‘material’ or ‘substantial’),

596

M18_Boilerplate_Clauses_T.indd 596 04/09/2017 08:31

 Termination for breach

then in order to entitle the other party to terminate, the following are likely to
be the factors that a court will take into account:
• the clauses in the agreement under consideration;
• the length of the agreement;
• the breaches that have happened;
• for the party not in breach, what are the consequences;
• what explanation the party in breach can provide for the breaches;
• the importance or relevance of the breaches in the context of the
agreement;
• the consequences of terminating the agreement; and
• the consequences of permitting the agreement to continue.
See Glolite Ltd v Jasper Coran Ltd (1998) Times, 28 January; Phoenix Media Ltd v
Cobweb Information (16 May 2000, unreported); Gallagher International Ltd v Tias
Enterprises Ltd [2008] EWHC 804 (Comm). Where an agreement specifies that
a party may terminate for a material breach, that wording does not mean that a
breach has to be at the same level of seriousness as a repudiatory breach (Dalkia
Utilities Services plc v Celtech International Ltd [2006] EWHC 63 (Comm)).
The parties may choose not to qualify the word ‘breach’ with the words
‘material’ or ‘substantial’ or not to define more precisely whether any breach
or whether a specific number of instances will entitle the party not in breach
to terminate the agreement (eg if the parties just state that a ‘breach’ of the
agreement will entitle the party not in breach to terminate). In such a case,
the courts have taken two divergent approaches:
• one is that a breach must in effect amount to a repudiatory breach in order
to entitle the party not in breach to terminate the agreement (Antaios
Compania SA v Salen AB [1988] AC 191; Rice (t/a the Garden Guardian) v
Great Yarmouth Borough Council [2000] All ER (D) 902; Dominion Corporate
Services Ltd v Debenhams Properties Ltd [2010] EWHC 1993 (Ch));
• the other is that courts should give effect to the words used in a contract;
if the parties have included a provision that one party can terminate if
the other party is in breach, then the court should give effect to that
provision, and not import a meaning into the word ‘breach’ which is
equivalent or matches that of a repudiatory breach (Leofelis SA v Lonsdale
Sports Ltd [2008] EWCA Civ 640; ENE Kos 1 Ltd v Petrolio Brasiliero SA (No 2)
[2012] UKSC 17; Newland Shipping and Forwarding Ltd v Toba Trading
FZC [2014] EWHC 661 (Comm).
Although the second approach appears to be the more current, the clear
message is that the parties should specify the seriousness of the breach which
will entitle a party not in breach to terminate (through phrases such as
‘material breach’ or ‘substantial breach’) or by setting a particular and specific
level of failure.

597

M18_Boilerplate_Clauses_T.indd 597 04/09/2017 08:31

 Termination for breach

Whether the breach is specific, subject to a qualification (such as discussed

immediately above) or is ‘unadorned’, a termination provision will often
enable a party in breach to remedy their breach, such as:
‘Without prejudice to any other right or remedy it may have, either party may
terminate this agreement at any time by notice in writing to the other party
(“Other Party”), such notice to take effect as specified in the notice:
(a) if the Other Party shall commit any [material][substantial] breach of any
of its obligations under this agreement and shall fail to remedy such breach (if
capable of remedy) within 30 days after being given notice by the first party so to
do or…’
This termination provision allows a party not in breach to terminate (but that
party does not have to) or that the agreement will automatically terminate if
the party in breach fails to remedy their breach. However, such wording may
not be sufficient to actually permit the agreement to terminate if the party in
breach fails to remedy their breach. In such a circumstance the party not in
breach needs to take further steps to terminate the agreement (see Bespoke
Couture Ltd v Artpower Ltd [2006] EWCA Civ 1696, see Case analysis below). The
further steps can include:
1 that the agreement includes (additional) wording which states that if
the party in breach fails to rectify their breach then the agreement will
terminate automatically (see Precedent 13);
2 the wording of the notice the party not in breach sends informing the
other party that it is in breach and requiring the other party to remedy the
breach should clearly state that the agreement will terminate automatically
if the party in breach fails to remedy its breach by the period specified in
the agreement; and
3 in the period between the party not in breach sending its notice and the
end of the period when the party in breach must remedy its breach, the
party not in breach must not do anything which is inconsistent with its
wish that the agreement terminates at the end of the period the party in
breach has to remedy the breach.

Drafting issues

• Is termination for cause permitted? At common law, a party to a contract may

terminate the contract where the other party has committed a serious
or fundamental breach or by defective performance has repudiated the
contract. It is always best to state the circumstances in which either party
may treat the contract as at an end. Without an express provision, it is not
always clear whether a particular breach may entitle the innocent party to
terminate it.
The following points need consideration:
• is termination allowed:
• for any breach; or

598

M18_Boilerplate_Clauses_T.indd 598 04/09/2017 08:31

 Termination for breach

• only for ‘material’, ‘substantial’ or persistent breaches; or (in

addition)
• for specified types of breach (such as a party failing to pay
for goods or services, or a party failing to supply the goods or
services)?
• is prior notice required of a party’s intention to terminate for
breach (such as giving notice that the party not in breach wishes to
terminate); or if the breach is sufficiently serious can the party not in
breach terminate immediately?
• is the defaulting party permitted to attempt to remedy the breach (if
it can be remedied) within a short period of time?
Eg, the contract can only be terminated after the defaulting party has
been given an opportunity to make good its default (say within 30
days);
• if it is permitted to remedy a breach:
• what length of time should the party in breach be given to remedy
the breach?
• should the same amount of time be specified for all types of
breach?
Eg, if the party in breach has failed to pay, then the period
allowed to remedy the breach (ie pay) might be short, compared
to where the party in breach has manufactured goods not in
accordance with a specification, where it might take much longer
to re-manufacture the goods (ie obtain new raw materials, set up
machinery, arrange delivery, etc);
• whether the party in breach, on receiving the notice that it is in
breach, must respond to indicate that it will cure the breach.
There may be a separate clause allowing for termination for late
payment of contract debts.
• Termination without cause. This covers termination where:
• one or both parties to an agreement can terminate the agreement on
the giving of notice even though there has been no breach and all the
obligations under the agreement are being performed correctly and
properly; or
• where, for example, a party has provided a service and it has performed
all of its obligations in return for the due payments. In such a case the
recipient of the service or licence can terminate the agreement on
notice.
The following points need consideration:
• when can termination take place?

599

M18_Boilerplate_Clauses_T.indd 599 04/09/2017 08:31

 Termination for breach

• can termination take place at any time?; or

• must a specific period of time elapse before a party can terminate?

Eg, in a research agreement which is for a period of three years, the

provision to terminate without cause might not be exercisable during
the first year;

• when can notice be given? Eg, the notice may only be given at a certain
time, for example:

• on a specific day in a month; or

• not until after a specific date.

• what length of notice must be given?

• Termination by effluxion of time (agreements for a fixed period of time). Sometimes,

agreements are stated to continue for a fixed period of time or expire in
other circumstances, eg if the contract anticipates the making of a tender
for a further contract, and the tender is unsuccessful. In such cases it may
be helpful to clarify whether:

• the agreement terminates automatically at the end of the fixed period;

or alternatively

• the agreement must be formally terminated by notice, as in

Precedent 3.

• Relation of termination clauses to each other. It is possible (and often usual)

that there will be several termination provisions that cater for the different
types of terminations envisaged by the parties. It is important that they
are made subject to each other and that there is not a gap where a party
cannot terminate the agreement.

• Does any notice that a party gives clearly indicate that the party is terminating the
agreement or does the agreement need additional wording to that effect? Another
way of putting the question is whether, at the end of a notice period will
the agreement terminate automatically or does the party giving notice
have to formally indicate that the agreement is at an end? If this is the case
then Artpower Ltd v Bespoke Couture Ltd [2006] EWCA Civ 1696 illustrates
the dangers of not using clear wording (and is based on a termination
clause similar to Precedent 12). See Case analysis below. Perhaps, the
practical outcome from this case is: (i) to add wording to this type of
clause, which indicates that the agreement will terminate automatically
without the party not in breach having to do anything further; (ii) that the
notice that the party not in breach sends to the party in breach states that
the agreement will terminate at the end of the period by which the party
in breach has to remedy the breach; and (iii) the initial notice should
state explicitly that if the breach is not remedied then the agreement will
terminate automatically.

600

M18_Boilerplate_Clauses_T.indd 600 04/09/2017 08:31

 Termination for breach

Location in the agreement

A Termination clause will be located with Secondary Commercial Provisions.

Linkage and use

A Termination clause will need consideration together with other termination

provisions in addition to those described above:
• Termination for insolvency;
• Expiry: termination at will;
• Consequences of termination;
The following also need to be considered:
• Breach. In what circumstances a party is entitled to terminate an agreement
for breach?
• Notices. Since termination of an agreement (or the notice that a party
intends to terminate an agreement) is perhaps the most serious step that
can be taken, attention should be paid as to the form and content of
Notices. If the method of serving notices is not correctly followed then any
notice of termination may be ineffective.
• Rights of third parties. If any third parties have been granted rights or have
obligations under an agreement, then where a termination is proposed,
the position of the third parties should be carefully considered.

Sample precedent material

Precedent 1—Termination for breach

Either of the parties to this agreement shall be entitled to terminate this
agreement immediately by notice in writing to the other party [(but not
after 90 days of the event in question first coming to the attention of the
party entitled to give the notice)] if any of the events set out below shall
occur:
(a) if the other party shall commit any [material] breach of any of its obli-
gations under this agreement and shall fail to remedy such breach (if
capable of remedy) within 30 days after being given notice by the first
party so to do or…

Precedent 2—Termination without fault

This agreement shall terminate if at any time as a result of a transfer of
shares made in accordance with this agreement [and/or the Company’s
articles of association] either party holds no shares in the capital of the
Company but without prejudice to any rights which either party may have

601

M18_Boilerplate_Clauses_T.indd 601 04/09/2017 08:31

 Termination for breach

against the other party arising prior to such termination (including without
limit the provisions of Clause [no] below).

Precedent 3—Termination on expiry of fixed term

Subject to any earlier termination under Clause [no], this Agreement
shall terminate automatically by expiry on the fifth anniversary of the
Commencement Date.

Precedent 4—Expiry clause

Subject to any earlier termination under Clause [no] below, this agree-
ment shall continue in force until the [second] anniversary of the
Commencement Date when it shall terminate automatically by expiry.

Precedent 5—Expiry clause – alternative form

This agreement shall terminate:
1 On the Expiry Date
(in definitions clause:)
‘Expiry Date’ means [date].

Precedent 6—Termination at will

Termination at will
Either party may terminate this agreement at any time subject to giving at
least 30 days’ prior written notice of such termination to the other party.

Precedent 7—Termination at will after fixed period

Either party may terminate this agreement by giving not less than 3
months’ notice expiring at any time after the date of the (specify minimum
period) anniversary of this agreement.

Precedent 8—Termination of licensing agreement

Without prejudice to the licences already granted pursuant to it this
Agreement shall terminate at the expiry of [4 weeks’] notice served by
either party in writing upon the other.

Precedent 9—Termination of contract for services

This agreement shall terminate at the end of the Term or if this agreement
is continued beyond the end of the Term at the end of any [year] by either
party giving to the other [3] months’ notice in writing.

Precedent 10—Termination by one party to multi-party agreement

Any of the Parties may at any time after [date] terminate this agreement
forthwith by notice in writing to the other parties. The effect of the notice
shall be to terminate this agreement as between the party serving the
notice and the remaining parties but this agreement shall continue in full
force and effect as between the remaining parties, if more than one, but
not otherwise.

602

M18_Boilerplate_Clauses_T.indd 602 04/09/2017 08:31

 Termination for breach

Precedent 11—Termination for breach or insolvency – short form –

termination on non-payment, liquidation or breach
The Owner may by [6 months’] notice in writing to the Tenant determine
the grant of [subject matter] (but without prejudice to any subsisting right
of action of either party under this Agreement) in any of the following
events:

1 if the rent is [30 days] in arrears;

2 if the Tenant goes into liquidation;

3 if there is any breach of the conditions [specified in the first schedule].

Precedent 12—Alternative short form – termination for non-remedy of

breach or corporate insolvency
Without prejudice to any other right or remedy it may have, either party
may terminate this agreement at any time by notice in writing to the other
party (‘Other Party’), such notice to take effect as specified in the notice:

1 if the Other Party is in breach of this agreement and, in the case of

a breach capable of remedy within 90 days, the breach is not rem-
edied within 90 days of the Other Party receiving notice specifying
the breach and requiring it to be remedied; or

2 if the Other Party becomes insolvent, or if an order is made or a reso-

lution is passed for the winding up of the Other Party (other than vol-
untarily for the purpose of solvent amalgamation or reconstruction),
or if an administrator, administrative receiver or receiver is appointed
in respect of the whole or any part of the Other Party’s assets or busi-
ness, or if the Other Party makes any composition with its creditors
or takes or suffers any similar or analogous action in consequence
of debt.

Precedent 13—Alternative short form – termination for non-remedy of

breach – automatic termination on failure to remedy breach or corporate
insolvency
Without prejudice to any other right or remedy it may have, either party
may terminate this agreement at any time by notice in writing to the other
party (‘Other Party’), such notice to take effect as specified in the notice:

1 if the Other Party is in [material] breach of this agreement and, in the

case of a breach capable of remedy within 90 days, the breach is not
remedied within 90 days of the Other Party receiving notice specifying
the breach and requiring it to be remedied then this agreement shall
terminate automatically without further notice to the Other Party…

Precedent 14—Longer form – termination on non-payment, failure to

remedy breach or insolvency
This agreement shall terminate:

603

M18_Boilerplate_Clauses_T.indd 603 04/09/2017 08:31

 Termination for breach

1 on the occurrence of any of the following events and any such event
shall be a fundamental breach of this agreement:
1.1 failure to pay any amount due under this agreement in full within
[5] business days of the due date and to remedy such failure
within [3] business days of receipt of written notice to do so;
1.2 failure to comply with the terms of any Default Notice as defined
in Clause [no] within the time stipulated;
2 if [either party or (specify party)] goes into liquidation either compul-
sory or voluntary (save for the purpose of reconstruction or amalgama-
tion) or if an administrator, administrative receiver or receiver is appointed
in respect of the whole or any part of its assets or if [either party or (spec-
ify party)] makes an assignment for the benefit of or composition with its
creditors generally or threatens to do any of these things or any judgment
is made against [either party or (specify party)] or any similar occurrence
under any jurisdiction affects such party.

Precedent 15—Alternative form – termination on non-performance, non-

payment or insolvency
Where either party (in this clause referred to as ‘the party in default’):
1 for any reason whatever suspends its performance of all or any part
of the obligations under Clause [no]; or
2 fails to proceed regularly and diligently to perform its obligations
under Clause [no]; or
3 fails to pay any sum properly due under this agreement; or
4 goes into liquidation whether compulsory or voluntary (except for
the purposes of a bona fide reconstruction or amalgamation with the
consent of the other party to this agreement such consent not to be
unreasonably withheld); or
5 has an administrator, administrative receiver or receiver appointed
over any part of its assets or undertaking,
then the other party (in this clause ‘the party giving notice’) may give but
shall not be obliged to give a notice to the party in default specifying the
default. If the party in default shall continue such default for [7] days [or
shall at any time thereafter repeat such default] then without prejudice to
any other rights of the parties the party giving notice may by notice imme-
diately terminate this agreement.

Precedent 16—Alternative form – termination on non-performance, non-

payment or insolvency
If the [Licensee]:
1 expressly or impliedly repudiates this agreement by refusing or
threatening to refuse to comply with any of the provisions of this
agreement; or

604

M18_Boilerplate_Clauses_T.indd 604 04/09/2017 08:31

 Termination for breach

2 fails to comply with any of the provisions of this agreement and (in
the case of a failure capable of being remedied) does not rectify such
non-compliance within [14] working days of the [Owner’s] written
notice of such failure; or

3 convenes any meeting of creditors or passes a resolution for winding

up or suffers a petition for winding up; or

4 has an administrative receiver or receiver appointed over the whole or

part of its assets or suffers the appointment of an administrator; or

5 being an individual has a bankruptcy order made against him or com-

pounds with his creditors or comes to any arrangements with any
creditors,

then (and in any such case) the [Owner] may, without prejudice to any
other of its rights or remedies and without being liable to the [Licensee]
for any loss or damage which may be occasioned, give written notice to
the [Licensee] terminating this agreement with immediate effect.

Precedent 17—Alternative form (eg for patent assignment) – termination

for misconduct, default or corporate insolvency
The following are fundamental breaches of this agreement, and this
agreement will automatically terminate immediately on the occurrence of
any of them:

1 if the Assignee engages in any conduct prejudicial to [the marketing

of the Patented Articles];

2 if the Assignee fails to comply with the terms of any default notice
within the time stipulated;

3 if the Assignee becomes insolvent or goes into liquidation either

compulsory or voluntary (except for the purpose of reconstruction or
amalgamation) or if a receiver, administrative receiver or administra-
tor is appointed in respect of the whole or any part of its assets or if
the Assignee makes an assignment for the benefit of or composition
with its creditors generally or threatens to do any of these things or
any similar occurrence under any jurisdiction.

Case analysis

Artpower Ltd v Bespoke Couture Ltd [2006] EWCA Civ 1696

1 The case concerned the licensing of the right to use some designs
and trademarks of the claimant to the defendant.

2 The case involved (among other matters) the interpretation of a termi-

nation clause, which stated:

605

M18_Boilerplate_Clauses_T.indd 605 04/09/2017 08:31

 Termination for breach

‘9.1 Subject to earlier termination pursuant to Clause 9.1, this

Agreement shall commence on the commencement Date and
continue in force for a period of 7 (seven) years from the com-
mencement Date;
9.2 In the six months prior to the expiration date, either the Licensor
or Artpower may give notice to the other that it wishes to renew
this Agreement for a further term of five years and the parties
agree that they shall negotiate such renewal in good faith.
9.3 This Agreement may be terminated:
(a) by either Licensor or Artpower with immediate effect if
the other commits a material breach of any term of this
Agreement which in the case of a breach capable of
remedy shall not have been remedied within thirty (30)
working days of the receipt by the other of a written
notice identifying the breach and requiring its remedy.
Upon remedy, the party in breach shall provide proof of
remedy within this same thirty (30) working days;
(b) by either Licensor or Artpower with immediate effect if
the other party shall have a receiver or administrative
receiver appointed over it or any part of its undertaking or
assets or shall pass a resolution for winding up (otherwise
than for the purpose of a bona fide reconstruction); or is
the subject of a bankruptcy petition or bankruptcy order
or if the other shall enter into any voluntary arrangement
with its creditors or shall be subject to an administration
order or shall cease to carry on business or if a court of
competent jurisdiction shall make an Order to the effect
of any of the foregoing or any analogous matter;
(c) by Artpower upon notice with immediate effect if:
(i) the Designer is unable, over a continuous period of eight
months, to provide the Licensor with the Sketches for the
Red Label Collection in accordance with the terms of this
Agreement; or
(ii) the Designer suffers damage to his image and/or repu-
tation as a result of matters involving moral turpitude
which in the reasonable opinion of Artpower is likely to
have a material adverse effect on the sale of the Licensed
Products.’
3 The defendant wrote to the claimant stating that the claimant was in
breach of a provision of the agreement and giving the claimant 30
days to remedy the breach. This letter did not state or refer to the ter-
mination provisions specifically or state explicitly that the agreement
would terminate at the end of 30 days. (‘October letter’).

606

M18_Boilerplate_Clauses_T.indd 606 04/09/2017 08:31

 Termination for breach

4 The defendant’s solicitor sent a further letter (‘November letter’) stat-

ing (as regards termination):
‘Clause 9.3 of the Licence Agreement states that either party may terminate in
the event of a fundamental breach which, ‘in the case of a breach capable of
remedy shall not have been remedied within (30) working days of the receipt
by the other of a written notice identifying the breach and requiring its remedy’.
[The October letter] to your client clearly fulfilled the requirements of such a
written notice and accordingly constitutes notice of intention to terminate with
immediate effect in the event that the breach is not remedied within the pre-
scribed period. Whether our client elects to terminate or not is a matter for it.’

This letter also did not state specifically that the defendant would ter-
minate the agreement or that termination would take place.
5 A further letter stated (‘December letter’):
‘Pending that return date, Bespoke will undertake (notwithstanding and there-
fore without prejudice to its contention that the Licence Agreement will termi-
nate on 10 December 2004) …’

This letter was not primarily concerned with the breach of the agree-
ment or termination and also did not specifically state that the agree-
ment would terminate.
6 In the High Court the judge held that the word ‘may’ in Clause 9.3
(‘This Agreement may be terminated’) did not introduce a require-
ment that the defendant needed to take any further steps. The agree-
ment would terminate automatically because notice had been given
in Clause 9.3(a). His view was supported, he argued, by the wording
in Clause 9.3(c) (‘upon notice with immediate effect if’).
7 The Court of Appeal disagreed. The Court of Appeal found that the
wording used in Clause 9 gives the right to a party to terminate, but
the party does not have to do so:
‘[13] In my judgment cl 9.3 confers a right on the party, if he wishes to do so, to
terminate the agreement in the circumstances described in that clause. But he
is not bound to take that step…
[14] In my judgment, the party who was not in breach had to take some positive
step to bring the agreement to an end. He had to communicate his election to
the other party if he chose to take that course. I do not think it is necessary to
decide whether that party had to do so by a notice … or alternatively whether
he was able to make his election in the case of a breach which was capable of
remedying before the period of 30 days for remedying that breach had expired.
On that basis, the question is whether the letters sent by Bespoke’s solicitors
amounted to notice of termination of the agreement.

8 As for the letters sent, the Court of Appeal found:

(a) the October letter only required that claimant remedies its
breach; and
(b) the November letter states only an intention to terminate, and
the claimant could still operate on the basis that it could remedy
its breach; and

607

M18_Boilerplate_Clauses_T.indd 607 04/09/2017 08:31

 Termination for breach

(c) the December letter is expressing a future intention and

‘[19] … the letter is not saying that the agreement had already terminated by
what had been said and done. So those words could not be a reference to a
notice exercising the right to terminate the agreement under cl 9 of the agree-
ment. In any event, the material parts of this letter constitute a proposal to [the
Claimant] and nothing more.’

9 In effect, the Court of Appeal held that none of the communications

from the Defendant had clearly communicated that the defendant
was terminating the agreement under Clause 9.3.

Jackson Distribution Ltd v Tum Yeto Inc [2009] EWHC 982 (QB),
[2009] All ER (D) 107 (May)
1 The claimant was a distributor of sports and fashion items.
2 The defendant produced a sports product.
3 Their negotiations, and the preparation of different drafts of a written
agreement, concerned the appointment of the claimant as the sole
distributor of the defendant’s product in the UK.
4 The judge held there was an agreement between the parties but the
provisions were not reflected in any draft agreement, particularly
those in relation to when their agreement could be terminated (the
terms, such as they were, were set out in an exchange of emails).
5 The judge also held that the notice period would need to be for a rea-
sonable period, given that it was a business relationship and unlikely
to be one which would last for ever. The judge needed to determine
what notice period was reasonable.
6 The factors the judge held which were important on deciding on the
period of notice (relying partly on the earlier case of Alpha Lettings
Ltd and Neptune Research and Development Inc [2003] EWCA Civ
704):
(a) the degree of formality in their relationship;
(b) whether the distributor was prevented in competing with the
product which is the subject matter of the agreement;
(c) the length of the parties’ relationship;
(d) whether the distributor needed to make any (substantial) invest-
ment (eg money or time) at the start of the relationship to build
up knowledge/business;
(e) what percentage of the distributor’s turnover represented the
sale of product;
(f) whether sales of the product in question were influenced by
seasonal factors;
(g) whether further investment was required or made (after the ini-
tial investment);

608

M18_Boilerplate_Clauses_T.indd 608 04/09/2017 08:31

 Termination for breach

(h) length of time needed by the distributor to find an alternative

product and build the business up for the new product.
7 The judge quoted several paragraphs from the judgment of
Alpha Lettings Ltd and Neptune Research and Development Inc
[2003] EWCA Civ 704 and they are reproduced here as they provide a
useful example of how the various factors indicated are interpreted:
‘30. There is little authoritative guidance on the appropriate notice for
termination of exclusive agencies or (as lawyers sometimes prefer to call
them) distributorships. One possible view is that the reasonable notice
period should equate to the time needed to find an alternative supplier
and get a new product approved. Another view is that it need only reflect
the time required for an orderly winding down of the distributorship. The
only common ground between the parties was that, in the absence of
any express term, the question, of what notice of termination is to be
taken as reasonable, must be determined as at the time of termination.
31. One very important consideration will be the degree of formality in
the relationship. A completely formal agreement would probably have its
own provisions for termination so no problem about assessing a reason-
able period for termination will arise. But the more relaxed the relation-
ship, the less likely it will be that the law would imply a lengthy notice
period. There was evidence in the present case that at an early stage in
the relationship. [the claimant] had wanted a more formal relationship
than then existed and had proposed, among other things, a contractual
period of notice of 12 months. [The defendant] did not, however, want
any formal relationship and nothing came of the discussions. One result
of not having any formal written contract was that [the claimant] were
entirely free to sell products of other suppliers to their customers even
if those suppliers were competitors of [the defendant]. No doubt not all
products so supplied could be described as competitive products but
the fact is that [the defendant]’s business only accounted for 20% of [the
claimant]’s overall turnover. This is an indication that a lengthy notice
period should not be implied.
32. [The advocate for the claimant] sought to emphasise the length of
time which the parties’ relationship had lasted (15 years from 1983 –
1998) as a factor in favour of a lengthy notice period. He likened the posi-
tion to that of a valued and long-serving employee who would be entitled
to a longer period of notice than an employee who had served a lesser
period of time. I do not consider that a contract of employment is suf-
ficiently analogous to an exclusive agency or a distributorship contract
to be helpful. In the first place a distributor may have to spend or invest
considerable capital at an early stage of the relationship to build up the
business which may thereafter run with moderate annual expenditure.
This would militate in favour of a lengthier notice period in the earlier
years of the relationship and perhaps a lesser period once the business
is up and running. No doubt it is right to lay some stress on the length of
the relationship but I would not myself regard that as, in any way, critical,
since businessmen expect to run risks in the ordinary course of business
while employees have a legitimate (and often contractual) expectation
that their services, rendered for the benefit of their employers, will be
properly and adequately recognised. As McNair J said in Martin-Baker
Ltd v Canadian Flight and Murison [1955] 2 QB 556, 580–1, one of the
few English cases to touch on the issue of reasonable notice for the pur-
poses of a distributorship agreement:-

609

M18_Boilerplate_Clauses_T.indd 609 04/09/2017 08:31

 Termination for breach

“It is the common experience that people, who are prepared to put up
capital for the development of new business, do run risks.”
It follows from this that while initial capital investment and business
expenses out of the ordinary run of things may well be relevant to the
amount of notice, ordinary and recurring expenditure is unlikely to have
much relevance.
33. It must not be forgotten that every distributorship is a bilateral con-
tract. There was some debate before us as to the appropriate implied
obligation of a supplier in the position of [the defendant] in the present
case but, in the end, both parties were prepared to agree that it was
necessary to imply a term that [the defendant] would accept and fulfill
orders placed by [the claimant] in respect of both standard and special
valves if such valves were in [the defendant]’s current range and were
ordered in reasonable quantities. The existence of this implied term is,
of course, of great importance when it comes to assessing any dam-
ages for breach of contract on the part of [the defendant] for giving an
unreasonably short period of notice, once such breach is proved. But
there will have been a correlative obligation on [the claimant], the extent
of which was not debated before us, but is most likely to have been that
[the claimant] were under an implied obligation to use their best reason-
able endeavours to promote the sale of [the defendant]’s valves in the
United Kingdom. The concept of a party to a contract being obliged to
use his best endeavours to promote the products of the other party after
notice of termination has been given (by whomsoever it may be given
and in whatever circumstances) is a difficult one and must also militate in
favour of a shorter rather than a longer period of notice.
36. We were not referred to any English authority apart from Martin-
Baker Ltd v Canadian Flight and Murison [1955] 2 QB 556 and Decro-
Wall v Practitioners in Marketing Ltd [1971] 1 WLR 361. The first case
concerned the distributorship in Canada of ejector seats from aircraft
which had been manufactured and patented by Mr Martin Baker. The
main issue was whether the agreement, which was in writing and pro-
vided that the distributor could not sell products of other suppliers which
might compete with those of the supplier, was terminable by any notice
at all or was intended to be permanent. It is not surprising to modem
eyes that McNair J decided that it was terminable on reasonable notice;
he held that such reasonable notice was a period of 12 months. Decro-
Wall was much relied on by the judge in the present case and was case
of a distributorship of French tiles in which the Court of Appeal held that
a twelve month notice was appropriate. But there are three major distinc-
tions between that case and the present. First, as in Martin-Baker, there
was an express provision that the distributor was not to sell any goods
competing with those of the supplier; secondly, the French tile business
constituted 83% of the distributor’s turnover, unlike the 20% of turnover
in the present case; thirdly, although (as in the present case) there was
substantial initial investment (“expensive spadework”) in launching and
promoting a new product in the United Kingdom, the agreement was
terminated only three years after it began before any real reward for the
initial expenditure could be reaped. In this case, there had been ample
opportunity for the reward of initial investment to be earned. One way of
regarding cases such as Decro-Wall might be to treat them as belonging
to a category of case in which there is an implication that the agreement
must exist for a reasonable time before any notice can be given. That
would, however, not be open to us in this case.’

610

M18_Boilerplate_Clauses_T.indd 610 04/09/2017 08:31

 Territory

Introduction

Background
In an agreement, a territory definition is normally for use where:
• an activity is permitted in or restricted to a particular country or a number
of countries; and/or
• an obligation needs performing in a particular country.
The use of a territory definition is likely to occur where the agreement requires
the performing of obligations or activities in a country or countries other than
the country or countries in which the parties to the agreement are based. For
example:
• an agreement concerning a supplier of goods in France selling and
delivering one order of goods to an English company is unlikely to
need a territory definition (the clause or schedule dealing with delivery
instructions will normally be sufficient); however
• an agreement concerning the licensing of intellectual property between
a French owner of copyright material and an English distributor of that
copyright material is likely to need a territory definition to indicate in
which countries the English distributor is licensed to distribute the
copyright material. For example, the owner might grant a licence to
the English distributor with a territory definition which covers all EU
countries other than France, as the owner wishes to license the copyright
to a French distributor. Without a definition of territory it will not be
clear in which countries the English distributor can distribute the owner’s
copyright material; or
• an agreement between a French supplier of goods, who wishes to appoint
agents to obtain orders for those goods in various countries, will wish
to define clearly the geographical areas in which each agent can work,
usually to avoid overlaps or disputes between agents and between agents
and the supplier.

Territory and the UK, Great Britain, Britain, British Isles etc

There are several countries and islands (and legal systems) which comprise
the territory for the UK. If an agreement includes a territory definition of UK

611

M18_Boilerplate_Clauses_T.indd 611 04/09/2017 08:31

 Territory

it is important to understand what countries or areas are meant by the titles

which refer to parts of the UK. There are several possible ‘titles’. The following
are the main legally defined labels:
• England and Wales:
• England: The area consists of the counties established by the Local
Government Act 1972, s 1, Greater London and the Isles of Scilly
(unless the boundaries are altered) (Interpretation Act 1978, s 5 and
Sch 1);
• Wales: The combined area of the counties which were created
by the Local Government Act 1972, s 20 as originally enacted, but
subject to any alteration made under Local Government Act 1972,
s 73 (consequential alteration of boundary following alteration of
watercourse);
• Great Britain: countries included: England, Scotland and Wales (Union
with Scotland Act 1706, Art 1 and Interpretation Act 1978, Sch 2,
para 5(a));
• United Kingdom: countries included: Great Britain and Northern Ireland
(Interpretation Act 1978, s 5 and Sch 1), ie England, Scotland, Wales and
Northern Ireland;
• British Isles: countries included: UK, the Channel Islands and the Isle of
Man (Interpretation Act 1978, s 5 and Sch 1).
Note: the meanings given in the Interpretation Act 1978 are to help
understanding of these words in other statutory material and not for use as
such in commercial documents. However, if they are used in commercial
documents without further explanation, then their meanings as set out in the
1978 Act can provide guidance at a minimum in interpreting their meaning
in a commercial document (see Navigators and General Insurance Co v Ringrose
[1962] 1 All ER 97).
Although the above definitions have a settled meaning, it is possible that one
country of the UK etc may vote to become an independent state (eg if a second
referendum in Scotland is successful).

European Union and other groupings

The term ‘European Union’ is the latest label for the member countries
(following the implementation of the Treaty of Lisbon in 2009). Other labels
in the past have included the European Economic Community (EEC) and the
European Community (EC). Currently there are 28 members and this may
increase given past activity. A number of countries are seeking membership
(currently Albania, the former Yugoslav Republic of Macedonia, Montenegro,
Serbia and Turkey – although there is now considerable doubt over the final
country ever becoming a member). There is also the likelihood, that the
number of member states will decrease, following the Brexit vote in June 2016,

612

M18_Boilerplate_Clauses_T.indd 612 04/09/2017 08:31

 Territory

if or when the United Kingdom (or even, possibly, only parts of the UK) leave
the EU.
Agreements can use any of these labels in a territory definition without
additional wording to specify which countries are included. There is also a
distinction between full and associate membership.
The other main grouping within Europe is the European Economic Area,
which consists of the EU member states and Iceland, Liechtenstein and
Norway.

Drafting issues

• Is the territory clearly defined? There is often not a clear meaning of such
phrases or words as:
• Europe;
• North America;
• South America;
• Caribbean basin;
• Asia;
• Russia;
• Africa,
often because there is no settled meaning of the extent of the areas covered
by these words. For example, ‘Europe’ can mean the countries of the EU,
any number of the countries in the EU or could include countries outside
the EU. There is also the issue of where ‘Europe’ exactly starts; for example,
would Europe include the Russian Federation (parts of which are far more
distant from a country such as Poland than Kazakhstan is from Poland).
Another example is ‘Russia’, does the meaning just mean the Russian
Federation or the countries within the former Soviet Union, or if the
Russian Federation decides to annex part of neighbouring countries?;
The safest course in a definition of a territory is normally to list the
countries.
• At which date is the meaning of territory to be used? Should the countries
included, or the extent of territory covered by a country or description,
be taken as that:
• at the date the agreement is entered;
• at the date any rights etc are granted or obligations are entered into;
• at the date any dispute arises.
An example is given in Precedent 3 of how it is possible to deal with this
issue.

613

M18_Boilerplate_Clauses_T.indd 613 04/09/2017 08:31

 Territory

Location in the agreement

The Territory clause usually appears in the Definitions section of an agreement.

Linkage and use

The defined meaning of Territory will be:

• used in a Main Commercial Provision outlining the rights granted under
the agreement;
• in a Termination provision where some or all the rights might terminate
on a country by country basis;
• in a clause dealing with warranties, covenants etc being given;
• in a clause dealing with payments, such as:
• the amount payable in a particular territory (for example, a licensee
might need to pay a different amount for sales made in one territory
rather than another because of market conditions);
• the compliance with formalities or taxation requirements, etc.
The use of a Territory clause will usually be found in agreements concerning:
• the licensing of intellectual property;
• option agreements (eg having the right, subject to the terms of the option,
to acquire a franchise within a certain part of England and Wales);
• agency, distribution and franchising agreements;
• the provision of a service limited to a territory:
eg, an advertising agency might arrange advertising within a county or
region within the UK, or a company that services computers for a client
might be only servicing the client’s computers within a particular area
(see Precedent 1);
• the right to exploit or find some natural material;
• restrictive covenants in employment contracts:
eg, that an employee may not work within a certain defined territory
following termination of the contract of employment, usually for a defined
period of time;
• areas where sales staff might operate;
• assignment of rights and completion of formalities. When intellectual
property rights are assigned, it may be necessary for the assignor at certain
times to sign various documents which might be necessary for registration
with governmental bodies, for example. It may be necessary to make it
clear that the assignor is required to do this within certain countries.

614

M18_Boilerplate_Clauses_T.indd 614 04/09/2017 08:31

 Territory

Sample precedent material

Precedent 1—Definition of a territory

Territory shall mean [name of countries/area]

Precedent 2—Use of a definition in an operative clause

The Client appoints the Supplier to provide the Services for the Period
and in the Territory [on a non-exclusive basis][exclusive basis], and
the Supplier accepts the appointment, subject to the provisions of this
Agreement.

Precedent 3—Use of a definition in an operative clause-alternative

version
The Licensor hereby grants an exclusive licence under the Patents to the
Licensee to [specify permitted activities] within the Territory…

Precedent 4—United Kingdom

Territory shall mean the United Kingdom, which for the avoidance of
doubt shall include England, Wales, Scotland and Northern
Ireland.

Precedent 5—European Union

Territory shall mean the states which are [full][and associate] mem-
bers of the European Union at the date of this agreement.
[This definition of Territory shall [not] include any states
which become members of the European Union after the
date of this Agreement.] [For the avoidance of doubt, at
the date of this Agreement the members are [list member
states].]

Precedent 6—European Union

Territory shall mean the states which are [full][and associate] mem-
bers of the European Union at the date of this agreement.
For the avoidance of doubt, at the date of this Agreement
the members are [set out in schedule [ ] to this Agreement
or [list member states.]] [This definition of Territory shall [not]
include any states which become members of the European
Union after the date of this Agreement.] If any member of
the European Union leaves the European Union after the
date of this Agreement, this definition of Territory shall not
change and shall remain as all the states who were mem-
bers of the European Union at the date of this Agreement.

Precedent 7—World
Territory shall mean the world [and outer space if particular forms of
technology are being licensed] but not including [names of
specific countries].

615

M18_Boilerplate_Clauses_T.indd 615 04/09/2017 08:31

 Territory

Precedent 8—An area with exclusions

European Territories shall mean the European Union (being states
which are [full][and associate] members of the
European Union at the date of this agreement)
but excluding [Germany, France and the United
Kingdom].

Precedent 9—Europe
Europe shall mean the following countries (whether or not they are
members of the European Union or any other treaty).

Precedent 10—Within a country

Territory shall mean the [county of Surrey][the town(s) of [ ]][areas
specified in Schedule 1 to this Agreement].

Precedent 11—United Kingdom

United Kingdom shall mean England, Scotland, Wales and Northern
Ireland.

Precedent 12—Great Britain

Great Britain shall mean England, Scotland and Wales.

616

M18_Boilerplate_Clauses_T.indd 616 04/09/2017 08:31

 Time of the essence

Purpose of the clause

Background
If a provision of a contract is stated to be ‘of the essence’ to the contract, and
if there is a breach of that provision then the party who is not in breach will
have the right to terminate the contract. Another way of saying the same thing
is to state that a provision is an ‘essential term’ or a ‘condition’ of the contract.
A clause dealing with payments is the type of obligation where the user of an
agreement will most frequently encounter ‘of the essence’ wording, such as:
‘The Company shall pay the Price to the Consultant within 30 days of this
Agreement and the time for payment shall be of the essence.’

Although an ‘of the essence’ type of provision is most frequently encountered

with payment obligations, payment provisions are not by default ‘of the
essence’ in a ‘commercial contract unless the parties have agreed (either
expressly or by necessary implication) that it should be’ (Valilas v Januzaj
[2014] EWCA Civ 436).
The expression ‘time is of the essence’ does not naturally convey its legal
meaning, which needs to be learnt. Commercial contracts that are intended
for use by non-experienced business people (or by those who do not have any
meaningful understanding of contract law and practice) should set out the
meaning in straightforward terms. Also, the phrase only deals with provisions
or obligations that are concerned with time. It is possible for other provisions
or obligations to be ‘of the essence’ as well (eg a failure to manufacture goods
to a specification). For example, a clause prepared for lawyers might read:
‘The Manufacturer shall make the Goods in accordance with the Specifications
and in accordance with the dates set out in the Specification.’

If it is prepared for use by non-experienced business people, it might set out

the consequences specifically within the clause:
‘The Manufacturer shall make the Goods in accordance with the Specifications
and in accordance with the dates set out in the Specification. If the Manufacturer
fails [for any reason] to make the goods within the tolerances set out in the
Specification the Customer shall have the right to terminate this Agreement by
notice in writing which shall take effect from the date of the notice.’

An alternative formulation where the Customer can terminate the agreement

is as follows, with the details for termination specified in another clause:

617

M18_Boilerplate_Clauses_T.indd 617 04/09/2017 08:31

 Time of the essence

‘The Manufacturer shall make the Goods in accordance with the Specifications
and in accordance with the dates set out in the Specification. If the Manufacturer
fails [for any reason] to make the goods within the tolerances set out in the
Specification then the Customer shall have the right to terminate this Agreement
in accordance with Clause [ ].’

It is always preferable to indicate clearly in an agreement whether time or any

other obligation is to be of the essence.
Sometimes a party who will receive a payment, or take delivery of goods, will
seek to make time of the essence for that payment or delivery. The other
party will not wish to be subject to ‘of the essence’ obligations, given that any
failure (even one that is not under its control) could entitle the other party to
terminate the contract. If the parties cannot agree (or if one party does not
have the stronger bargaining position to force the other to accept its position)
then as a compromise a provision might state:
• that time is initially not of the essence; but
• in the case of unreasonable delay, the party suffering from the delay may
give notice; and
• the notice will:
• set a reasonable time for performance; and
• set a time for performance which is of the essence.
This is the position in law in any case. However the period of time set out in
the notice must be reasonable (ie reasonable in the sense of giving sufficient
time for the party in breach to carry out its obligation).
Whether all, or any particular, provisions of an agreement are subject to the
stipulation that time is of the essence will depend on the bargaining position
of each party. Frequently, a general clause is inserted providing that time is
to be of the essence in relation to all the provisions of the agreement. In such
a case each party should scrutinise those provisions carefully to ensure that
performance is feasible in accordance with the stated time periods or other
requirements.

Wording needed to make a contractual provision ‘of the

essence’

Although phrases such as ‘of the essence’ or ‘time is of the essence’ are the
conventional phrases commonly seen, the contract drafter does not need to
use such wording to make a time or other obligation ‘of the essence’ (Harold
Wood Brick Co Ltd v Ferris [1935] 2 KB 198). It is possible to use other wording
or phrases for a time stipulation, such as:
• that the obligation is a condition or it is a condition precedent. These
are sufficient to be of the essence of a contract (HHR Pascal BV v W2005
Puppet II BV [2009] EWHC 2771 (Comm));

618

M18_Boilerplate_Clauses_T.indd 618 04/09/2017 08:31

 Time of the essence

• the wording used for the time stipulation is emphatic and the clause
which contains the time stipulation concerns the exercise of rights
and the contract does not contain any wording which indicates that
the parties have a contrary intention (Tarkin AG v Thames Steel UK Ltd
[2010] EWHC 207 (Comm));
• wording that does not require compliance with a specific period or time,
but indicates compliance has to occur ‘immediately’ or ‘as soon as possible’
(Société Italo-Belge pour le Commerce et l’Industrie SA v Palm and Vegetable Oils
(Malaysia) Sdn Bhd, The Post Chaser [1982] 1 All ER 19).
What is important is not the words that the parties use in their contract, but
whether (i) the intention of the parties is to create a condition; and (ii) the
wording they have used in the context of the contract is sufficient to amount
to a condition (the breach of which would amount to a repudiatory breach so
that the party not in breach would have the right to terminate the contract).

Whether time is of the essence

For non-mercantile contracts

For non-mercantile contracts, the general position is that time will not be of
the essence except where:
• the parties expressly state that one or more of them must strictly comply
with conditions as to time; or
• the nature of the subject matter of the contract or the surrounding
circumstances indicate that time must be of the essence (and would be
the intention of the parties); or
• after an unreasonable delay, a party gives notice to the party in breach and
the notice makes time of the essence (see 8 Halsbury Laws of England (4th
Edn Reissue), para 931).
See United Scientific Holdings v Burnley Borough Council [1978] AC 904, [1977]
2 All ER 62, HL applied in Lancrest Ltd v Asiwaju [2005] EWCA Civ 117.
For examples where time was not found to be of the essence in non-mercantile
contracts, see:
• Lancrest Ltd v Asiwaju [2005] EWCA Civ 117 (notice to exercise an option
to review the rent in a lease given later than specified in the lease); or
• Keith Allardyce v Roebuck (Philip) [2004] EWHC 1538 (Ch) (option in will
to purchase a house at a discount, the option was subject to acceptance by
a certain date, time limit was not complied with).
For a recent example in a non-mercantile contract, where time was held
to be of the essence see Samarenko v Dawn Hill House Ltd [2011] EWCA Civ
1445 (where the payment of a deposit in a property transaction was seen as
so important that the party who was to receive the deposit would not have
otherwise entered into the contract).

619

M18_Boilerplate_Clauses_T.indd 619 04/09/2017 08:31

 Time of the essence

Mercantile contracts
Where there is a mercantile contract, time being of the essence will be
more readily applied (Bunge Corp v Tradax Export SA [1981] 1 WLR 711 at
716); particularly time for performance, eg, where there is a fixed date for
undertaking an obligation or task and the date is essential, such as in:
• sale of goods;
• sale of shares;
• opening of a letter of credit;
• a charterparty.
For recent examples, see:
• International Asset Control Ltd (t/a IAC Films) v Films Sans Frontieres
SARL [1998] All ER (D) 476, CA;
• Msas Global Logistics v Power Packaging Inc [2003] EWHC 1393 (Ch),
[2003] All ER (D) 211 (Jun); where a clause in an agreement concerning
the time for completion of the sale of the entire share capital of a business
was found to be of the essence (see Case analysis below);
• Multi Veste 226 BV v NI Summer Row Unitholder BV [2011] EWHC 2026
(Ch); where a provision requiring a party to provide a bank guarantee
was not of the essence in the circumstances of the case (see Case analysis
below).

Making time of the essence when the contract does not expressly provide
that a provision is ‘of the essence’
A clause in an agreement may not state that it is ‘of the essence’ or that it is
a condition. However, it is possible for it to be so where a party is under an
obligation and is in breach of that obligation. When this occurs, the party not
in breach can send a notice to the party in breach. The notice can specify a
(reasonable) period within which the party in breach needs to perform the
obligation (eg make a payment, make a delivery etc). Such a notice in these
circumstances will be of the essence.
Where a provision is of the essence and the party in whose favour that
provision is drafted does not enforce a breach of that provision, then the party
not in breach will need to make it of the essence again, ie by sending a notice
giving the party a reasonable period to comply (unless the giving of reasonable
notice would not be of any use to the party in breach) (Etablissements Chainbaux
SARL v Harbormaster Ltd [1955] 1 Lloyd’s Rep 303).

Statutory provision
In contracts relating to:
• goods: in relation to the sale of goods:

620

M18_Boilerplate_Clauses_T.indd 620 04/09/2017 08:31

 Time of the essence

• stipulations as to time of payment are not of the essence of the contract

unless a different intention appears from its terms (Sale of Goods Act
1979, s 10(1));
• whether any other stipulation as to time is or is not of the essence of
the contract depends on its terms (Sale of Goods Act 1979, s 10(2));
• services: unless the parties to a contract specify otherwise, the supplier of
a service is only expected to carry out a service within a reasonable time
(Supply of Goods and Services Act 1982, s 14).
• land: ‘Stipulations in a contract, as to time or otherwise which according
to rules of equity, are not deemed to be or have become of the essence of
the contract, are also construed and have effect as law in accordance with
the same rules’ (Law of Property Act 1925, s 41).

Drafting issues

• Not essential to use the words ‘of the essence’ for a provision to be of the essence.
It is not essential to use the words ‘of the essence’ in a contract, but it
is desirable. However, by the use of such words, the parties are clearly
signalling their intention to others (such as to a judge).
If the words ‘of the essence’ are not used, the parties should use clear
words as to the meaning of the provision if it is to be an ‘of the essence’
type of provision, eg:
• by stating that the provision is a condition; or
• by stating that the party who is entitled to the benefit of the obligation
contained in the provision can terminate the agreement.
• If time is to be of the essence, the consequences of failing to meet the set time
should be spelt out:
• by indicating that the time to meet or undertake an obligation or task
is ‘of the essence’; or
• better still, to indicate clearly what is to happen if that time is not met
(eg that the agreement will automatically terminate or some other
thing will happen or not happen).
• If time for performance is to be of the essence. Are all times and dates given in
the agreement to be of the essence (see Precedent 2) or just for particular
clauses (see Precedent 3)?

Location in the agreement

The following types of clauses will usually have wording in them to indicate
that time is of the essence:

621

M18_Boilerplate_Clauses_T.indd 621 04/09/2017 08:31

 Time of the essence

• in Payment clauses, where a term may be included that ‘time of payment is

of the essence of the contract’;

• in a Delivery clause, specifying dates and times when goods or services or

things are to be delivered;

• giving of Notices for when certain matters in an agreement are to take

place or will come into effect (such as the notices required to be given
specifying a date for termination);

• Completion dates.

Sample precedent material

Precedent 1—General provisions as time of the essence

Time shall be of the essence of this agreement as regards any time, date
or period mentioned in this agreement or subsequently substituted as a
time, date or period by agreement in writing between the parties.

Precedent 2—Short form – all clauses

Time shall be of the essence for the purposes of any provision of this
agreement.

Precedent 3—Short form – specified clause

Time is to be of the essence in Clause [no] of this agreement.

Precedent 4—Time of the essence – extensions allowed

Any date or period mentioned in this agreement may be extended with
[party]’s consent but otherwise time shall be of the essence.

Precedent 5—Time of the essence – one party only

Unless otherwise stated, time shall be of the essence for the purpose of
the performance of [party]’s obligations under this agreement.

Precedent 6—Time of the essence – sale agreement

Time shall be of the essence of this agreement both as regards the dates
and periods specifically mentioned and as regards any dates and periods
which may by agreement in writing between or on behalf of the Vendor
and the Purchaser be substituted for them.

Precedent 7—Time of the essence – sale conditions

Time shall be of the essence of all Conditions which contain time limits.
Where the time limited for any person to do anything expires on a Sunday,
bank or other public holiday, or on the day next following any such day,
then such Sunday or bank or other public holiday shall be excluded from
the computation of the time.

622

M18_Boilerplate_Clauses_T.indd 622 04/09/2017 08:31

 Time of the essence

Precedent 8—Time of the essence – specified payments

[Party B] agrees with [Party A] throughout the term to pay to [Party A] (or
as [Party A] directs) [the Fees] on the relevant payment dates (time being
of the essence).

Precedent 9—Time of the essence – all payments

Time for payment of all money payable by [party] under this agreement
shall be of the essence.

Precedent 10—Time of the essence – delivery term – standard conditions

of purchase
The Delivery Date is of the essence of this contract. If the Seller fails to
deliver all of the Goods in accordance with the contract on the Delivery
Date then without prejudice to the Buyer’s rights for breach of contract
the Buyer may terminate the contract. In this event without prejudice to
the Buyer’s other remedies the Seller shall promptly collect any Goods
which have been delivered.

Precedent 11—Time of the essence – payment term – standard

conditions of sale
Payment of the Price and VAT shall be due within [30] days of the date of
the invoice. Time for payment shall be of the essence.

Precedent 12—Time of the essence – payment term – standard

conditions of sale
The Company shall pay the Price to the Consultant within 30 days of
this Agreement and the time for payment shall be of the essence. If the
Company shall fail to pay the Price within 30 days of this Agreement then
the Consultant shall have the right to terminate this Agreement [by notice
in writing which shall take effect from the date of the notice][in accord-
ance with Clause [ ]].

Precedent 13—Time not of essence – distribution or supply agreement –

delivery term
[Shipping] dates and estimates of time of arrival shall be the last available
or known to [party] and shall not be of the essence of the contract.

Precedent 14—Time not of essence – licence or supply agreement –

delivery/installation term
[The Licensor] will use all reasonable endeavours to achieve delivery or
installation by any specified or requested date, but each such date is to
be treated as an estimate only and time shall not be of the essence.

623

M18_Boilerplate_Clauses_T.indd 623 04/09/2017 08:31

 Time of the essence

Case analysis

Msas Global Logistics v Power Packaging Inc [2003] EWHC 1393 (Ch),
[2003] All ER (D) 211 (Jun)
A clause in an agreement for the sale of the entire share capital of busi-
ness read:
‘[Clause] 4.2 Completion will take place at the offices of the Purchaser’s
Solicitors at such date and time as the Vendor and the Purchaser agree follow-
ing the satisfaction or waiver of the conditions set out at clause 3.1.1 to 3.1.4
but in any event no later than 10th January 2003 (unless the Vendor and the
Purchaser shall agree otherwise).’

The time period was held to be of the essence. After reviewing a number
of authorities relating to share sales, the judge said:
‘43. Ultimately, as it seems to me, the question is one of the interpretation
of the particular contract, the words used being set in the factual context in
which the contract is made and regard being had to the subject matter of the
contract. In the present case, in my judgment, time was of the essence of the
provisions of Clause 4.2. It seems to me that the very wording of Clause 4.2
is indicative of that – the more so, when set in the context of the provisions of
Clause 3.2 and 3.4 which to my mind […] reinforce the view that completion
was being required to take place by close of 10th January 2003 at the latest
(unless, of course, the parties otherwise agreed). That time is of the essence
of the provisions of clause 4.2 is also consistent with […] with the guarantors’
obligations and the warranties contained in the UK Agreement.
44. Moreover, such a conclusion, is, I think, strongly supported here by the
subject matter of the contract. What was being sold here was not just a parcel
of shares in a private company: it was the entirety of the shares, legal owner-
ship of which would give effective control of PEOL (and, hence, its subsidiar-
ies). In effect, the whole business was being sold as a going concern…’

Although time was held to be of the essence, it was found on the facts of
the case that the waiver in Clause 4.2 operated.

Multi Veste 226 BV v NI Summer Row Unitholder BV [2011] EWHC 2026

(Ch)
In this factually complex case one party was required to provide a bank
guarantee and perform certain other obligations (such as deliver convey-
ances) all together by a certain date. The judge held that the obligation
to provide the bank guarantee was not more important than the other
obligations, and that because some of the other obligations in the agree-
ment are normally not of the essence (such as entering into conveyances)
there was a strong presumption that time was not of the essence as far as
the provision of the bank guarantee was concerned (ie all the obligations
were governed by the same provision governing time):
‘[190] In the present case the [Defendant]’s obligation to provide the bank
guarantees was one of a number of obligations to be simultaneously per-
formed. In my judgment it would be artificial to single out some obligations
as having greater importance than others, when all are governed by the same
time stipulation contained in the same clause. The other obligations included
obligations to enter into conveyancing documents, in relation to which time

624

M18_Boilerplate_Clauses_T.indd 624 04/09/2017 08:31

 Time of the essence

has never been of the essence. To my mind this is a strong indication that time
was not of the essence of cl 2.5. Moreover, the stringency of time being of the
essence is that purported performance one day late would amount to a repu-
diatory breach. I cannot see that the reasonable reader of the [Agreement],
armed with the background knowledge of the parties at the date of the con-
tract, would have concluded that delivery of the bank guarantees on the sixth
business day after notice of satisfaction of the Council Pre-Condition would
have such serious consequences as to entitle [the Claimant] to terminate the
[Agreement] forthwith. I therefore reject the submission that time was of the
essence of the obligation to deliver the bank guarantees.’

625

M18_Boilerplate_Clauses_T.indd 625 04/09/2017 08:31

 Title (or property) and risk

Purpose of the clause

When title and risk pass—statutory rules

Contracts for the sale of goods often address the question of when:
• title (who owns the goods); and
• risk (who is responsible for the goods if something happens to them)
in the goods passes to the purchaser from the seller. This issue also arises in
some other types of contract, but less commonly.
The parties to a contract are normally free to decide when title and risk pass.
However if a contract for the sale of goods does not deal specifically with these
issues, terms may be implied under the Sale of Goods Act 1979, especially
ss 16–20 (see Extracts from legislation for the text of these sections). Although it
is unlikely that commercial parties will have these sections of the 1979 Act in
the forefront of their minds when negotiating or considering the provisions
of a contract, the underlying ‘policy’ of contract law in the UK is based on a
person having ownership (property) of goods; without ownership, the person
has little or no rights or interest in the goods unless the contract states otherwise.
Who is to bear the risk is clearly tied to ownership under the Act (Sale of
Goods Act 1979, s 20, again subject to what is decided otherwise).
What follows is a brief summary of the relevant provisions of the Sale of Goods
Act 1979.
• The Act distinguishes between specific or ascertained goods, and
unascertained goods:
• Specific goods are defined as ‘goods identified and agreed on at the
time a contract of sale is made’ (Sale of Goods Act 1979, s 61);
• ‘Unascertained goods’ are seemingly goods that are not identified and
agreed upon at the time a contract of sale is made (41 Halsbury’s
Laws of England (4th Edn Reissue), para 124). Unascertained goods
might be:
• goods not yet manufactured or grown by the seller;
• goods of a generic type;
• goods which form an unascertained part of a specific bulk.

626

M18_Boilerplate_Clauses_T.indd 626 04/09/2017 08:31

 Title (or property) and risk

• Ownership in goods cannot pass until they are ascertained (Sale of Goods
Act 1979, s 16). Once they are ascertained, ownership will pass at such
time as the parties to the contract intend it to be transferred (s 17(1)).
The intention of the parties is derived from the terms of the contract, the
conduct of the parties and the circumstances of the case (s 17(2)). Unless
the parties to an agreement agree otherwise, the Act provides five rules
for ascertaining the intention of the parties as to the time at which the
property in the goods is to pass to the buyer (s 18).
• The risk in the goods will only pass when the ownership is transferred
to the buyer, even if the goods are not delivered (s 20(1)). Note:
for consumers, risk does not pass until the goods are delivered to the
consumer (s 20(4)), which means, for a consumer, that the goods are
physically in the consumer’s possession.
This is no more than an outline; for further commentary on these matters
readers should obtain advice or consult the standard works on the subject
of sale of goods, for example Goode on Commercial Law (5th Edn, 2016,
LexisNexis).

Modifying the statutory rules

If the parties wish to alter the statutory provisions as to when title and risk
should pass then the parties will need to draft specific clauses. A seller of
goods:
• will often not wish the title (ownership) in the goods to pass until it has
received payment, even if it has physically delivered the goods to the
buyer; but
• will wish that the risk in the goods passes to the buyer as soon as it has
delivered the goods.
See further Retention of title. For simple clauses dealing with the issue of passing
of risk see below.

Title and risk in sales with an international element

Introductory points
Where contracts involve the export of goods, parties often agree to allocate risk
and title using a series of standard terms laid down in INCOTERMS, a series
of pre-defined commercial terms published by the International Chamber of
Commerce. The latest version of INCOTERMS is the 2010 edition. Besides
title and risk, INCOTERMS address a number of other areas such as:
• risk of loss (and thus responsibility for insurance) and who is responsible
for obtaining it;
• obtaining import/export licences;
• where the seller is to make delivery to;

627

M18_Boilerplate_Clauses_T.indd 627 04/09/2017 08:31

 Title (or property) and risk

• what notice period must be given by the seller that delivery has taken
place.
The most commonly encountered INCOTERMS are ‘Free on Board’ (FOB),
‘Cost Insurance and Freight’ (CIF) and ‘Ex-Works’ (EXW).

Selected comparison of INCOTERMS

By way of comparison of the various conventions under an FOB contract, the
principal duties of the seller are:
• to provide goods in conformity with the contract;
• to obtain at its risk any export licence/authorisation;
• to deliver the goods on board the vessel named by the buyer at the named
port of shipment on the date stipulated;
• to bear the costs incurred until the goods pass the ship’s rail and any
official charges payable upon exportation;
• to give sufficient notice to the buyer that the goods have been delivered
on board.
The buyer must:
• pay the price as provided in the contract;
• obtain at its own risk any import licence/authorisation;
• contract at its expense for the carriage of goods and arrange a contract of
insurance;
• bear all risks of loss of or damage to the goods from the time they have
passed the ship’s rail.
This INCOTERM may be regarded as benefiting the seller who fulfils all
delivery obligations as soon as the goods pass the ship’s rail. By contrast, use
of other conventions place more extensive obligations on the seller. Eg, under
the DDP (Delivery Duty Paid) INCOTERM, in addition to the obligations on
the part of the seller listed above the seller must:
• contract at its own expense for a contract of carriage;
• place the goods at the disposal of the buyer on the date or within the
period stipulated;
• pass all the costs of delivery including importation duties;
• bear all the risks of loss of or damage to the goods until such time as they
have been placed at the disposal of the buyer.
Under the INCOTERM CIF (Cost Insurance and Freight) the obligations
upon the seller are less onerous than DDP but more extensive than FOB. In
particular, the seller must arrange contracts of carriage and insurance. Risk
still passes at the ship’s rail.

628

M18_Boilerplate_Clauses_T.indd 628 04/09/2017 08:31

 Title (or property) and risk

Location in the agreement

A clause dealing with when risk is to pass will often be included with Payment
provisions or with a Retention of title clause. Alternative precedents to the
ones below are included under those sections concerning when ownership is
to pass.

Sample precedent material

Precedent 1—Short form

The risk in the Company’s Products shall pass on delivery to the Buyer or
his agent.

Precedent 2—Short form – risk to pass on delivery

The risk in respect of the material sold under this Agreement shall pass to
the Customer on delivery of the material by the Company (or its agents) to
the Customer at the place specified by the Customer for delivery.

Precedent 3—Short form – risk to pass on delivery

The Goods shall be delivered to the Buyer at the Seller’s address. The risk
in the Goods shall pass to the Buyer upon such delivery taking place.

Precedent 4—Longer form – risk but not ownership to pass on delivery

Ownership of the goods which are the subject of this contract shall not
pass to the Buyer until they are fully paid for, but the risk in the goods
shall be borne by the Buyer from the date of the delivery by the company
or its agents to the buyer.

Precedent 5—Full form – risk to pass on delivery – agency agreement

The risk in all Products supplied under this Agreement shall remain with
the Principal [during transportation to the Agent’s place of business].
Notwithstanding that the title in the Products may not have passed in
accordance with the provisions of this clause the risk in all Products shall
pass to the Agent upon delivery of the item concerned [to the Agent’s
place of business]. The Agent shall at its own expense take out and
secure the continuance of an all-risk insurance policy in respect of all
Products supplied in accordance with this Agreement to their total value
at replacement cost. Such policy shall cover the goods from and includ-
ing the date on which they are delivered to the Agent’s place of business.
The Agent shall procure that the Principal’s interest in the Products shall
be recorded by an indorsement on the policy specifying the Principal as
loss payee (and shall provide the Principal with a copy of it) and (to the
extent that the Principal has not received full payment in respect of any
Products) any sums which are received under any such policy may be
credited against any sums owing from the Agent to the Principal.

629

M18_Boilerplate_Clauses_T.indd 629 04/09/2017 08:31

 Title (or property) and risk

Precedent 6—Clause referring to Incoterms

The Seller shall supply the Goods DDP to Buyer’s premises at 1 Reude,
Geurre, Waterlooville, Belgium.

Precedent 7—Property passing on payment

Property in the Goods shall only pass when the Buyer has paid all sums
due to the Seller under this Agreement.

Precedent 8—Property passing on payment – alternative form

Property in the Goods shall only pass when the Buyer has paid all sums
due to the Seller under this Agreement and any other sums due to the
Seller [including any interest due].

Precedent 8—Property passing on payment – alternative form

We shall own the Goods until you have paid for them, whether or not we
have delivered the Goods to you.

Extracts from legislation

Sale of Goods Act 1979

Part III Effects of the Contract—Transfer of property as between seller and

buyer

16 Goods must be ascertained

[Subject to section 20A below] where there is a contract for the sale of
unascertained goods no property in the goods is transferred to the buyer
unless and until the goods are ascertained.

17 Property passes when intended to pass

(1) Where there is a contract for the sale of specific or ascertained goods the
property in them is transferred to the buyer at such time as the parties to
the contract intend it to be transferred.
(2) For the purpose of ascertaining the intention of the parties regard shall
be had to the terms of the contract, the conduct of the parties and the
circumstances of the case.

18 Rules for ascertaining intention

Unless a different intention appears, the following are rules for ascertaining
the intention of the parties as to the time at which the property in the goods is
to pass to the buyer.

630

M18_Boilerplate_Clauses_T.indd 630 04/09/2017 08:31

 Title (or property) and risk

Rule 1—Where there is an unconditional contract for the sale of specific

goods in a deliverable state the property in the goods passes to the buyer when
the contract is made, and it is immaterial whether the time of payment or the
time of delivery, or both, be postponed.
Rule 2—Where there is a contract for the sale of specific goods and the seller
is bound to do something to the goods for the purpose of putting them into
a deliverable state, the property does not pass until the thing is done and the
buyer has notice that it has been done.
Rule 3—Where there is a contract for the sale of specific goods in a deliverable
state but the seller is bound to weigh, measure, test, or do some other act or
thing with reference to the goods for the purpose of ascertaining the price,
the property does not pass until the act or thing is done and the buyer has
notice that it has been done.
Rule 4—When goods are delivered to the buyer on approval or on sale or
return or other similar terms the property in the goods passes to the buyer:
(a) when he signifies his approval or acceptance to the seller or does any
other act adopting the transaction;
(b) if he does not signify his approval or acceptance to the seller but
retains the goods without giving notice of rejection, then, if a time has
been fixed for the return of the goods, on the expiration of that time,
and, if no time has been fixed, on the expiration of a reasonable time.
Rule 5—
(1) Where there is a contract for the sale of unascertained or future goods by
description, and goods of that description and in a deliverable state are
unconditionally appropriated to the contract, either by the seller with the
assent of the buyer or by the buyer with the assent of the seller, the property
in the goods then passes to the buyer; and the assent may be express or
implied, and may be given either before or after the appropriation is made.
(2) Where, in pursuance of the contract, the seller delivers the goods to the
buyer or to a carrier or other bailee or custodier (whether named by the
buyer or not) for the purpose of transmission to the buyer, and does not
reserve the right of disposal, he is to be taken to have unconditionally
appropriated the goods to the contract.
(3) Where there is a contract for the sale of a specified quantity of
unascertained goods in a deliverable state forming part of a bulk which is
identified either in the contract or by subsequent agreement between the
parties and the bulk is reduced to (or to less than) that quantity, then, if
the buyer under that contract is the only buyer to whom goods are then
due out of the bulk:
(a) the remaining goods are to be taken as appropriated to that contract
at the time when the bulk is so reduced; and
(b) the property in those goods then passes to that buyer.

631

M18_Boilerplate_Clauses_T.indd 631 04/09/2017 08:31

 Title (or property) and risk

(4) Paragraph (3) above applies also (with the necessary modifications) where
a bulk is reduced to (or to less than) the aggregate of the quantities due to
a single buyer under separate contracts relating to that bulk and he is the
only buyer to whom goods are then due out of that bulk.

19 Reservation of right of disposal

(1) Where there is a contract for the sale of specific goods or where goods are
subsequently appropriated to the contract, the seller may, by the terms of
the contract or appropriation, reserve the right of disposal of the goods
until certain conditions are fulfilled; and in such a case, notwithstanding
the delivery of the goods to the buyer, or to a carrier or other bailee or
custodier for the purpose of transmission to the buyer, the property in
the goods does not pass to the buyer until the conditions imposed by the
seller are fulfilled.
(2) Where goods are shipped, and by the bill of lading the goods are
deliverable to the order of the seller or his agent, the seller is prima facie
to be taken to reserve the right of disposal.
(3) Where the seller of goods draws on the buyer for the price, and transmits
the bill of exchange and bill of lading to the buyer together to secure
acceptance or payment of the bill of exchange, the buyer is bound to
return the bill of lading if he does not honour the bill of exchange, and if
he wrongfully retains the bill of lading the property in the goods does not
pass to him.

20 Passing of risk
(1) Unless otherwise agreed, the goods remain at the seller’s risk until the
property in them is transferred to the buyer, but when the property in
them is transferred to the buyer the goods are at the buyer’s risk whether
delivery has been made or not.
(2) But where delivery has been delayed through the fault of either buyer
or seller the goods are at the risk of the party at fault as regards any loss
which might not have occurred but for such fault.
(3) Nothing in this section affects the duties or liabilities of either seller or
buyer as a bailee or custodier of the goods of the other party.
(4) In a case where the buyer deals as consumer or, in Scotland, where there is
a consumer contract in which the buyer is a consumer, subsections (1) to
(3) above must be ignored and the goods remain at the seller’s risk until
they are delivered to the consumer.

632

M18_Boilerplate_Clauses_T.indd 632 04/09/2017 08:31

 Value Added Tax

Purpose of the clause

Background
In general, Value Added Tax (VAT) is charged on all supplies of goods
and services (including anything treated as being goods or services, such as
intellectual property) made in the UK by a taxable person in the course or
furtherance of the supplier’s business, unless the supplies are exempt (Value
Added Tax Act 1994 (VATA 1994), ss 1, 4. VATA 1994 derives from Council
Directive (EC) 2006/112 on the common system of value added tax, which
has been amended several times. Transfers and assignments of intellectual
property are classified as a chargeable supply, and are not in the category of
exempt supplies (see VATA 1994, s 31, Sch 9).
The purpose of a clause concerning VAT is to specify clearly whether any
payments a person needs to make under an agreement are inclusive or
exclusive of VAT. In the absence of any provision to the contrary, a payment
will be deemed to be inclusive of any VAT, if it is chargeable.
If there is a payment that relates to a taxable supply, HM Revenue and Customs
(HMRC) will still treat payment as including VAT and require the supplier to
account for the VAT element to them.

Drafting issues

• Is VAT included in any pricing or other payment provision? A taxable person

for VAT purposes who makes a taxable supply must charge VAT on that
supply, generally by issuing a VAT invoice at the time of the supply. In a
written agreement involving any such supply it is therefore common, for
the sake of clarity, to include a clause such as Precedent 1.
• Does the wording indicate that VAT will be charged in addition to any price or
pricing details? For a business, this is normally the default position, whereas
for a contract with a consumer, prices will normally be shown as being
inclusive of VAT.
• Does the wording indicate that VAT will be charged at the prevailing rate at the
tax point? This is particularly important where the supply of the goods
and services will take place on more than one occasion. For example, a

633

M19_Boilerplate_Clauses_V.indd 633 31/08/2017 13:21

 Value Added Tax

long-term supply of goods may take place during a period when there is a
change (such as increase in rates).
• Is the supplier of the goods or services registered for VAT? Most commercial
contracts are likely to be between parties whose turnover exceeds the
threshold where registration is compulsory (at the date of this volume, the
figure is an annual turnover of £85,000), however, a purchaser/customer
may want reassurance that its supplier is registered for VAT purposes, will
maintain its registration and will properly account to HMRC for VAT. This
type of issue may be addressed by appropriate warranties, as well as the
purchaser/customer carrying out its own checks with HMRC.

Location in the agreement

A Value Added Tax clause would normally be included with payment terms
provisions in the Main Commercial Provisions of the agreement.

Linkage and use

A VAT clause will normally only be relevant with provisions relating to

payment.

Sample precedent material

Precedent 1—Sample clause

All sums payable to (party making supplies) under this agreement are
exclusive of VAT which shall, where applicable, be paid in addition at the
rate in force at the due time for payment subject to (party making sup-
plies) either supplying a VAT invoice to (party supplied) or informing (party
supplied) of its VAT registration number.
This applies where the supply is treated as being made outside the UK.

Precedent 2—VAT exclusive – short form

All sums payable under this agreement are exclusive of VAT or any tax
replacing it.

Precedent 3—VAT exclusive – purchase price

The Price is exclusive of VAT which shall be due at the rate ruling on the
date of the VAT invoice. Payment of the Price and VAT shall be due within
[30] days of the date of the Seller’s invoice.

Precedent 4—VAT exclusive – payment ‘net 30 days’

Payment of the Price and VAT shall be due on the last working day of the
month following the end of the month in which the Goods are delivered.

634

M19_Boilerplate_Clauses_V.indd 634 31/08/2017 13:21

 Value Added Tax

The Price is exclusive of VAT which shall be due at the rate ruling on the
date of VAT invoice.

Precedent 5—VAT exclusive – all payments

All sums payable to [Party A] under this agreement are exclusive of VAT
which shall where applicable be paid in addition at the rate in force at
the due time for payment subject to [Party A] supplying a VAT invoice to
[Party B].

Precedent 6—Long form VAT warranties – share sale agreement

1 For the purposes of this Clause [no] ‘the VAT legislation’ means the
Value Added Tax Act 1994 and all regulations made or imposed under
it and any other statutes or other provisions relating to VAT.
2 The Company is registered in the United Kingdom as a taxable
person for the purposes of the VAT legislation and is not registered,
nor required to be registered, in any other jurisdiction in respect of
VAT or similar tax.
3 The Company has complied in all respects with the VAT legislation
and has made and maintained full, complete, correct and up-to-date
records, invoices and other documents appropriate or requisite for
the purposes of such legislation.
4 The Company is not in arrears with any payment or returns due under
the VAT legislation and has not in the past 3 years been in default in
respect of any accounting period as the terms ‘default’ and ‘account-
ing period’ are used in the Value Added Tax Act 1994 Section 59 (the
default surcharge).
5 The Company is not liable to any abnormal or non-routine payment of
VAT or to any forfeiture or penalty or to the operation of any penal pro-
vision and has not been required by the Commissioners of Customs
and Excise to give security.
6 [The Company is not treated as a member of a group of companies
for VAT purposes.
or
All transactions by and between members of the Company’s Group
have been made in accordance with a valid VAT group election and
the Company will not be required to make good any default by any
other member of such Group in relation to VAT.]
7 The Company is not and will not become liable for VAT by virtue of
the Value Added Tax Act 1994 Section 47 (agent of any person who is
not resident in the United Kingdom).
8 The Company has not been partially exempt for any VAT accounting
period at any time in the 5 years prior to Completion and will not in
respect of supplies invoiced to it prior to Completion be denied credit
for any input tax.

635

M19_Boilerplate_Clauses_V.indd 635 31/08/2017 13:21

 Value Added Tax

9 Neither the Company nor any company of which the Company is a

relevant associate within the meaning of the Value Added Tax Act
1994 Schedule 10 Paragraph 3(7) has elected to waive exemption
under Paragraph 2 of that Schedule in relation to any land [except as
disclosed in the Disclosure Letter] and any such elections have effect.
10 No notice has been received by the Company and the Company is
not aware of anything which indicates that the grant to the Company
of any interest in or right over land or of any licence to occupy land is
and will continue to be other than an exempt supply.
11 The Company owns no assets which are treated as capital items the
input tax on which may be subject to adjustment in accordance with
the VAT capital goods scheme.
12 The Company has not during the last 10 years acquired any assets in
circumstances described in the Value Added Tax Act 1994 Section
44(1) (transfer of business as a going concern).

Precedent 7—Tax deduction authorisation – short form

[Party B] hereby expressly authorises [Party A] to deduct and withhold
from all sums due to [Party B] under this agreement any sums which may
be deductible in accordance with local laws or regulations from time
to time.

Precedent 8—Undertaking as to withholding taxes

If any withholding or other taxes are required to be deducted from any
money to be remitted to [Party A] pursuant to this agreement it shall be
the responsibility of [Party B] to ensure that no improper deductions are
made and that [Party A] is provided with all necessary receipts, certifi-
cates and other documents and all information required in order to avail
[Party A] of any tax credit or other tax advantage.

Precedent 9—Tax indemnity by independent contractor

[Party B]’s relationship with [Party A] shall be as an independent contractor
and [Party B] shall be neither a partner nor an employee of [Party A]. [Party
B] shall be responsible for all tax and national insurance contributions in
respect of [the Fees] and [Party B] undertakes to compensate [Party A]
in full on demand for any liability [Party A] suffers if the HM Revenue and
Customs or other relevant government department treat [Party B] in this
case as an employee for the purposes of taxation and/or national insur-
ance contributions.

636

M19_Boilerplate_Clauses_V.indd 636 31/08/2017 13:21

 Waivers and releases

Purpose of the clause

Background
In the law of contract, the term ‘waiver’ is most commonly used to denote
the granting of a concession by one party to a contract. The concession
will concern the party making the concession not insisting on the precise
performance by the other party of an obligation under the contract. A party
can make the concession either before or after any breach of the contractual
provision to which the concession relates (see generally 9(1) Halsbury’s Laws
of England (4th Edn Reissue), para 1025 ff). There are other meanings of a
‘waiver’ (including a rescission of a contract or a variation of a contract).
A party may make the concession by:
• a formal document (and supported by consideration): if made in this way it
will be:
• a variation of the agreement (if occurring before breach); or
• an accord and satisfaction or a release (if occurring after breach),
ie the parties agreeing to release the party in breach from having to
perform the obligation; or
• implication based on a party’s conduct: an implied waiver may arise where there
is a positive and intentional act of concession by a party with knowledge of
all relevant circumstances, and where the other party acts in reliance on
that concession. A waiver that is not supported by consideration can still
be binding on the parties to an agreement, where:
• the person granting (grantor) the waiver does so unequivocally; and
• the person is granting a forbearance or concession (with the
forbearance/concession relating to the grantor not insisting on
precise performance of a provision in the contract); and
• the other party relies on the unequivocal waiver;
then the grantor may be prevented from going back on it (‘estopped’ in
legal language).
The courts have considered the precise effect of a waiver granted in this
way (ie one which is not supported by consideration) in many cases.

637

M20_Boilerplate_Clauses_W.indd 637 31/08/2017 13:35

 Waivers and releases

However, each case will invariably turn on its own facts. For example,
there is case law that indicates:
• (unsurprisingly) that a buyer was not able to refuse delivery of
goods that were made later than provided for in the contract
where the buyer had asked the seller to do so (eg Hickman v Haynes
(1875) LR 10 CP 598);
• (where a different conclusion was reached) that a party (first party)
can let the other party (second party) to a contract believe that the
second party could perform its obligations under the contract in a
different way to that set out in the contract. However the first party
could still reject this different performance on the part of the second
party. Where this occurs the first party must then allow the second
party a reasonable amount of time to comply with the provisions of
the contract (if still possible to do so or it is not equitable to refuse the
second party time to do so) (see eg Panoutsos v Raymond Haldy Corpn of
New York [1917] 2 KB 473, CA).

Waiver and breach of contract

Where a party breaches the provisions of a contract, the party not in breach
has a number of options. The party not in breach may:
• take action against the defaulting party for breach of contract (such as
repudiating the contract or making a claim for damages);
• complain about the breach, but take no action; or
• ignore the breach (just let the performance of the contract continue).
If the party not in breach does nothing about the breach, or takes a long
time to react to it, it may lose any right to take action in respect of that
breach. The party not in breach may also find that its ability to take action
in respect of similar breaches in the future is compromised, as that party
may be taken as having affirmed the contract (Tele2 International Card Co
SA v Post Office Ltd [2009] EWCA Civ 9; Force India Formula One Team Ltd v
Ethad Airways [2010] EWCA Civ 1051). This is because a waiver clause does
not deal with termination, or how a party (if it chooses to) may terminate
an agreement when another party breaches a contract. If another party is
in breach then the party not in breach has to take action in respect of the
breach (such as notifying the party in breach) by using the provisions in the
agreement concerning termination, because a waiver clause ‘does not deal
at all with the issue of election of whether or not to exercise a contractual
right. The general law demands that a party which has a contractual right
to terminate a contract, must elect whether or not to do so’ from Tele2
International Card Co SA v Post Office Ltd [2009] EWCA Civ 9, [2009] All ER
(D) 144 (Jan).

638

M20_Boilerplate_Clauses_W.indd 638 31/08/2017 13:35

 Waivers and releases

The principal aim of a waiver clause is to deal with the type of situation
indicated above, ie that if a party fails to take action in respect of a breach of
the other party then it does not lose its rights to take action in respect of:
• a current breach; and/or
• any subsequent breaches.

Waiver clauses

Waiver clauses usually perform one of two functions (and sometimes both):
• it will make it clear that any failure or delay in exercising a right under
the agreement will not constitute a waiver of that right. This is the most
common type of clause (see Precedent 1):
‘Where the agreement has as its main purpose one single transaction, it
can provide that due performance of the contract does not automatically
release the parties from their duties under it.’

This type of provision is often made in conjunction with a ‘survival of

terms’ provision. Eg, a sale agreement provides, on behalf of the purchaser,
that if it decides to go ahead and complete the purchase that does not
imply that the purchaser waives some deficiency on the seller’s part (see
Precedent 2);
• it may also provide that, where there is a waiver of performance under
a term of the agreement, it will not constitute a waiver of any future
breach of that term or any other term. This type of provision is useful
in agreements of some duration, eg agency or franchise agreements or
contracts for services, where it may at some time be necessary in business
circumstances to suspend a contract requirement temporarily. One party
may press for the clause to be worded so that only that party may derive
benefit from it (see Precedent 3).

Waivers distinguished from releases

A release clause operates in a similar fashion to a waiver, in that the aim is

generally to allow one party to be relieved from a particular obligation or
claims and liabilities. The distinction between a release and a waiver is that a
waiver is more usually confined to the situation where one party is in breach
of an obligation, while a release can discharge a party from, or make a party
no longer liable to perform, an obligation whether or not there is a breach of
contract. A general clause releasing a party from its obligation might read as
in Precedent 10.
A party may release another party from all or from some obligations, claims
and liabilities. A release clause should specify exactly the subject matter of the
release, as in Precedent 11.

639

M20_Boilerplate_Clauses_W.indd 639 31/08/2017 13:35

 Waivers and releases

Drafting issues

Most waiver clauses in agreements are concerned with ensuring that any
action (or inaction) by a party to not use its rights under an agreement will not
constitute a waiver, whether for the current breach or any further breaches by
another party:
• Should there be a provision concerning a waiver at all in the agreement? If the
agreement is concerned with one transaction then dealing with situations
where there is a failure by one or more parties may not be appropriate,
especially where there are other provisions which spell out the
consequences of failure to perform an obligation. In such cases, it might
be made clear in other provisions that the agreement will be terminated
or deemed terminated. However, if the agreement is concerned with one
transaction but the transaction takes place over a lengthy period (or is
broken down into clearly identifiable sections or events) then a waiver
clause may be of use to one or more of the parties;
• Should a waiver only come into existence with a particular formality or when a
particular condition arises? In addition to the normal wording found in
a ‘no waiver’ clause, additional wording may be used to state that any
situations which amount to waiver must be confirmed or noted in writing
(see Precedent 6 for an example).

Location in the agreement

A Waiver and/or Release clause will usually be located in the Boilerplate section
of an agreement.

Linkage and use

As noted under Drafting Issues, the use of a waiver clause may not be
appropriate if there are other provisions which deal with where a party fails to
perform its obligations under an agreement. For example:
• the main obligations on a party may be expressed in ‘strict liability’ terms,
eg ‘The consultant shall perform the Services by the Completion Date’,
and then other wording expressing clearly the consequences if the party
fails to do so (eg the agreement immediately terminating);
• certain obligations are expressed as being of the essence (such as
provisions relating to payment of sums or by when certain obligations
need performing);
• termination provisions detail when and how an agreement (or provisions)
will terminate.

640

M20_Boilerplate_Clauses_W.indd 640 31/08/2017 13:35

 Waivers and releases

Sample precedent material

Waiver
Precedent 1—Short form – no waiver
No failure or delay by any party to exercise any right, power or remedy will
operate as a waiver of it nor will any partial exercise preclude any further
exercise of the same, or of some other right, power or remedy.

Precedent 2—Waiver and completion

Completion shall not constitute a waiver by the Purchaser of any breach
of this agreement whether or not known to the Purchaser at the date of
Completion.

Precedent 3—No waiver of continuing breach etc

Any waiver by the Franchisor of any breach of any of the obligations of the
Franchisee under this agreement or otherwise shall not be a waiver of any
continuing breach or of any other breach of any of those obligations.

Precedent 4—Alternative short form – no waiver

The failure by either party to enforce at any time or for any period any one
or more of the terms or conditions of this agreement shall not be a waiver
of them or of the right at any time subsequently to enforce all terms and
conditions of this agreement.

Precedent 5—Alternative form (eg sale agreement) – no waiver

Completion shall not constitute a waiver by the Purchaser of any breach
of this agreement whether or not known to the Purchaser at the date of
completion.

Precedent 6—Alternative form – no waiver unless in writing

No delay or failure by either party to exercise any of its powers, rights or
remedies under this agreement will operate as a waiver of them nor will
any single or partial exercise of any such powers, rights or remedies pre-
clude any other or further exercise of them. Any waiver, to be effective,
must be in writing.

Precedent 7—Alternative form (eg for mortgage) – no waiver

No delay in exercising or omission by the Mortgagee to exercise any right
or power given to it by this Mortgage shall impair such right or power or
be construed as a waiver of or as an acquiescence in any default by the
Mortgagor and in the event of the Mortgagee on any occasion agreeing to
waive any such right or power such waiver shall not in any way prejudice
or affect the right of the Mortgagee afterwards to act strictly in accord-
ance with the powers given to it by this Mortgage.

Precedent 8—Longer form – no waiver

No failure or delay on the part of any of the parties to this agreement relat-
ing to the exercise of any right, power, privilege or remedy provided under

641

M20_Boilerplate_Clauses_W.indd 641 31/08/2017 13:35

 Waivers and releases

this agreement shall operate as a waiver of such right, power, privilege

or remedy or as a waiver of any preceding or succeeding breach by the
other party to this agreement nor shall any single or partial exercise of any
right, power, privilege or remedy preclude any other or further exercise
of such or any other right, power, privilege or remedy provided in this
agreement (all of which are several and cumulative and are not exclusive
of each other) or of any other rights or remedies otherwise available to a
party at law or in equity.

Precedent 9—Short form – limited waiver – one party only

Any waiver by the [Franchisor] of any breach of any of the obligations of
the [Franchisee] under this agreement or otherwise shall not be a waiver
of any continuing breach or of any other breach of any of those obliga-
tions.

Releases
Precedent 10—Short form
[Party A] releases [Party B] from all his obligations under the (document).

Precedent 11—Longer form

The parties release each other from all claims and liabilities in respect of:
(a) the (subject matter);
(b) any right of contribution or indemnity which arises under the Principal
(document);
(c) otherwise for any claim for negligence or breach of contract or in the
conduct of the (subject matter);
except claims and liabilities under this (document).

Precedent 12—Mutual release – short form

The (parties) mutually release each other and their respective personal
representatives from all actions, proceedings, claims and demands in
respect of the [Property].

Precedent 13—Release of debtor – short form

In consideration of the assignment the Creditors do and each one of them
does release and discharge the Debtor from all debts due from the Debtor
to them or any of them and from all actions, suits, claims, demands or
other proceedings whatsoever in that respect.

Precedent 14—Release of debtor – longer form

In further pursuance of the agreement and for the consideration above
the Creditors do and each of them does release and discharge the Debtor
from all the debts for which the Debtor is or may be liable to the Creditors
or any of them and from all claims, actions, demands or other proceed-
ings by the Creditors or any of them in respect of such debts or any of

642

M20_Boilerplate_Clauses_W.indd 642 31/08/2017 13:35

 Waivers and releases

them or in respect of anything done suffered or omitted or in respect of

any liability whatsoever incurred by the Debtor in that respect.

Precedent 15—Release on eg assignment of franchise

In consideration of [Party A] agreeing to [Party B]’s assigning his inter-
est as Franchisee pursuant to a Franchise Agreement made on [date]
between [Party A] on the one part and [Party B] of the other part [Party
B] releases, indemnifies and forever holds harmless [Party A] from all
actions, proceedings, claims, demands, costs and expenses whatsoever
which [Party B] had or may have against [Party A] in relation to or arising
out of such Franchise Agreement.

Precedent 16—Release in novation agreement

The Customer releases and discharges the Vendor from all claims and
demands whatever in respect of the Contract and accepts the liability of
the Purchaser under the Contract in lieu of the liability of the Vendor and
agrees to be bound by the terms of the Contract in every way as if the
Purchaser were named in the Contract as a party in place of the Vendor.

643

M20_Boilerplate_Clauses_W.indd 643 31/08/2017 13:35

 Warranties

Purpose of the clause

Background
A warranty is a statement of a fact, forming part of the contract, which the
party giving the warranty asserts to be true.
Many commercial contracts contain warranties by one or both parties. These
may include warranties as to matters that are central to due performance of
the contract but are only in the knowledge of one party, or which only that
party has records or details of, and which the other party cannot (or cannot
easily) verify.
The exact nature of the content of the warranties will depend on the
transaction the parties are entering into. For example:
• in an agreement for the sale of a business: the seller will usually warrant that it
has conducted the business properly, that it has not infringed any statutory
restrictions, and that the accounts give a true and fair picture of the state
of affairs of the business, as well as warranties on a wide range of other
subjects;
• in a licence of intellectual property: the licensor may warrant that it is the
absolute owner of the licensed property and that it is not aware of any
third-party rights over it.
Whereas some types of warranty are specific to the individual transaction,
others are common to many types of commercial agreement. An example of
the latter category will include that a party has the capacity/power to enter
into the agreement.

Standard warranties as to due capacity and good standing

Warranties as to:
• a party’s ability (capacity) to enter into an agreement of the type in
question (see Precedents 1 and 2), and
• to the ‘good standing’ of each party,
are sometimes inserted in commercial agreements

644

M20_Boilerplate_Clauses_W.indd 644 31/08/2017 13:35

 Warranties

Warranties of this kind are common in contracts drafted by United States

lawyers and are increasingly common in UK contracts. They are perhaps
most relevant to contracts that are directly concerned with the status of the
contracting parties, eg a sale of business agreement.

Capacity
For most types of commercial contract involving UK corporate parties, it is
possible to address the matter of whether a corporate party has capacity in
ways other than providing a warranty.
For companies incorporated under a Companies Act, the need to have
a warranty of capacity is even less necessary, as the current Companies Act
makes it hard for one party to claim a lack of capacity to another as:
• a provision in the company’s constitution (normally meaning its articles
of association) which indicates that the company lacks capacity to carry
out a particular act cannot be used to challenge the validity of that act
(Companies Act 2006, s 39);
• any limitation in a company’s constitution will not limit the power of the
company’s directors to bind the company (or the ability of the directors
to authorise others to do so) to any act or transaction (Companies Act
2006, s 40). This is subject to a proviso that a person (who is a party to the
act or transaction) deals with the company in good faith. There are some
conditions, including that the person is not required to find out whether
there are any limitations on the powers of the directors for example
(Companies Act 2006, s 40(2)).
In addition to the provisions of the Companies Act 2006, a party can undertake
an independent due diligence exercise, including such activities as:
• checking available public registers (eg searches at the Registrar of
Companies, etc);
• obtaining copies of the other party’s registers, minutes and resolutions as
well as copies of (significant) agreements entered into;
• obtaining credit checks (from companies providing such services);
• obtaining parent company guarantees (if relevant);
• obtaining warranties or undertakings from third parties who have provided
information or carried checks for the other party (such as accountants,
lawyers etc).
These checks (or the inclusion of warranties) can be in addition to other
commercial provisions that a party might wish to include in an agreement
such as:
• withholding payment of some of the sum payable to the other party
until:
• the other party has completely performed its obligations; or

645

M20_Boilerplate_Clauses_W.indd 645 31/08/2017 13:35

 Warranties

• a period of time has passed to see if any of the warranties provided

by the other party are in fact not true or are breached by the party
giving them;
• obtaining insurance, to cover any failure of the other party to perform
its obligations or if the other party breaches it any warranties or the
warranties given turn out to be untrue.

Good standing
A warranty of good standing does not have a defined or accepted meaning as
such. It is different to warranties relating to capacity, as when asked for or used
often deals with the following points:
• that a party is indicating what type of legal entity it is (such as whether it is
a company, limited liability partnership etc);
• that the party has the right to be of the type of legal entity it has stated
(and it is validly entitled to be of that type of legal entity);
• that the party is current as regards its obligations to file documents, has
complied with registration formalities and deadlines, and otherwise
complies with the law for the country where the party is incorporated or
otherwise required to register its presence.
An example of a warranty of good standing might be:
‘Party A warrants that it is a [private limited company] which is incorporated
in England and Wales and at the date of this Agreement is up-to-date with its
requirements as to its filings and submissions to the Registrar of Companies of
England and Wales and is in good standing and validly exists under the laws of
England and Wales.’

In place of or in addition to such a warranty, a party can obtain a ‘certificate

of good standing’ from the Registrar of Companies. Such a certificate can
include a range of information regarding a company such as the registered
office and name of directors. This type of information is freely available
from the Registrar of Companies. However, what the ‘certificate of good
standing’ will also state (which is not otherwise available from the Registrar of
Companies) is that:
‘According to the documents on file and in the custody of the Registrar, the
company is up to date with its filing requirements […]. The company has been in
continuous unbroken existence since its incorporation and no action is currently
being taken by the Registrar of Companies to strike the company off the register
or to dissolve it as defunct. As far as the Registrar is aware, the company is not in
liquidation or subject to an administration order, and no receiver or manager of
the company’s property has been appointed.’

Terms and conditions of warranties

In the longer type of agreement, it is frequent for a party to give numerous

detailed warranties, for example by a seller and for these to be set out in a

646

M20_Boilerplate_Clauses_W.indd 646 31/08/2017 13:35

 Warranties

schedule to the agreement and for that party to give in the agreement an
overall warranty as to the truth and accuracy of the warranties in the schedule.
The purchaser in such a situation may wish to provide, for the avoidance of
doubt, that its remedies are to continue to be available after completion, and
also, to avoid any presumption of waiver, that its remedies should in no way be
affected by any knowledge as to the vendor’s affairs obtained by the purchaser
on investigation or otherwise (see Precedent 7).
The vendor will often wish to put a time limit on the warranties, or to exclude
minor claims below a specified value or to put a cap on its total liability for
breach of warranty. It is also common to exclude from the scope of the
warranties matters specifically disclosed by the warrantor to the warrantee.
Typically, the disclosed matters are set out in a document known as a disclosure
letter. These are all matters for commercial negotiation.

‘Knowledge’ warranties

A party giving warranties will commonly seek to limit the warranties to matters
that are within its knowledge. Eg, the seller of a patent may be unwilling to
warrant that there are no third-party rights which would prevent the buyer
of the patent from manufacturing the products claimed in the patent, not
least because there is often an 18-month delay before a (European) patent
application is published; the seller may therefore be unaware of relevant
third-party applications. Instead, the seller might be willing to warrant that
no such third-party rights exist as far as it is aware. Because, even beyond the
grant of a patent, it is still possible for a third party to come forward and assert
that its rights have been infringed, and if the assertion results in litigation, a
court may agree with the third party that the seller’s patent infringes the third
party’s intellectual property.
Under English law and practice, there are two main types of ‘knowledge’
warranty:
• a warranty that ‘to the best of the warrantor’s knowledge, information and
belief’ something is true, for example:
‘X warrants that to the best of its knowledge, information and belief it is
not a party to any current legal proceedings’;

• a warranty that ‘as far as the warrantor is aware but without conducting
any investigations’ something is true, for example:
‘X warrants that as far as it is aware, but without having conducted any
searches or investigations, it is not a party to any current legal proceedings’.

The first type of warranty will often be understood as implying that the
warrantor has conducted appropriate investigations and taken all reasonable
steps to find out whether the warranted statement is true, but this is less
onerous than an unqualified warranty that the statement is true.
Sometimes the drafter intends to give the latter type of knowledge warranty
and uses words such as ‘as far as A is aware’ but then fails to mention

647

M20_Boilerplate_Clauses_W.indd 647 31/08/2017 13:35

 Warranties

specifically that searches, enquiries etc have not been made. Some lawyers
take the view that by omitting such words the warrantor is in effect giving a
‘best of knowledge’ type of warranty.
Finally, it is recommended that the phrase
‘to the warrantor’s knowledge …’

should not be used in warranties. This wording is ambiguous: it is often

intended to mean, in effect, ‘as far as the warrantor is aware’, but it could be
understood as meaning ‘this matter is within the warrantor’s knowledge’ – a
much stronger form of warranty.

Drafting issues

• Is a party prepared to give any warranty at all? If no warranties are offered

then the terms implied by law may take effect, which may be wider or
more extensive than a party is prepared to give.
• Where goods or services are being provided. If goods or services are being
provided by a party:
• Is that party prepared to offer warranties to the extent of what is implied
by law?
Eg, for goods that the goods are of satisfactory quality and comply
with their description;
Eg, for services, that the services were provided with reasonable care
and skill.
• Is the warranty itself subject to any restrictions? Eg:
• that only certain types of breach will render the party in breach
liable; and/or
• that for any remedy to operate the innocent party will need to
notify the party in breach; and/or
• that any remedy for the breach is available for a limited period;
and/or
• that the action to be taken by the party in breach is limited.
• Where there has been a breach of a warranty, should any goods repaired or replaced
or services re-performed be subject to the original warranty?
• If any aspect of the agreement is not in conformance with a warranty (at the date
of the agreement), has this been disclosed?
Eg, if a software developer is warranting that the software developed is in
accordance with a specification, except for one part, this can be handled
by way of a ‘disclosure’ letter which will be attached to the agreement.

648

M20_Boilerplate_Clauses_W.indd 648 31/08/2017 13:35

 Warranties

• Are there ‘standard’ types of warranties that should be provided? In some types
of agreements there may be standard sets of warranties that mainstream
commercial parties expect to see. Eg, in:
• sale of shares or business agreement;
• agreements relating to tax matters, etc
there are often extensive sets of ‘standard’ warranties.

Location in the agreement

Warranty clauses are normally located with Secondary Commercial Provisions,

usually grouped with provisions relating to the limitation and exclusion of
liability and indemnities.

Linkage and use

A Warranty clause will need careful consideration together with Exemption

and Indemnity clauses as to the apportioning of liability, risk and other related
factors.

Sample precedent material

General warranties
Precedent 1—Warranty as to power to enter agreement
Each of the parties warrants that it has power to enter into this agreement
[and has obtained all necessary approvals to do so].

Precedent 2—Warranty as to ability to fulfil obligations

[Party] warrants and undertakes that it is not aware as at the date of this
agreement of anything within its reasonable control which might or will
adversely affect its ability to fulfil its obligations under this agreement.

Precedent 3—Longer form – warranty as to ability to enter agreement, no

conflicting agreement and third-party liabilities
[Party A] warrants, agrees and undertakes with [Party B] that:
1 [Party A] is free to enter into this agreement and grant [Party B] the
rights granted under it and is not under any disability, restriction or
prohibition which might prevent [Party A] from performing or observ-
ing any of [Party A]’s obligations under this agreement;
2 [Party A] has not entered into and shall not enter into any arrange-
ment which may conflict with this agreement;
3 all third-party liabilities shall be the sole responsibility of [Party A], and
[Party B] shall not incur any liability for these.

649

M20_Boilerplate_Clauses_W.indd 649 31/08/2017 13:35

 Warranties

Precedent 4—Warranty as to negotiating documents

The contents of all documents and all other information concerning [Party
A] supplied in writing to [Party B], its solicitors or accountants by [Party A]
or its agents during the course of negotiations leading to execution of this
agreement were, when given, true, accurate and complete in all material
respects and there is no fact or matter which has not been disclosed in
writing which renders any such documents or information untrue or mis-
leading at the date of this agreement or which on the basis of the utmost
good faith ought to be disclosed to an intending purchaser of [ordinary
shares in [Party A]].

Precedent 5—Warranty concerning equipment

1 The Seller warrants to the Customer that the Equipment conforms
to the requirements of the [specific regulations] concerning [describe
the specific matters the Equipment complies with the regulations].
2 The Seller provides no warranty to the Customer that the Equipment:
(a) is fit for any purpose; or
(b) will attain or achieve any [set out either generally or specifi-
cally any operation standard that the Equipment can attain or
achieve].
3 Clause 3 is subject to:
(a) in respect of Clause 2(a), where the Customer has notified the
Supplier in writing before the date of this Agreement the par-
ticular purpose for which it wishes to use the Equipment, and
the Supplier has notified the Customer, before the date of
this Agreement, that the Equipment can accomplish, achieve,
execute or perform that purpose [, the notifications of the
Customer and the Supplier are both set out in Schedule [ ] to
this Agreement];
(b) in respect of Clause 2(b),
(i) where the Supplier has notified the Customer in writing,
prior to the date of this Agreement, that the Equipment
will attain or achieve the operation standard and which is
set out in Schedule [ ] to this agreement; and
(ii) Clause 3(b)(i) is subject to the Customer operat-
ing the Equipment in accordance with, and subject to,
the instructions and requirements for operating the
Equipment as set out in the Equipment Manual, which is
set out in Schedule [ ] to the agreement; and
(iii) if the Equipment does not attain or achieve the operation
standard as stated in Clause 3(b)(i) then the Customer’s
sole remedy shall be limited to the payment of a sum
as set out in Clause [ ] of this Agreement, unless the
Customer fails to comply with Clause 3(b)(ii).

650

M20_Boilerplate_Clauses_W.indd 650 31/08/2017 13:35

 Warranties

[This clause will need additional wording to exclude all other warranties,
and conditions etc implied by law etc.]

Precedent 6—Short form warranty as to vendor’s warranties (eg on sale

of business) – provision for disclosure letter
The Vendor warrants to the Purchaser in the terms of the Warranties and
so that the remedies of the Purchaser in respect of any breach of any
of the Warranties shall continue to subsist notwithstanding completion
[Provided that the Purchaser shall not be entitled to claim that any fact
or combination of facts constitutes a breach of the Warranties if and to
the extent that such fact or combination of facts has been fully, fairly and
clearly disclosed in the Disclosure Letter].

Precedent 7—Longer form warranty as to vendor’s warranties (eg on sale

of business) – provision for disclosure letter and scheduled limitations on
warranties
1 The Vendor represents, warrants and undertakes to and with the
Purchaser and its successors in title that the Warranties are at the
date of this agreement true and correct in all respects [Provided that
the Purchaser shall not be entitled to claim that any fact or combina-
tion of facts constitutes a breach of any of the Warranties if and to the
extent that such fact or combination of facts has been fully, fairly and
clearly disclosed in the Disclosure Letter]. The Vendor undertakes to
the Purchaser to indemnify the Purchaser fully at all times from and
against all costs, claims, proceedings, demands and expenses which
the Purchaser may sustain, incur or pay by reason of any breach of
any of the Warranties.
2 Where any Warranty refers to the knowledge, information, belief or
awareness of the Vendor the Vendor acknowledges that it has made
full enquiry into the subject matter(s) of the Warranty.
3 The remedies of the Purchaser in respect of breach of any of the
Warranties shall continue to subsist notwithstanding completion.
[4 The rights and remedies of the Purchaser in respect of any breach
of the Warranties shall not be affected by any investigation made by
or on behalf of the Purchaser into the affairs of the Vendor or by any
information of which the Purchaser has knowledge (actual or con-
structive) or by the Purchaser failing to exercise or delaying the exer-
cise of any of its rights or remedies or by any other event or matter
whatever except a specific and duly authorised written waiver or
release.]
5 Promptly upon the occurrence of or promptly upon the Vendor
becoming aware of the impending or threatened occurrence of any
event which would or might reasonably be expected to cause or con-
stitute a breach (or would have caused or constituted a breach had
such event occurred or been known to the Vendor prior to the date of

651

M20_Boilerplate_Clauses_W.indd 651 31/08/2017 13:35

 Warranties

this agreement) of any of the Warranties it shall give written notice of

the same to the Purchaser and shall use its best endeavours promptly
to prevent or remedy the same.
[6 Schedule [no] (limitations on warranties) shall have effect in respect of
the matters to which this Clause [no] applies to limit the liability of the
Vendor in respect of the Warranties.]

Precedent 8—Warranty as to good standing of business – assets sale

The Vendor warrants to the Purchaser as follows:
1 that to the best of the Vendor’s knowledge, information and belief the
Business complies in all respects with all relevant statutes, statutory
regulations and requirements which are applicable to (describe busi-
ness) as at the date of this agreement;
2 that save as disclosed in correspondence and replies to enquiries
raised by the Purchaser the Assets are the absolute property of the
Vendor free of any charge, lien, hire purchase agreement or other
incumbrance;
3 that the Vendor is not engaged in any litigation affecting the Business
or the Assets and to the best of the knowledge, information and
belief of the Vendor no litigation is threatened or pending against the
Vendor affecting the Business or the Assets;
4 that the Vendor has not received any complaints or notices about the
conduct of the Business from any relevant authority or body;
5 that there are no employees of the Business other than the Employees
(as defined) and that the details of the Employees and their qualifica-
tions, the starting date of their employment, hours, worked rates of
pay per hour, holiday due, accrued holiday pay, pension rights and all
other terms and conditions of their employment as stated in Schedule
[no] are correct and accurate in all respects;
6 that the last [3 years’ accounts] of the Business as provided to the
Purchaser by the Vendor give a true and fair view of the financial
results of the Business for those periods and that the profits of the
Business as shown in those accounts accurately represent the profits
for the last [3] years and the figures given for weekly or monthly tak-
ings and any other figures relating to the Business provided by the
Vendor to the Purchaser are true and accurate in all respects;
7 that the information contained in the Vendor’s replies to the enquir-
ies raised by the Purchaser’s Solicitors is true and accurate in all
respects.

Precedent 9—Warranty as to good standing of business – share sale

agreement
The Vendors warrant and represent to the Purchaser as follows:

652

M20_Boilerplate_Clauses_W.indd 652 31/08/2017 13:35

 Warranties

1 No receiver, administrative receiver or administrator has been

appointed nor any notice given, petition presented or order made for
the appointment of any such person over the whole or any part of the
assets or undertaking of the Company.
2 No petition has been presented, no order has been made and no res-
olution has been passed for the winding up of the Company or for the
appointment of a liquidator or provisional liquidator of the Company.
3 No voluntary arrangement has been proposed or is in force under the
Insolvency Act 1986 Section 1 in respect of the Company.
4 The Company has not stopped payment nor is it insolvent or unable
to pay its debts as and when they fall due.
5 No unsatisfied judgment is outstanding against the Company and no
demand has been served on the Company under the Insolvency Act
1986 Section 123(1)(a).
6 No distress, execution or other process has been levied in respect
of the Company which remains undischarged nor is there any unful-
filled or unsatisfied judgment or court order outstanding against the
Company.
7 There are not pending or in existence any investigations or inquiries
by or on behalf of any governmental or other body in respect of the
affairs of the Company.
8 None of the activities or contracts or rights of the Company is ultra
vires, unauthorised, invalid or unenforceable or in breach of any con-
tract or covenant.
9 The Company has at all times carried on business and conducted its
affairs in all respects in accordance with its memorandum and arti-
cles of association for the time being in force and any other docu-
ments to which it is or has been a party.
10 The Company is empowered and duly qualified to carry on business
in all jurisdictions in which it now carries on business.

Precedent 10—Warranty as to vendor’s interests – share sale agreement

The Vendors warrant and represent to the Purchaser as follows:
1 No Vendor [or Associate or person connected with any Vendor] has
any interest (direct or indirect) in any other company or business
which competes or has competed or is in the future likely to compete
or has a close trading relationship with any business now carried on
by the Company or intends to acquire any such interest.
2 No indebtedness (actual or contingent) and no contract or arrange-
ment is outstanding between the Company and any Vendor or
director of the Company or any person connected with any Vendor
or director of the Company or in which any Vendor or director or

653

M20_Boilerplate_Clauses_W.indd 653 31/08/2017 13:35

 Warranties

persons connected with them are or may be interested (directly or

indirectly).
3 No person is entitled to receive from the Company any finder’s fees,
brokerage or other commission in connection with the sale and pur-
chase of the Shares under this agreement.
4 There is not now outstanding and there has not at any time during the
past [3 years] been outstanding any contract or arrangement to which
the Company is a party and in which any Vendor or any director of the
Company is or has been interested whether directly or indirectly.
5 The Company is not a party to, nor have its profits or financial position
during the past [3 years] been affected by, any contract or arrange-
ment which was not entirely of an arm’s length nature.

Precedent 11—Long form warranty as to no disputes and litigation –

share sale agreement
The Vendors warrant and represent to the Purchaser as follows:
1 The Company is not engaged, whether as plaintiff or defendant or
otherwise, in any litigation or criminal or arbitration proceedings
before any court, tribunal, statutory or governmental body, depart-
ment, board or agency and no litigation, criminal or arbitration pro-
ceedings are pending or threatened by or against the Company, and
having made due and careful inquiries the Vendors do not know of
any facts which are likely to give rise to the same or which are likely to
give rise to proceedings in respect of which the Company would be
liable to indemnify any person concerned.
2 The Company is not subject to any order or judgment given by any
court or governmental agency and has not been a party to any under-
taking or assurance given to any court or governmental agency which
is still in force nor are there any facts or circumstances which (with or
without the giving of notice or lapse of time) would be likely to result
in the Company becoming subject to such an order or judgment or
being required to be a party to any such undertaking or assurance.
3 None of the Vendors, the Company, the directors of the Company or
any of its employees is the subject of any investigation, inquiry, pro-
cess or request for information in respect of any aspect of the activi-
ties of the Company by any governmental or European Communities
body, department, board or agency or by any organisation charged
with the supervision of any activities from time to time engaged in
by the Company and no such procedures are pending or threatened,
and having made due and careful inquiries the Vendors do not know
of any facts which are likely to give rise to any such procedure.
4 There is no dispute with any revenue or other official department
in the United Kingdom or elsewhere in relation to the affairs of the
Company and there are no facts which may give rise to such dispute.

654

M20_Boilerplate_Clauses_W.indd 654 31/08/2017 13:35

 Warranties

5 There are no claims pending or threatened or capable of arising

against the Company by any employee or workman or third party in
respect of any accident or injury which are not fully covered by insur-
ance.
6 The Company has not manufactured and/or sold products which
are or have or will become in any material respect faulty or ­defective
or which do not comply in any material respect with any warranties
or ­
representations expressly or (whether by statute or otherwise)
impliedly made by the Company.
7 The Company has not accepted any liability or obligation to service,
repair, maintain, take back or otherwise do anything in respect of any
articles or stock that would apply after any such article or stock has
been delivered by it.
8 There has been no default by the Company under any agreement,
trust deed, instrument or any arrangement to which the Company is
a party and no threat or claim of default has been made and is out-
standing and there is nothing which could cause:
8.1 any such agreement or arrangement to be terminated or
rescinded by any other party, or
8.2 the terms of any such agreement or arrangement to be wors-
ened or the Company prejudiced, as a result of anything done
or omitted or permitted to be done by the Vendors or the
Company.

Precedent 12—Long form warranty as to compliance with statutes,

permissions and data regulation – share sale agreement
The Vendors warrant and represent to the Purchaser as follows:
1 The Company has obtained all licences, consents, approvals, per-
missions, permits, test and other certificates and authorities (public
or private) necessary for the carrying on of its business in the places
and in the manner in which such business is now carried on, all of
which are valid and subsisting, and the Vendors know of no reason,
nor any facts or circumstances which (with or without the giving of
notice or lapse of time) would be likely to give rise to any reason, why
any of such licences etc should be suspended, cancelled, revoked or
not renewed.
2 The Company has established procedures under, and has complied
with all requirements from time to time in force under, the Health
and Safety at Work etc Act 1974 and all regulations made under that
Act.
3 The Company has conducted and is conducting its business in all
respects in accordance with all applicable laws and regulations
(whether of the United Kingdom or elsewhere).

655

M20_Boilerplate_Clauses_W.indd 655 31/08/2017 13:35

 Warranties

4 The Company has complied in all respects with the provisions of the
Data Protection Act 1984 and all regulations made under that Act and
has established procedures to ensure continued compliance with all
such legislation.
5 The Company has not received any notice from either the Data
Protection Registrar or a data subject alleging non-compliance with
the data protection principles or prohibiting the transfer of data nor
has any individual claimed or will have the right to claim compensa-
tion from the Company under the Data Protection Act 1984 for loss or
unauthorised disclosure of data.
6 No consumer credit agreement or consumer hire agreement made by
the Company as creditor or owner or in respect of which it is the sup-
plier under a debtor-creditor supplier agreement or linked transaction
has been made in breach of the Consumer Credit Act 1974 or the
regulations made under that Act.

Warranties as to intellectual property

Precedent 13—General warranty as to ownership of intellectual property
The Owner warrants, represents and undertakes as follows:
1 Subject to Clause [no] (indemnity clause) below, it is the absolute and
unincumbered owner of [the Patents] and has caused its directors
and employees to execute such assignments of [the Patents] as may
be necessary to give title to [the Patents] to the Owner.
2 It has not done, and will not do nor agree to do during the continua-
tion of this agreement, any of the following things if to do so would be
inconsistent with the exercise by [the Licensee] of the rights granted
to it under this agreement:
2.1 grant or agree to grant any rights in [the Patents] or any improve-
ments thereto; or
2.2 assign, mortgage, charge or otherwise transfer any of [the
Patents] or any of its rights or obligations under this agreement.
3 It is not aware that any third party owns or claims any rights in [the
Patents].
4 It is not aware (but without having carried out any investigation other
than checking the actual knowledge of their employees and patent
agents) that any third party owns or claims that it owns any rights
which would be infringed by use of [the Patents] in accordance with
the provisions of this agreement.

Precedent 14—Alternative (pro-licensee) form – warranty as to ownership

of intellectual property
The Owner warrants, represents and undertakes to [the Licensee] as
follows:

656

M20_Boilerplate_Clauses_W.indd 656 31/08/2017 13:35

 Warranties

1 It is the exclusive legal and beneficial owner of all rights, title and
interest in [the Patents] and there are no liens, encumbrances or other
charges over any of them.
2 Schedule [no] is a complete listing of all patents and patent applica-
tions [and other intellectual property] of which the Owner is aware
relating to (specify) (‘the Technology’).
3 The Owner is entitled to license [the Patents] to [the Licensee] and
has not previously licensed or assigned them or entered into any
agreement relating to them or to the Technology, which might affect
its ability to license [the Patents] to [the Licensee] in accordance with
the provisions of this agreement or enter into this agreement or which
would be inconsistent with the Owner’s warranties and obligations
under this agreement.
4 It is registered as the proprietor of [the Patents] (or, in the case of
patent applications, as the applicant), all registrations and filings nec-
essary to preserve the rights of the Owner have been made and are
in good standing, and the Owner has not done or omitted to do any-
thing which may cause [the Patents] to lapse prematurely or be the
subject of a compulsory licence.
5 It is not aware of any allegation or claim that it is not entitled to [the
Patents] or to be registered as the exclusive owner of them.
6 [The Patents] are (or will be upon grant) valid and enforceable.
7 There are no allegations or proceedings, pending or threatened,
which assert that development, manufacture, use or sale of any
[Licensed Product] infringes or will infringe third-party rights or which
challenge the validity or enforceability of [the Patents].
8 The development, manufacture, use or sale of any [Licensed Product]
will not infringe any third-party rights.
9 It has made a full and complete disclosure to [the Licensee] of all
third-party relationships which may affect [the Licensee’s] full and
complete exercise of rights under this agreement.
10 There is no information known to the Owner concerning any of the
[Licensed Products] which indicates that [it may not be completely
safe for administration to humans or that] the development and
exploitation of the [Licensed Products] would not be commercially
successful, or which might otherwise affect [the Licensee’s] decision
to enter into this agreement other than information disclosed to [the
Licensee] in writing [and attached to this agreement].
11 In the event of the Owner becoming aware of any information which
might affect its ability to give the warranties and representations set
out above it shall promptly notify [the Licensee].

657

M20_Boilerplate_Clauses_W.indd 657 31/08/2017 13:35

 Warranties

Precedent 15—Warranties as to intellectual property rights – business

sale agreement – short form
1 The Vendor has no interest in any intellectual property (whether reg-
istered or not) save for the rights set out in [the Disclosure Letter] all
of which rights are legally and beneficially owned by it, are valid and
in force and are not subject to any licence or authority in favour of
another.
2 The processes employed and the products and services dealt in by
[the Business] do not use, embody or infringe any intellectual prop-
erty rights vested in any other party and do not give rise to a payment
by the Vendor of any royalty or of any other sum.

Precedent 16—Warranties as to intellectual property rights – business

sale agreement – longer form
1 The Vendor is the absolute beneficial owner, registered proprietor or
licensee of [the Intellectual Property Rights] and there are no sub-
sisting licences or other agreements under which the Vendor has
granted to any third party any rights or interest in connection with [the
Intellectual Property Rights] or any rights to any know-how or confi-
dential information relating to [the Business].
2 [The Business] does not require any intellectual property rights (other
than [the Intellectual Property Rights]) in order to use any of the pro-
cesses employed in [the Business] and neither the operations of [the
Business] nor its products infringe or are likely to infringe any patent
or other rights of any kind vested in any other party or give rise to the
payment of any royalty or similar sum or involves the use of any confi-
dential information of any other party.
3 The Vendor owns the copyright in the designs of all its brochures,
literature and marketing material and so far as the Vendor is aware
none of the same infringes any right of any other person or involves
the unlicensed use of confidential information disclosed to the Vendor
by any person.
4 To the best of the Vendor’s knowledge, information and belief there
has been no infringement of [the Intellectual Property Rights] at any
time during the period of (specify period) prior to the date of this
agreement.

Precedent 17—Full form warranties as to intellectual property rights –

business sale agreement
A: TRADE AND SERVICE MARKS, TRADE AND SERVICE MARK APPLI­
CATIONS AND TRADE NAMES
1 The Vendor is the unincumbered sole beneficial owner of the trade-
marks set out in Part I of Schedule [no] and any devices and designs
connected with the registrations (‘the Trade Marks’). The Trade

658

M20_Boilerplate_Clauses_W.indd 658 31/08/2017 13:35

 Warranties

Marks are registered in the name of the Vendor in all classes of goods
covering the products sold under the relevant Trade Marks by the
Vendor and:
1.1 no third party is in a position to prevent the use of the Trade
Marks on the type of products now sold by or in respect of [the
Business] as currently operated by the Vendor;
1.2 no third party is entitled to use names (with or without any asso-
ciated design or device) which include the Trade Marks or words
or devices similar to them on any goods within the classes in
which the Trade Marks are registered or are now used or to do
anything which would or might otherwise infringe any of the
rights belonging to the Vendor;
1.3 the Trade Marks have full force and effect and are not the sub-
ject of and are not vulnerable to any proceedings for cancella-
tion or rectification;
1.4 all registration and renewal fees have been fully paid up to [the
date of this agreement or the date of completion] in respect of
the Trade Marks and all other requirements of the Trade Marks
Registry have been complied with.
2 The Vendor is the unincumbered and sole beneficial owner of the
applications for trade marks (‘the Applications’) set out in Part II of
Schedule [no]. Each Application has been validly made and is valid
and subsisting at the date of this agreement and there is no reason
why the Applications should not be granted.
3 The Vendor is the unincumbered sole beneficial owner of the trade
names set out in Part III of Schedule [no] as well as the trade name
represented by its corporate name (collectively referred to as ‘the
Trade Names’). The Trade Names are registered in the name of the
Vendor in all jurisdictions where they are used and are required to be
registered.
4 After its registration (if registered) each of the Trade Marks was used
within two years of its registration and has not since been unused for
any period exceeding two years.
5 The Trade Marks and the Trade Names are all subsisting and nothing
has been done or omitted to be done whereby any person will be able
to seek the cancellation or rectification or any other modification of
the registration of any of the Trade Marks or the Trade Names in any
jurisdiction.
6 There is and has been no infringement of any of the Trade Marks or
Trade Names by any third party.
7 None of the Trade Marks, the Trade Names or the names or words
the subject of the Applications as used in [the Business] infringes the
rights of any third parties.

659

M20_Boilerplate_Clauses_W.indd 659 31/08/2017 13:35

 Warranties

8 No licence has been granted to any third party in respect of any of

the Trade Marks, the Trade Names or the Applications and there are
no circumstances which could entitle a third party to call for such a
licence.
9 There are no licences from third parties nor are any necessary for the
use by the Vendor or the future use by the Purchaser of the Trade
Marks, the Trade Names or the Applications.
10 No third party is able to challenge the use of the Trade Marks, the
Trade Names or the Applications under any trade mark, unfair com-
petition, passing off, copyright or analogous laws.
11 The Vendor is the [registered user or licensee] of the trademarks set
out in Part IV of Schedule [no].

B: KNOW-HOW
All know-how is adequately documented and to the extent that the know-
how is confidential or important to the manufacture of [the Products] or
the provision of services by [the Business] no part of the same has been
or will be disclosed to any third party by the Vendor, its officers, employ-
ees or agents.

C: OTHER INDUSTRIAL PROPERTY

1 The Vendor is the unincumbered sole beneficial owner of each of the
[patents and/or patent applications or registered designs] listed in
Part V of Schedule [no] and no rights, licences, permissions or assign-
ments dealing with any interest in any of such [patents and/or patent
applications or registered designs] have been granted in favour of any
third party. None of the Vendor’s rights under any of such [patents
and/or patent applications or registered designs] is being challenged,
violated or infringed by any person and the Vendor is under no liability
to pay compensation pursuant to the provisions of the Patents Act
1977 Sections 40 and 41 or otherwise.
2 All registration and renewal fees have been fully paid up to [the date
of this agreement] in respect of the patents listed in Schedule [no] and
all other requirements of the Patent Office have been complied with.
3 [The carrying on of [the Business] does not require any licences or
consents from third parties under any patents, patent applications,
registered designs or other intellectual or industrial property rights.
or
All such consents and licences from third parties under any intellectual or
industrial property rights as are required for the carrying on [the Business]
have been applied for and granted.]
4 The carrying on of [the Business] does not infringe any patent, design
or other proprietary rights of any third party.

660

M20_Boilerplate_Clauses_W.indd 660 31/08/2017 13:35

 Warranties

5 The Vendor is the unincumbered sole beneficial owner of all copy-

right in materials in which copyright subsists and of all unregistered
designs which are used in connection with [the Business] and no
rights, licences, permissions or assignments dealing with any interest
in such copyrights and unregistered design rights have been granted
in favour of any third party. Where necessary all such copyrights have
been registered.
6 All such copyrights owned by the Vendor in connection with [the
Business] are unincumbered and do not infringe the copyright of any
third party.
7 There is no subsisting infringement by any third party of any of the
copyrights owned by the Vendor in connection with [the Business].
8 All advertising and marketing materials used by or proposed to be
used by the Vendor in connection with [the Business] comply with all
legal requirements in all countries in which these materials are used
or proposed to be used. Such materials are not defamatory and there
are no grounds under which such materials could be challenged for
any reason whatever including without limitation defamation, trade
libel or any other analogous law.
9 The Vendor is not a party to any secrecy agreement or other agree-
ment which may restrict the use or disclosure of any information
by it.

Precedent 18—Full form warranties as to intellectual property rights –

share sale agreement
1 All patents, trademarks, registered designs, design rights, applica-
tions for any of the foregoing, copyrights, trade or business names,
inventions, processes, know-how and other industrial property rights
(‘Intellectual Property Rights’) purported to be used or required by the
Company are in full force and effect and are vested in and beneficially
owned by the Company free from incumbrances.
2 [The Disclosure Letter lists all such or The Vendors have disclosed to
the Purchaser in writing prior to the date of this agreement details of
all] Intellectual Property Rights in respect of which the Company has
been registered as proprietor or in respect of which application for
registration has been made. None of the Intellectual Property Rights
is being used, claimed, opposed or attacked by any other person nor
does the use of such Intellectual Property Rights or any part of them
infringe the Intellectual Property Rights owned or enjoyed by any third
party.
3 There are no Intellectual Property Rights owned or used by the
Company capable of registration which have not been so registered
or in respect of which application for registration has not been made
and is pending.

661

M20_Boilerplate_Clauses_W.indd 661 31/08/2017 13:35

 Warranties

4 None of the Intellectual Property Rights owned or used by the

Company is the subject of any claim, opposition, attack, assertion
or other arrangement of whatever nature which does or may impinge
upon their use, validity, enforceability or ownership by the Company
and there are no grounds or other circumstances which may give rise
to the same.
5 The Company is not using any process which involves the exer-
cise of rights owned by third parties or gives rise to a liability to pay
­compensation under the Patents Act 1977 or makes use of informa-
tion confidential to a third party except under valid licences from such
third parties all of which are in full force and effect [and are listed in
the Disclosure Letter].
6 No licences or registered user or other rights have been granted or
agreed to be granted to any third party in respect of such Intellectual
Property Rights.
7 No disclosure has been made to any person other than the Purchaser
of any of the industrial know-how or the financial or trade secrets of
the Company except properly and in the ordinary course of business
and on the footing that such disclosure is to be treated as being of a
confidential nature.
8 No act has been done or has been omitted to be done to entitle
any authority or person to cancel, forfeit or modify any Intellectual
Property Rights.
9 The Company does not carry on business under any name other than
the name under which the Company has been incorporated [and the
business names (names)].
10 The Company has complied in all respects with the requirements of
the Companies Acts with regard to company names and business
names and such names do not infringe the rights of any third party.

Other warranties
Precedent 19—Warranty as to non-infringement of competition laws
The Vendors warrant and represent to the Purchaser that no agreement,
practice or arrangement carried on by the Vendor and relating to the
Business or its Assets:
1 has the object or effect of the prevention, restriction or distortion of
competition within the UK contrary to the Competition Act 1998 or is
or has been the subject of any enquiry, investigation or proceeding in
respect of the same; or
2 is or has been the subject of an enquiry, investigation, reference or
report under the Competition Act 1998 or any previous legislation
relating to monopolies or mergers or the Competition Act 1980.

662

M20_Boilerplate_Clauses_W.indd 662 31/08/2017 13:35

 Appendix
Boilerplate Agreement

(See Recitals, below)

THIS AGREEMENT dated ______________________________ 201[ ] is made

by and between:
(1) ABC LIMITED, a company incorporated in England and Wales [under
company registration number [ ] and] whose registered office is at 1
The Office Block, Office Street, London, EX1 2PP, United Kingdom
(“ABC”); and
(2) DEF, INCORPORATED, a company incorporated in Ruritania under
State Ordinance 555 of 1983, whose principal place of business is at
Company Buildings, City Street, Capital City, Ruritania (“DEF”).

RECITALS:
A This is a made-up Agreement, designed to illustrate some common
boilerplate clauses. It includes a selection of the clauses that are to be
found in this book. It is unlikely that all of the following clauses would
be found in a single agreement.
B The boilerplate provisions in clause 7 have been set out in alphabetical
order to make it easier to cross refer to the sections of this book which
discuss those clauses. In practice, boilerplate clauses are usually grouped
in a more logical sequence, eg by putting 7.1, 7.4 and 7.22 together.
C Before using any of these clauses it is recommended that readers refer to
the section of the book in which the clause is discussed.

IT IS AGREED AS FOLLOWS:
1 Definitions
In this Agreement, the following words shall have the following meanings,
unless the context requires otherwise:

663

Z01_Boilerplate_Clauses_Appx.indd 663 03/08/2017 08:28

 Appendix

Affiliate In relation to a Party, any group undertaking of that

Party, where ‘group undertaking’ has the meaning
given in s 1161(5) of the Companies Act 2006 (as
amended).
Commencement date 1 January 2018.
Parties ABC and DEF, and ‘Party’ shall mean either of them.
Price The sums of money described in the attached
Schedule 2.
Project The activities described in the attached Schedule 1.
Territory Shall mean the countries comprising the European
Union at the date of this Agreement.

2 Project
2.1 DEF shall perform the Project within the Territory. DEF shall use its best
endeavours to complete the Project and deliver a final report to ABC no
later than (date).
2.2 DEF shall send to ABC every six months during the continuation of
this Agreement and within 30 days of its termination for any reason, a
written report giving details of its activities under this Agreement over
the previous six month period. The report shall be substantially in the
form of, and give details of the matters described in, Schedule 1.
2.3 Copyright and other intellectual property in any reports, data and other
materials prepared by DEF in the course of the Project shall vest in
ABC. To the extent that such copyright and intellectual property does
not automatically vest in ABC pursuant to this clause 2.3, DEF hereby
assigns and agrees to assign by way of present and, where possible, future
assignment, all such copyright and intellectual property to ABC. (See
further clause 7.12.)

3 Payments
3.1 In consideration for DEF undertaking the Project, ABC shall pay DEF
the Price, in accordance with the provisions of Schedule 2. Payment of
the Price shall be due within 30 days of the date of DEF’s invoice.
3.2 All sums due under this Agreement:
(a) are exclusive of Value Added Tax which where applicable will be
paid by ABC to DEF in addition;
(b) shall be made by the due date, failing which DEF may charge ABC
interest on late payments on a daily basis at a rate equivalent to
31% above the base lending rate of [ ] Bank plc then in force;

664

Z01_Boilerplate_Clauses_Appx.indd 664 03/08/2017 08:28

 Boilerplate Agreement

(c) shall be paid in pounds sterling by cheque made payable to

‘DEF Offshore Account’.

4 Duration and termination

4.1 This Agreement shall take effect from the Commencement Date.

4.2 Subject to any earlier termination under this clause 4, this Agreement shall
continue in force until the [second] anniversary of the Commencement
Date when it shall terminate automatically by expiry.

4.3 Without prejudice to any other right or remedy it may have, either of
the Parties shall be entitled to terminate this Agreement immediately
by notice in writing to the other Party [(but not after 90 days of the
event in question first coming to the attention of the Party entitled to
give the notice)] if any of the events set out below shall occur. The said
events are:

(a) if the other Party shall commit any [material] breach of any of its
obligations under this Agreement and shall fail to remedy such
breach (if capable of remedy) within 30 days after being given
notice by the first party so to do; or

(b) the other Party is declared or becomes insolvent, or convenes a

meeting of its creditors or proposes or makes any arrangement or
composition with or any assignment for the benefit of its creditors,
or a petition is presented or a meeting is convened for the purpose
of considering a resolution or other steps are taken for the winding
up of the other Party (save for the purpose of and followed by a
voluntary reconstruction or amalgamation), or if an incumbrancer
takes possession of or a trustee, receiver, liquidator, administrator,
administrative receiver or similar officer is appointed in respect of
all or any part of its business or assets, or any distress execution or
other legal process is levied, threatened, enforced upon or sued
out against any of such assets, or any similar or analogous action is
taken or suffered in any jurisdiction.

4.4 ABC may terminate this Agreement at any time on 90 days in writing
to DEF.

4.5 Upon termination of this Agreement for any reason:

(a) the provisions of clauses [ ] and [ ] shall continue in force without

limit of time and the provisions of clause [ ] shall continue in force
for a period of 5 years from the date of termination;

(b) each Party shall return to the other Party any documents in
its possession or control which contain or record any of the
confidential information of the other Party; and

665

Z01_Boilerplate_Clauses_Appx.indd 665 03/08/2017 08:28

 Appendix

(c) subject as provided in this clause, and except in respect of any

accrued rights, neither Party shall be under any further obligation
to the other.

5 Confidentiality
(Note this is a very brief clause; more detailed provisions will be appropriate if
valuable confidential information is involved)
5.1 Each Party shall keep confidential (a) the terms of this Agreement and
(b) any and all confidential information that it may acquire in relation to
the business or affairs of the other Party. Neither Party shall use the other
Party’s confidential information for any purpose other than to perform
its obligations under this Agreement. Each Party shall ensure that its
officers and employees comply with the provisions of this clause 5.
5.2 The obligations on a Party set out in clause 5.1 shall not apply to any
information which:
(a) is publicly available or becomes publicly available through no act
or omission of that Party; or
(b) a Party is required to disclose by order of a court of competent
jurisdiction.
5.3 The provisions of this clause 5 shall survive any termination of this
Agreement for a period of 5 years from termination.

6 Warranties, liability and indemnities

6.1 Each of the Parties warrants that it has power to enter into this Agreement
[and has obtained all necessary approvals to do so].
6.2 DEF warrants and undertakes that it is not aware as at the date of this
Agreement of anything within its reasonable control which might or will
adversely affect its ability to fulfill its obligations under this Agreement.
6.3 Each of the Parties acknowledges that, in entering into this Agreement,
it does not do so in reliance on any representation, warranty or other
provision except as expressly provided in this Agreement, and any
conditions, warranties or other terms implied by statute or common law
are excluded from this Agreement to the fullest extent permitted by law.
6.4 Except in the case of death or personal injury caused by DEF’s
negligence, DEF’s liability under or in connection with this Agreement,
whether arising in contract, tort, negligence, breach of statutory duty
or otherwise howsoever, shall not exceed the sum of £10,000,000 (ten
million pounds sterling).
6.5 Neither Party shall be liable to the other Party in contract, tort,
negligence, breach of statutory duty or otherwise for any loss, damage,
costs or expenses of any nature whatsoever incurred or suffered by that

666

Z01_Boilerplate_Clauses_Appx.indd 666 03/08/2017 08:28

 Boilerplate Agreement

other Party of an indirect or consequential nature including without

limitation any economic loss or other loss of turnover, profits, business
or goodwill.

7 General
7.1 Agency, partnership etc
This Agreement shall not constitute or imply any partnership, joint
venture, agency, fiduciary relationship or other relationship between the
Parties other than the contractual relationship expressly provided for in
this Agreement. Neither Party shall have, nor represent that it has, any
authority to make any commitments on the other Party’s behalf.

7.2 Amendments etc

This Agreement may not be released, discharged, supplemented,
interpreted, amended, varied or modified in any manner except by an
instrument in writing signed by a duly authorised officer or representative
of each of the Parties hereto.

7.3 Announcements
No Party shall issue or make any public announcement or disclose
any information regarding this agreement unless prior to such public
announcement or disclosure it furnishes all the Parties with a copy
of such announcement or information and obtains the approval of
such persons to its terms. However, no Party shall be prohibited from
issuing or making any such public announcement or disclosing such
information if it is necessary to do so to comply with any applicable law
or the regulations of a recognised stock exchange. The Parties agree to
the issue of a press release substantially in the form attached as Annex A,
upon and following signature of this Agreement by both Parties.

7.4 Assignment
Subject to the following sentence, neither Party may assign, delegate,
sub-contract, mortgage, charge or otherwise transfer any or all of its
rights and obligations under this Agreement without the prior written
agreement of the other Party. A Party may, however, assign and transfer
all its rights and obligations under this agreement to any person to which
it transfers all of its business, provided that the assignee undertakes in
writing to the other Party to be bound by the obligations of the assignor
under this Agreement.

7.5 ‘Contra proferentem’ rule

The Parties acknowledge and agree that this Agreement has been jointly
drafted by the Parties and accordingly it should not be construed strictly
against either Party.

667

Z01_Boilerplate_Clauses_Appx.indd 667 03/08/2017 08:28

 Appendix

7.6 Contracts (Rights of Third Parties) Act 1999

Except as provided in clause [ ], this Agreement does not create any
right enforceable by any person who is not a party to it (‘Third Party’)
under the Contracts (Rights of Third Parties) Act 1999, but this clause
does not affect any right or remedy of a Third Party which exists or is
available apart from that Act.
7.7 Costs and expenses
Each Party shall bear its own legal costs and other costs and expenses
arising in connection with the drafting, negotiation, execution [and
registration] of this Agreement.
7.8 Counterparts
This Agreement may be executed in any number of counterparts or
duplicates, each of which shall be an original, and such counterparts or
duplicates shall together constitute one and the same Agreement.
7.9 Cumulative remedies
Any right or remedy to which either party is, or may become, entitled
under this Agreement, or in consequence of the other’s conduct, may
be enforced from time to time separately or concurrently with any right
or remedy given by this Agreement or now or afterwards provided for
and arising by operation of law, so that such rights and remedies are
not exclusive of the other or others but are cumulative. Any right or
remedy expressly included in any provision of this Agreement shall not
be construed as limiting a party’s rights or remedies under any other
provision of this Agreement.
7.10 Entire Agreement
This Agreement contains the whole agreement between the parties [in
respect of (subject matter of agreement)] and supersedes and replaces
any prior written or oral agreements, representations or understandings
between them [relating to such subject matter]. The parties confirm
that they have not entered into this Agreement on the basis of any
representation that is not expressly incorporated into this Agreement.
7.11 Force majeure
Neither Party shall have any liability under or be deemed to be in
breach of this Agreement for any delays or failures in performance of
this Agreement which result from circumstances beyond the reasonable
control of that Party. The Party affected by such circumstances shall
promptly notify the other Party in writing when such circumstances
cause a delay or failure in performance and when they cease to do so.
If such circumstances continue for a continuous period of more than 6
months, either Party may terminate this Agreement by written notice to
the other Party.
7.12 Further assurances

668

Z01_Boilerplate_Clauses_Appx.indd 668 03/08/2017 08:28

 Boilerplate Agreement

DEF shall execute such documents and give such assistance as ABC may
require:
(a) to secure the vesting in ABC of all rights in [the Copyright];
(b) to uphold ABC’s rights in [the Copyright]; and
(c) to defeat any challenge to the validity of, and resolve any questions
concerning, [the Copyright].

7.13 Insurance
ABC undertakes and agrees:
(a) to maintain and pay all premiums in respect of a comprehensive
insurance policy (in terms approved by DEF issued by an insurer
[nominated] or [approved] by DEF in respect of (describe
location) (‘the Location’) (excluding its main structure) and all
the items stored there;
(b) to note on such policy that:
(i) DEF shall be covered by such policy in respect of all claims
arising from activities at the Location which are risks covered
by such policy; and
(ii) the insurer shall notify DEF in the event of any late premium
payment by, or any breach of the terms of such insurance on
the part of, ABC; and
(c) not to cause or permit any breach of any such insurance nor any
other insurance in respect of the Location.

7.14 Interpretation
In this Agreement unless the context otherwise requires:
(a) words importing any gender include every gender;
(b) words importing the singular number include the plural number
and vice versa;
(c) words importing persons include firms, companies and corporations
and vice versa;
(d) references to numbered clauses and schedules are references to
the relevant clause in or schedule to this Agreement;
(e) reference in any schedule to this Agreement to numbered
paragraphs relate to the numbered paragraphs of that schedule;
(f) any obligation on any Party not to do or omit to do anything is to
include an obligation not to allow that thing to be done or omitted
to be done;

669

Z01_Boilerplate_Clauses_Appx.indd 669 03/08/2017 08:28

 Appendix

(g) any Party who agrees to do something will be deemed to fulfil that
obligation if that Party procures that it is done;
(h) the headings to the clauses, schedules and paragraphs of this
Agreement will not affect the interpretation;
(i) any sum payable by one party to the other will be exclusive of VAT
which will, where it is chargeable, be paid in addition to the sum in
question at the time when the sum in question is due to be paid;
(j) any reference to an enactment includes reference to that enactment
as amended or replaced from time to time and to any subordinate
legislation or byelaw made under that enactment.

7.15 Language
This Agreement is made only in the English language. If there is any
conflict in meaning between the English language version of this
Agreement and any version or translation of this agreement in any other
language, the English language version shall prevail.

7.16 Law and jurisdiction

The validity, construction and performance of this Agreement shall be
governed by English Law. Any dispute arising under or in connection
with this Agreement shall be subject to the exclusive jurisdiction of the
English courts to which the Parties to this Agreement hereby submit.

7.17 Notices
(a) Any notice to be given under this Agreement shall be in writing
and shall be sent by first class mail or air mail, or by fax or e-mail
(confirmed by first class mail or air mail), to the address of the
relevant Party set out at the head of this Agreement, or to the
relevant fax number set out below, or such other address or fax
number as that Party may from time to time notify to the other
Party in accordance with this clause 7.17. The fax numbers of the
Parties are as follows: ABC: [44] 1234 567 890; DEF: [999] 1234
123 456.
(b) Notices sent as above shall be deemed to have been received three
working days after the day of posting (in the case of inland first
class mail), or seven working days after the date of posting (in the
case of air mail), or on the next working day after transmission
(in the case of fax messages, but only if a transmission report is
generated by the sender’s fax machine recording a message from
the recipient’s fax machine, confirming that the fax was sent to
the number indicated above and confirming that all pages were
successfully transmitted).
(c) In proving the giving of a notice it shall be sufficient to prove that
the notice was left, or that the envelope containing the notice was

670

Z01_Boilerplate_Clauses_Appx.indd 670 03/08/2017 08:28

 Boilerplate Agreement

properly addressed and posted, or that the applicable means of

telecommunication was addressed and despatched and despatch
of the transmission was confirmed and/or acknowledged as the
case may be.
7.18 Schedules
The provisions of Schedules 1 and 2 to this Agreement shall form part of
this Agreement as if set out here.
7.19 Set-off
Where DEF has incurred any liability to ABC, whether under this
Agreement or otherwise and whether such liability is liquidated or
unliquidated, ABC may set off the amount of such liability against any
sum that would otherwise be due to DEF under this Agreement.
7.20 Severance
If any provision of this Agreement is prohibited by law or judged by
a court to be unlawful, void or unenforceable, the provision shall, to
the extent required, be severed from this Agreement and rendered
ineffective as far as possible without modifying the remaining provisions
of this agreement, and shall not in any way affect any other circumstances
of or the validity or enforcement of this Agreement.
7.21 Sub-contracting
With the prior written consent of ABC (such consent not to be
unreasonably withheld or delayed) DEF may perform any or all of its
obligations under this Agreement through agents or sub-contractors,
provided that DEF shall remain liable for such performance [and shall
indemnify ABC against any loss or damage suffered by ABC arising from
any act or omission of such agents or sub-contractors].
7.22 Successors and assignees
(a) This agreement shall be binding upon, and enure to the benefit
of, the Parties and their respective successors and permitted
assignees, and references to a Party in this Agreement shall include
its successors and permitted assignees.
(b) In this Agreement references to a Party include references to a
person:
(i) who for the time being is entitled (by assignment, novation or
otherwise) to that Party’s rights under this Agreement (or any
interest in those rights); or
(ii) who, as administrator, liquidator or otherwise, is entitled to
exercise those rights;
and in particular those references include a person to whom
those rights (or any interest in those rights) are transferred
or pass as a result of a merger, division, reconstruction or

671

Z01_Boilerplate_Clauses_Appx.indd 671 03/08/2017 08:28

 Appendix

other reorganisation involving that Party. For this purpose,

references to a Party’s rights under this Agreement include
any similar rights to which another person becomes entitled
as a result of a novation of this Agreement.
(c) This clause 7.22 shall be subject to, and without prejudice to, the
provisions of clause 7.4.
7.23 Time is of the essence
Time shall be of the essence of this agreement as regards any time, date
or period mentioned in this agreement or subsequently substituted as a
time, date or period by agreement in writing between the Parties.
7.24 Waiver
No failure or delay by the Bank in exercising any right, power or privilege
under this letter shall impair the same or operate as a waiver of the same
nor shall any single or partial exercise of any right, power or privilege
preclude any further exercise of the same or the exercise of any other
right, power or privilege. The rights and remedies provided in this letter
are cumulative and not exclusive of any rights and remedies provided
by law.
AGREED by the Parties through their authorized signatories [on the date set
out at the head of this Agreement]:
[SCHEDULES 1 and 2]

For, and on behalf of [ ] For, and on behalf of [ ]

signature signature

print name print name

job title job title

date date

672

Z01_Boilerplate_Clauses_Appx.indd 672 03/08/2017 08:28

 Index

A Agency—contd
Acknowledgment non-existence of, 33–34
meaning, 11 precedents, 33–34
account bank, from, of receipt of letter, purpose of clause, 29
13–14 relevant contracts, 29
acknowledges and agrees, 12 signing of agreement, role in, 32–33
contents, 10 Agent for service
contractual estoppel, 11 address for notices, 37, 38
conveyance to contain, 14 appointment of, 36, 37
copyright information, display of, 15 drafting issues, 35–36
deeds, for production of, 14 failure to perform duties, 36, 37
drafting issues, 11–12 legal issues, 35–36
effect, 12 linkage of clause, 37
examples, 13–15 location of clause in agreement, 37
exclusion as, 11 notices clause, 37
fact, confirmation of, 10, 13 precedents, 37–39
false underlying fact, effect, 12 process agent, appointment of, 38–39
form, 10 purpose of clause, 35
franchisee, by, 13 service of documents—
generally, 10–11 address for, 38
group undertaking as, 17 drafting issue, as, 35–36
incorrect or false facts, as to, 10–11 effective, 37–38
interpretation, 12 methods of, 37
linkage and use of clause, 12–13 time limit, 37
location of clause in agreement, 12 use of clause, 37
non-commercial matters, in, 10 Agreement see Contract
precedents, 13–15 Agreement to enter see also Execution clause;
purpose, 10–11 Signature block
state of affairs, confirmation of, 13 purpose of clause, 40
transfer to contain, 14 Alternative dispute resolution see also
use of, 10–11, 12–13 Arbitration
Advance payment see Deposit; Part payment drafting issues, 67–72
Affiliate generally, 66
meaning, 16, 17, 19, 20 ignoring recommendation to use, 66
drafting issues, 16–18 precedents, 73–80
linkage of clause, 19 unsuitable, where, 66
location of clause in agreement, 18 Amendment
party to agreement, as, 17 accidentally made, whether having legal
precedents, 19–21 effect, 49
purpose of reference to, 16 case analysis, 52–53
statutory definitions, use of, 16–17 consideration for making, 50
use of definition, 19 drafting issues, 48–50
Agency effect on other parts of contract, 49
meaning, 29 form or procedure for, 49
agent: meaning, 29–30 formalities required, 51
assertion of relationship, 34 informally made, whether having legal
contractual relationship only, 33 effect, 49
drafting issues, 32–33 instrument in writing, by, 51
exclusion of other relationships, 32–33 interest in land, sale or other disposition
existence of, 29–30 of, 50
linkage and use of clause, 33 interest rate, altering, 51
location of clause in agreement, 33 linkage of clause, 50–51
no undisclosed principal, 34 location of clause in agreement, 50

673

Z02_Boilerplate_Index.indd 673 30/08/2017 13:50

 Index

Amendment—contd Appointment—contd
methods of making, 49 precedents, 61–62
oral agreement, effect, 47 purpose of clause, 60
parties needing to agree to, 48 service provider, of, 62
permissible, whether, 48 services, of party to provide services, 61
persons authorised to make, 49 Arbitration see also Alternative dispute
precedents, 51–52 resolution
provisions subject to, 48 advantages, 63
purpose of clause, 47–48 appeal from, excluding, 71–72
recording changes, 49 arbitral institutions—
separate document, changes made by, 50 list of, 65
specifying clauses to be altered, 51–52 reference to, 74
subsequent conduct, effect, 47 arbitrator—
third parties, effect on, 50 disputes for consideration by, 70
use of clause, 50–51 expertise or qualification, whether
value of clause, 48 needed, 69
Announcements method of choosing, 68–69
agreement, whether needed, 56 need for, 67
approval— single or more than one, 68, 69
generally, 57 sole, 73
new company investment agreement, specialist, 77–78
57–58 two arbitrators and umpire, 73–74
sale agreement, 57 confidentiality issues, 65
sale of assets of business in receivership, consumer issues, 72
58 disadvantages, 63–64
share transaction, 58 disputes for consideration, 70
benefits accruing from— drafting issues, 67–72
certain companies, for, 55 effect of agreement to submit to, 66–67
generally, 54 enforceability issues, 65
confidentiality, and, 57 expert—
consent, whether required, 56 appointment, 78–79
drafting issues, 55–56 final determination by, 74–75
employees etc making, 56 need for, 67
linkage and use, 57 rather than arbitrator, use of, 64, 67
location of clause in agreement, 56 use of, 67–68
necessary to make, whether, 56 generally, 66–67
no announcements, 58 international arbitrations—
permitted, whether, 55 enforcement, 65–66
persons allowed to make, 56 language and law in, 71
precedents, 57–59 international contracts, 65–66
press release, agreed form of, 58 length of agreement, 68
public authority, party being, 57 linkage and usage, 72
purpose of clause, 54–55 location of clause in agreement, 72
restrictions on, 56 management levels, reference through,
software, for development and release of, 74–75
59 multi-arbitrator agreement, 69, 79–80
subsequent use, whether permitted, 56 post-termination issues, 72
text, whether included with agreement, 56 precedents, 73–80
timing and method of— procedural rules, adoption of, 70–71
generally, 55–56 purpose of clause, 63
importance of, 55 senior representatives, reference to, 75–76
wording, agreement as to, 56 specialist expert, involvement of, 77–78
Appointment statutory provisions, applicability, 65
acceptance of, 61 types of contracts found in, 67
agent, of, 62 Assignment and novation
clear wording, 61 agreement, assignees bound by, 89
consideration, existence of, 61 assignment—
contents of clause, 60 affiliate, to, 86
definitions, use of, 61 between companies in a group, 86
drafting issues, 61 limited, 87
generally, 60 limited power of, 88–89
length of, 61 one party free to assign, 88
linkage and use, 61 permissible, whether, 83
location of clause in agreement, 61 prohibition see prohibition on below

674

Z02_Boilerplate_Index.indd 674 30/08/2017 13:50

 Index

Assignment and novation—contd Authority see also Capacity—contd

assignment—contd methods of signifying, 125
use of word in agreement, 81 notices, to sign, 129
assignment of rights: meaning, 81–82 precedents, 129–130
case analysis, 90–93 purpose of clause, 124
conditions attached to, 85 representative, of, 130
consent— secretary, of, 126
assignment without, 87–88 senior person binding company, 126
not unreasonably withheld, 88 signature, to provide, 127, 128
persons able to give, 84 unincorporated society, signature mandate
time for providing, 85 by, 130
types of, 84–85 warranties, use of, 125, 129
whether required, 84
drafting issues, 83–86 B
elements of clause, 81 Best endeavours see also Reasonable
extent of obligations and rights assigned, 84 endeavours
liability after assignment, 85 absolute obligations—
linkage and use, 86–87 examples of, 102
location of clause in agreement, 86 resistance to, 107
no-assignment clause, effect, 82–83 advantageous loan, to obtain, 109
novation— approval, to obtain necessary, 109
meaning, 82 avoidance of expression, 106, 108
minimum set of clauses for, 89–90 case analysis, 111–112
partial assignment, 85–86 drafting issues, 106–107
persons who can assign or transfer, 83 franchise, to operate, 109
precedents, 87–90 location of clause in agreement, 108
prohibition on— obligations under—
agreement of other party, without, 88 breach, determining, 108–109
assignee’s covenant required, where, 88 clarifying nature of, 108
generally, 83 nature of, 104
precedent, 87 precedent, 108
subject to permission of other party, 88 other expressions, use of, 106
without consent, 87–88 precedents, 108–111
purpose of clause, 81 purpose of clause, 102
sub-contracting— qualified obligations, examples of, 102–104
generally, 85 reasonable endeavours, compared with,
permitted, consequences where, 89 104–105
prohibition on, 89 specific, difficulties in being, 106–107
subject matter of assignment or transfer, speedy resolution of dispute, 109
83–84 Boilerplate
third party contracts, effect on, 86 meaning, 2, 9
transfer of business, power to assign on, 89 commercial issues raised by clauses, 1
transfer of obligations: meaning, 82 generally, 1–2
Assigns see Successors and assigns important clauses, 2–4
Attestation clause see Signature block inclusion of clauses, matters for
Auditing of records see under Records consideration, 2
Authority see also Capacity lesser importance, clauses of, 1n1
meaning, 124 location of clause in agreement, 4
agreement, variation or supplementing of, no boilerplate, where, 3
129 origin of meaning, 9
approval, to give, 129 potentially conflicting objectives, weighing
attestation clause, use of, 125, 129 up, 1
board resolution to approve execution, 127 table of clauses and location, 4–9
boilerplate to indicate, use of, 125–126 types of clauses, 3–4
circumstances surrounding question of, 125 Boilerplate agreement
company notice as to who can bind, 127 agency, existence of, 667
contract, unable to sign, 127 amendments etc. 667
deed, whether contract signed as, 128 announcements, 667
directors, of, 126, 127–128, 129 assignment, 667
drafting issues, 126–128 commencement, 663
execution clause, use of, 125, 129 confidentiality, 666
internal rules, use of, 126 contra proferentem rule, 667
linkage and use, 129 Contracts (Rights of Third Parties) Act
location of clause in agreement, 128–129 1999, effect, 668

675

Z02_Boilerplate_Index.indd 675 30/08/2017 13:50

 Index

Boilerplate agreement—contd Breach of contract—contd

costs and expenses, 668 terms, breach of—contd
counterparts, 668 importance of, determining, 119
cumulative remedies, 668 liability, escaping, 120
definitions, 663–664 waiver see Waiver and release
duration, 665
entire agreement, reference to, 668 C
execution and signature, 672 Capacity see also Authority
fiduciary or other relationship, existence meaning, 124
of, 667 circumstances surrounding question of,
force majeure, 668 124
further assurances, 668–669 determining, statutory provisions as to, 124
indemnities, 666–667 drafting issues, 126–128
insurance, 669 linkage and use, 129
interpretation, 669–670 location of clause in agreement, 128–129
joint venture, existence of, 667 persons lacking, 124
language, use of, 670 precedents, 129–130
law and jurisdiction, 670 purpose of clause, 124
liability, 666–667 Charge
notices, 670–671 meaning, 131, 134
parties, 663 drafting issues, 132
partnership, existence of, 667 extent, 132
payments, 664–665 foreign parties, and, 132
project, 664 linkage and use, 133
recitals, 663 location of clause in agreement, 132
schedules, 671 no charging clause, precedents—
set-off, 671 agency agreement, 134
severance, 671 generally, 133
signature and execution, 672 joint venture agreement, 134
sub-contracting, 671 patent assignment, 133
successors and assigns, 671–672 patent licensing assignment, 133
termination, 665–666 patent licence agreement, prohibition in,
time of the essence, 672 133
waiver, 672 payments or assets, over, 131
warranties, 666–667 precedents, 133–134
Breach of contract prohibition on entering of, 132
meaning, 116 purpose of clause, 131
case analysis, 120–123 warranty as to freedom from, 134
conditions, breach of— Clauses see also Boilerplate
failures amounting to, 119–120 generally, 1–2
importance of, determining, 119 importance, 2–4
liability, escaping, 120 location in agreement, 4
drafting issues, 119–120 no boilerplate, 3
level of, not quantifying, 117–118 table of clauses and location, 4–9
liability, escaping, 120 types, 3–4
linkage and use, 120 Commencement date
location of clause on agreement, 120 agreement date—
material breach— before, 136, 138
meaning, 116–117 confusion with, 136
advantage of using such wording, 118–119 different to, 135
matters amounting to breach, 119–120 precedent, 137
obligations, breach of— same date, 138
failures amounting to, 119–120 between two periods, 138
importance of, determining, 119 case analysis, 138–139
liability, escaping, 120 default position, 135
purpose of clause, 116 drafting issues, 135–136
remedies for party not in breach, 638 fixed term, 138
seriousness of, not quantifying, 117–118 generally, 135
substantial breach— linkage and use, 137
meaning, 116–117 location of clause in agreement, 136–137
advantage of using such wording, precedents, 137–138
118–119 purpose of clause, 135
terms, breach of— signature date, and, 135
failures amounting to, 119–120 suggested best practice, 135

676

Z02_Boilerplate_Index.indd 676 30/08/2017 13:50

 Index

Completion Condition subsequent—contd

meaning, 140, 142 precedents, 150–151
activities, 143–144 property management agreement, 150
banker’s draft to be delivered on, 143 purpose of clause, 146
business or business assets, sale of, 140 time limit for meeting, 147
completion money: meaning, 143 uncertainty, whether void for, 147
date: meaning, 142 whether binding contract until fulfilment
documents to be delivered on, 143 of, 147
drafting issues, 140–141 Confidential information see also
linkage and use, 141 Confidentiality
location of clause in agreement, 141 meaning, 157
place of, 142 disclosure of—
precedents, 142–144 certain parties, to, 159–160
purpose of clause, 140 group of companies, party as member
real property, sale of, 140 of, 18
sale of business agreement, and, 143 Confidentiality
suggested best practice, 140–141 affiliate, disclosure to, 162
Condition agreement’s existence, whether
meaning, 145 confidential, 159
precedent see Condition precedent appropriateness of clause, 161–162
subsequent see Condition subsequent business sale agreement, 164
Condition precedent case analysis, 171–175
meaning, 145–146 confidential information—
case analysis, 151–153 meaning, 157, 163–164
clauses applicable to, 147 circumstances giving rise to, 157
deed of adherence, 150 security measures, whether necessary,
drafting issues, 147–148 159
events encompassed by, examples of, 145 use of, 157–159
failure to meet, effect, 147–148 consequences of termination clause, need
form, 146–147 for, 161
liability for failure to meet, extent of, 148 contract, whether existence confidential,
linkage and use, 148–150 159
location in agreement, 148 contractual provisions, need for, 156
meeting, whether subject to other party’s disclosure to certain parties, 159–160
approval, 148 drafting issues, 156–160
obligation to meet, clarity as to, 148 duration of obligations, 160
occasions for use of, 149 exceptions to obligations, 159
patent grant, 150 failure to include clause, effect, 154
planning consent, 150 full form clause, 165–167
planning obligations, 150 general confidentiality clause, 163
precedents, 150–151 information—
purpose of clause, 145–147 meaning, 163
time limit for meeting, 147 covered by agreement, 156–157
uncertainty, whether void for, 147 know-how—
whether binding contract until fulfilment licensing agreement, 166
of, 147 obligation to protect, 408
Condition subsequent linkage and use, 161–162
meaning, 146 location of clause in agreement, 160
agency agreement, minimum performance longer form clause, 164–165
in, 150 non-exclusive jurisdiction clause, 162
case analysis, 151–153 parties under obligation of, 157
clauses applicable to, 147 precedents, 162–171
company formation agreement, 150 production licence, joint application for,
contract for services, 151 166–167
drafting issues, 147–148 proposed joint project, agreement by letter
failure to meet, effect, 147–148 as to, 167–168
form, 146–147 public authority, party being, 160
liability for failure to meet, extent of, 148 purpose of clause, 154
linkage and use, 148–150 separate confidentiality agreement—
location in agreement, 148 precedent, 167–168
meeting, whether subject to other party’s where appropriate, 156
approval, 148 shareholders’ agreement, 164, 165
obligation to meet, clarity as to, 148 simple clause, 162
occasions for use of, 149 software distribution agreement, 164–165

677

Z02_Boilerplate_Index.indd 677 30/08/2017 13:50

 Index

Confidentiality—contd Consumer contract—contd

technology licence, 165 delivery, points concerning, 203–204
trade secret— drafting issues, 196–205
obligation to protect, 408 financial services, legislation as to, 213–
Trade Secrets Directive, effect, 154–155 214
two-way confidentiality agreement, guarantee—
precedent, 168–171 sample wording for, 207
unlawful acquisition: meaning, 155 whether offered, 203
unlawful use and disclosure: meaning, 155 impossibility of preparing terms and
warranties, need for, 161 conditions for use by consumer, 205
Consent information prior to entry into, provision
meaning, 176–177 of, 200–202
case analysis, 180–182 legibility, need for, 198
consultation distinguished, 188 legislation see statutory provisions below
different to what other parties expect, 178 liability—
drafting issues, 177–178 restriction on excluding etc, 204–205
factors to take into account, 178 problems as to exclusion or limitation of,
leases, 177–178 196–197
linkage and use, 178–179 post-1 October 2015, 194
location in agreement, 178 post-4 June 2014, 196
precedents, 179–180 potentially unfair terms, need to consider,
press releases, 179 199–200
prior, where need for, 179 pre-1 October 2015, 194
purpose of clause, 176 precedents, 205–207
real property transactions, 177–178 price indexation clause, 214
requirement for, 179 price payable, prominence of wording as
time limit on, 178 to, 199
withholding— purpose of clause, 194–196
reasons for, whether required 178 requirements on customer, statement as to,
restrictions on, precedent, 179–180 197–198
Consultation risk, points concerning, 203–204
meaning, 188–190 statutory guidance, need to consider, 200
advice, form of, 189 statutory provisions—
commercial context, in, 190 extracts from, 211–214
consent distinguished, 188 financial services, as to, 213–214
drafting issues, 190 price indexation clause, 214
genuineness, need for, 189 relevant, 194–196
intellectual property— strengths, weaknesses etc, statement of,
agreements, 188 197–198
infringement of rights, 191 subject matter, prominence of wording as
licensee’s sub-licence, on grant of, 192 to, 199
linkage and use, 190–191 terms, list of, 211–213
location in agreement, 190 transparency of wording, 198
mutual consultation clause, 191 Contra proferentem
need for, 188 commercial contracts, application of rule
no response required, 190 to, 215–216
performing artist agreement, 191 common law nature of rule, 215
precedents, 191–193 inapplicable, where, 216
publishing agreement, 191 main strands, 215
purpose of clause, 188–190 precedent, 217
receptiveness to views of consulted party, purpose of clause, 215
189 rarity of use, 216
recommendations, and consideration of, relevance of rule, 216–217
191 Contract
requirements for, 189–190 denials of legally binding see Subject to
sale of business, 191 contract
sufficient reasons, need for, 189 duties and remedies, 371–372
sufficient time, need for, 189 entire agreement and non-reliance clause
third party supplier, before use of, 192–193 see Entire agreement and non-reliance
timeshare agreement, 191 formation, methods of, 294
Consumer contract good faith see Good faith
cancellation rights, provision of legally binding, denials of see Subject to
information etc as to, 202–203 contract
case analysis, 208–210 parol evidence rule, use of, 294

678

Z02_Boilerplate_Index.indd 678 30/08/2017 13:50

 Index

Contract—contd Costs see also Expenses—contd

principles of construction, application of, reimbursement—
294 company formation agreement, 233
provisions, need to certainty as to, 294 mortgage deed, 233
standard form: meaning, 327 Counterparts
Contracts (Rights of Third Parties) Act 1999 meaning, 234
application— agreement in, 237
exceptions to, 219–220 agreement to prevail, version of, 237
generally, 218 commercial practice, 234–236
assignees, 226 deed in, 237
case analysis, 226–230 drafting issues, 236
drafting issues, 221–223 effect of signing in, 234
effect, 218 facsimile, sent by, 236
general exclusion clauses, 224 generally, 234
general inclusion clauses, 224–225 location of clause in agreement, 237
indemnity, contract containing, 221 no exchange of, where, 236
international group of companies, original nature of, 236
contracting party as part of, 220 precedents, 237
linkage and use, 223–224 purpose of clause, 234–236
location of clause in agreement, 223 signing signature page alone, dangers to,
precedents, 224–226 235–236
privity of contract— use of, 236
meaning, 219 Covenant
effect in existing law, 219 meaning, 238
purpose of clause, 218–221 agreements encountered in, 238
research contract, 220–221 agricultural land, sale of, 240
subject matter, whether excluded by Act, business, sale of, 240–241
221 commercial agreements, use in, 238–239
successors, 226 drafting issues, 239
third party— employment contracts, in, 239
meaning, 218 joint and several, 240
additional nature of rights, 219 linkage and use, 239
assignment of rights of, 223 location of clause in agreement, 239
beneficiary examples, 220–221 modern practice, 238–239
benefit of, provisions for, 223 obligations, to perform, 240
conditions, imposition of, 222 precedents, 240–241
consent of, dispensing with, 226 purpose of clause, 238–239
contractual provisions made for benefit restrictive covenants, 240–241
of, 222 sums, to pay, 240
enforcement of agreement by, 222, 223 transactions found in, 239
identifying, 221–222 Cumulative remedies
no formalities for enforcement of rights, case analysis, 342–243
219 ‘cumulative’, use of word, 243
obligations, imposition of, 222 drafting issues, 243
privity of contract, and see privity of effect of clause, 242
contract above entire agreement clauses, and, 244
remedies given to, 220 extent, 243
revocation of rights of, 223 inclusion of one as exclusion of another,
rights of, under Act, 218–219 242–243
Control contract linkage and use, 244
meaning, 27 location in agreement, 244
Costs see also Expenses main commercial provisions, and, 244
meaning, 231 precedents, 245
approach to payment of, 231 purpose of clause, 242–243
assets sale, of, 233 remedies to be included in clause, 243
company formation agreement, 233 secondary commercial provisions, and, 244
drafting issues, 232 use of, 243
examples of clauses, 233 Currency
linkage and use, 232–233 conversion of currency, timing and method,
location of clause in agreement, 232 247
mortgage deed, of, 233 domestic, payment otherwise than in, 248
parties to pay own, 233 drafting issues, 246–247
precedents, 233 exchange rate changes, bearing risk of, 247
purpose of clause, 231 linkage and use, 248

679

Z02_Boilerplate_Index.indd 679 30/08/2017 13:50

 Index

Currency—contd Deed—contd
location of clause in agreement, 247 execution—contd
payment in full, following fall in value of clause as to, 270–272
sterling, 246 company, by, 265
pounds: meaning, 246 complete documents, only of, 267–268
precedents, 248 corporation, by, 266
provision not specified, 246 delivery of deed, 266–267
purpose of clause, 246 director not an individual, where, 268
relevant currency, 246–247 foreign company, by, 266
sample clause, 248 formalities, 263, 264–265
specified currency— generally, 264
right to specify, 248 individual, by, 265
whether payment only permitted in, 247 purchaser, document in favour of, 269
whether clause needed, 246 linkage and use, 270
location of clause in agreement, 270
D precedents, 270–272
Data protection preference for, where, 262–263
agreement, data processing as part of purchaser, document in favour of, 269
obligations under, 249 purpose of clause, 261–269
circumstances, relevant, 249–250 requirement to use, where, 261
compliance with statute, clause as to, requirements to create, 263–265
253–255 seal, use of, 263–264
data controller: meaning, 251, 256 statement as to nature of, 264
data processing principles, use of, 251–252, statutory provisions, 264
256 variation of, 263
data processor: meaning, 251, 256 Definitions
drafting issues, 252 case analysis, 279–283
linkage and use, 252 drafting issues, 277–278
location of clause in agreement, 252 introductory wording in clause, 278
party processing data on behalf of party laying out of clause, 278
providing data, 250 location of clause in agreement, 277
personal data: meaning, 251, 255 matters to avoid when defining or using
persons subject to DPA 1998, 249 clause, 274–275
precedents, 253–255 matters to consider when defining or using
purpose of clause, 249–252 clause, 275–276
sensitive data: meaning, 255–256 organisation where grouped together,
statutory definitions, 255–256 278
Date of agreement persons using agreement, need to consider
meaning, 257 identity of, 278
all parties not signing on same day, 258 precedents, 279
drafting issues, 257–258 purpose of clause, 273–276
linkage and use, 259 reasons for use of clause, 273
location in agreement, 257, 259 recognition of defined word, 277
precedents, 259–260 Deposit see also Part payment
purpose of clause, 257 advance payment as, 287
reasons for dating, 258 consumer law, effect, 288
starting date different, where, 257 drafting issues, 287
written not typed, 257–258 linkage and use, 288
Deed location of clause in agreement, 268
capacity, person acting in more than one, part payment, as—
268 appropriation, loan agreement, 289
delivery— clause, 289
condition fulfilled, when, 271 sale conditions, 289
deed dated, when, 270, 271 share option price not to be, 289
signed, when, 270, 271 part payment distinguished, 285, 287
subject to condition, 271–272 partial performance, consequences, 287
documents free from escrow, delivery of, 272 payment clause, provision in, 290
drafting issues, 269–270 payment of, 288–289
escrow— precedents, 288–290
assignment of rights free from, 272 purpose of clause, 284–287
delivery of documents free from, 272 purpose of payment, 287
execution— refund—
capacity, person acting in more than consumer rental agreement, 289
one, 268 supplier’s warranty, 289

680

Z02_Boilerplate_Index.indd 680 30/08/2017 13:50

 Index

Deposit see also Part payment—contd Exclusive, non-exclusive and sole—contd

retention or repayment, points to consider, grant of rights, 313
285–286, 287 intellectual property issues, 309, 310
unfair, where, 288 legislation, extracts from, 311–312
use of, 284 linkage and use, 310
Directors location of clause in agreement, 309–310
appointment or removal, legislative non-exclusive: meaning, 308
provisions, 24, 26–27 non-exclusive agent, appointment, 313
Disclaimer precedents, 312–313
drafting issues, 292 purpose of clause, 307–308
exemption clause— sole: meaning, 308, 312
effect, 291 sole agent, appointment, 313
distinguished from, 291 statutory definitions, 308
generally, 292 sub-licence, right to, 309
linkage and use, 292 Execution clause
location of clause in agreement, 291, 292 adding date to, 43
nature of, 291 agreement under hand, forms of, 44
patent and know-how licence, in, 293 commencement, 41
precedents, 293 deed executed by company, 45–46
purpose of clause, 291–292 drafting issues, 41–43
Duplicates see Counterparts linkage and use, 44
location, 40, 43
E nature of, 40
Entire agreement and non-reliance precedents, 44–46
acknowledgment of non-reliance, 296 purpose, 40
breach of collateral warranties, 297 terminology, 40
case analysis, 295–297, 300–306 Exemption
clarity of wording, need for, 296 agent’s fraud or deceit, and, 317
collateral agreement, whether excluded, case analysis, 327–333
297 courts’ interpretation of clauses, 314–317
Competition and Markets Authority drafting issues, 318–325
guidance, 300 fraud, in case of, 317
consumer issues, 299–300 liability, limiting or excluding—
contents, questions as to, 297–298 defects after delivery, 326
drafting issues, 297–298 deliberate repudiatory breach, 319
effectiveness, 295–297 different things or services, separate
excluded documents and statements, 295 exclusion etc for, 319
failure to use, consequences, 296 direct and consequential losses, separate
fraud, liability for, 296 treatment of, 320
handling and analysis of documentation explicit and precise drafting, need for,
generated, 298 318–319
importance of, 298 generally, 318–324
inconsistency of agreement with subject implied terms, exclusion of, 320
matter, 297 indirect and consequential losses, 326
linkage and use, 298–299 insurance, correlation of liability level
location of clause in agreement, 298 with, 319
package of agreements, and, 297 invalidity of clause, possibility of, 324
precedents, 299 limitation rather than exclusion,
pre-contract representations, whether consideration of, 320
excluded, 298 negligence, mention of, 319
purpose of clause, 295–297 positive approach, need for, 320
schedules or attachments, whether potential loss, need for details of, 320
included within clause, 298 ‘safety valve’ wording, need for, 320
written terms, whether agreement limited ‘standard’ terms, avoiding contracting
to, 297 on, 321–323
Exclusive, non-exclusive and sole statutory time limits, application, 318
ambiguity, need to avoid, 308 third party indemnities, need for clarity,
circumstances where relevant, 307 320–321
competition law issues, 309 tight definition of contractual terms,
drafting issues, 308–309 need for, 323–324
exclusive: meaning, 307–308, 309, 312 time limits, length of, 319
exclusive licence— linkage and use, 325
registration of, 310 location of clause in agreement, 325
sole and exclusive licence, as, 309 matters covered by, 314, 316

681

Z02_Boilerplate_Index.indd 681 30/08/2017 13:50

 Index

Exemption—contd Force majeure—contd

negligence, and, 316 frustration, doctrine of—contd
precedents, 326–327 further performance subject to, 337
purpose of clause, 314–317 situations applicable in, 337
reasonableness, 324–325 unhelpful to parties, where, 338–339
repudiatory breach, whether covering, generally, 337–338
316 linkage and use, 345
Sale of Goods Act 1979, and, 316–317 location of clause in agreement, 345
standard form contract: meaning, 327 need for clause, where, 337–338
statutory control, 317–318 particularly useful, where, 340
types of clause, 314 party responsible for event, position where,
wording— 341
ambiguous or unclear, where, 315–316 precedents, 345–348
strict judicial interpretation of, 315 procedure to follow following event, 344
Expenses see also Costs purpose of clause, 337–343
meaning, 231–232 repayment of money due, 346
assets sale, of, 233 supply agreement, temporary suspension,
drafting issues, 232 347–348
linkage and use, 232–233 temporary stoppage—
location of clause in agreement, 232 position where, 342
mortgage deed, of, 233 release at party’s discretion, 346
precedents, 233 termination by either party, 345–346
purpose of clause, 231–232 types of clause, 340
reimbursement, 233 uncertainty, effect, 339
Expiry and termination at will unnecessary, where, 340
drafting issues, 334–335 use of clause, 339
fixed period— wording to be used, 344–345
earlier than end of, termination, 335 Freedom of information
end of, termination at, 335 application for information—
whether agreement for, 334–335 applicant’s right to secrecy, 350
length of agreements, specifying, 334 right to make, 349
linkage and use, 335 commercial interests, damage to—
location of clause in agreement, 335 analysis to assess, 357
precedents, 335–336 consultation see consultation below
purpose of clause, 334 factors or questions determining, 354
termination by expiry— information likely to cause, 353–354
precedents, 335–336 Ministry of Justice guidance, 353–354
whether subject to other forms of protection for interests, 353
termination, 335 qualified nature of exemption, 354
specific information not in public
F domain, 354–355
First refusal see Option and right of first trade secret, 353
refusal see also confidentiality and contracts below
Force majeure commercial party contracting with public
meaning, 339, 348 authority, 356
beyond reasonable control— confidentiality and contracts—
meaning, 343 analysis to assess likely damage, 357
see also events beyond reasonable control commercial interests, damage to,
of parties below 353–355
consequences, 344 confidential, information marked as, 352
contents of clause, 339–340 courts overseeing, 355
curing the event, 345 disclosure provisions, precedent, 362
drafting issues, 344–345 exempt information—
effect of event, 342, 344 absolute nature of exemption, 352
effectiveness of clause, 339 additional exception, precedent, 359
events beyond reasonable control of commercial interests, damage to,
parties— 353–355
breach of contract, and, 340 commercial reasons for withholding,
examples, 340, 343, 346–347, 348 351–356
generally, 340 information not exempt, 351
labour disputes, 341, 347 qualified nature of exemption, 354
frustration, doctrine of— statutory definition of, 351, 353
arising, where, 337 trade secret, 353
consequences of relying on, 338–339 existing law, application of, 352

682

Z02_Boilerplate_Index.indd 682 30/08/2017 13:50

 Index

Freedom of information—contd Further assurance—contd

confidentiality and contracts—contd cost of work involved, 366
Information Commissioner’s powers, drafting issues, 366–367
355–356 factoring agreement, 369–370
issues for commercial party, 355–356 finding party after transaction completed,
issues for public authority, 356 366–367
no breach of obligation, precedent, linkage and use, 367
361 location of clause in agreement, 367
post-signature issues, 355 novation of contracts, 370
pre-contract information, 351 operations or tasks continuing after
pre-contract issues, 355 transfer, 366
public interest test, 352–353 precedents, 367–370
separating out of different types of power of attorney in—
information, 357–358 advisability of including, 365
statement identifying confidential deed, whether agreement suitable for
information, 361 execution as, 365
technical and business information, effect, 364
351 foreign company, involvement of, 365
Tribunal Service overseeing, 355–356 foreign country, activities in, 365
consultation— irrevocability, reasons for, 364
process, 357 location of clause containing power,
right of, precedent, 359–360 364–365
whether commercial party having right precedents, 368–369
of, 357 use of, 364
delegation, prohibition on, 350 purpose of clause, 363–365
disclosure in accordance with statute, no responsibilities under, 363–364
liability where, 360–361 responsibility of one party, where, 366
drafting issues, 356–358 rights assignment, 369
environmental information, 350 rights under, 363–364
exemptions and limitations— simple clause, 367
classification of, 350 simple or routine transactions, 366
confidentiality and contracts see timely manner, tasks to be dealt with in,
confidentiality and contracts above 367
exempt information, statutory definition
of, 351, 353 G
generally, 349 Good faith
linkage and use, 358 meaning, 371, 374–376
location of clause in agreement, 358 acting in, 371–372
matters for consideration, 350–351 agreement to agree, entry into, 373–374
precedents, 359–362 case analysis, 376–379
public authority— context-sensitive nature of, 375–376
meaning, 349, 356 contractual remedies etc, 371–372
confidentiality and contracts see drafting issues, 376
confidentiality and contracts above duty to use—
disclosure in accordance with statute, no binding nature of, where, 372, 376
liability where, 360–361 discouragement from advocating, 376
examples of, 350 enforceable, where, 372
issues for, 356 generally, 372
response of, following introduction of no general requirement to act in, 371
duty, 349–350 objective criteria, need to define, 376
right of application to, 349 problems associated with, 372
public interest test, 352–353 implied use of, 375
purpose of clause, 349–356 negotiation in, 373
refusal to release information, 350 no general law or duty as to, 371
statute, non-application of, 356 no overriding concept of, 374–376
time to respond to request, 350 purpose of clause, 371–376
Further assurance required, where, 371
assets sale agreement, 369, 370 responsibilities flowing from, 372
carrying on of activities etc after transaction Group company
completed, 368 meaning, 20
completion of transaction, action following, location in agreement of clause as to, 18
363–364 party to agreement, as, 17
co-operation by parties after transaction Group of companies
completed, 368 drafting considerations, 18

683

Z02_Boilerplate_Index.indd 683 30/08/2017 13:50

 Index

Group undertaking Insolvency

meaning, 23 termination for see Termination for
affiliate, as, 17 insolvency
broadening definition of, 17 Inspection of records see under Records
statutory definition, 16 Insurance
amount of cover for claim, 400
H business premises, 401–402
Holding company copies of documentation, provision of, 400
meaning, 20 drafting issues, 399–400
rights attributed to, 25 exemption clause, whether reasonable, 398
statutory definition, 16 incidents covered by clause, 399
insurers, questions asked by, 398–399
I interest of other party noted on policy, 400
Indemnity level of cover required by, 399
meaning, 380 location of clause in agreement, 400
agent— linkage and use, 400
by, 384–385 losses associated with risk, whether
to, 384, 385–386 recoverable, 398
borrower, by, 385 maintenance of policy, 400
breach of warranty, 383–384 matters covered by clause, 398
categories, 380–381 need for, 399
conduct of proceedings, indemnifier precedents, 401–402
having, 382 premium payments, proof of, 400
drafting issues, 381–383 public liability insurance, 402
effect, 380 purpose of clause, 398–399
extent of, 382, 383 warranty—
franchisee etc, to, 385–386 assets sale agreement, 401
goods, claims as to, 38 contents, 399
‘holding other party harmless’, 381 share sale agreement, 401
injury to staff, 384 wording acceptable to insurers, whether,
lessee of personal property, by, 386–387 398–399
limit on amount payable under, 381 Intellectual property
linkage and use, 383 meaning, 405, 411, 412, 563
location in agreement, 383 agency agreement, 414–416
method of incorporating clause, 380 agreements in which clauses found,
partner, for, 385 403–404
precedents, 383–388 application for, 409
purpose of clause, 380–381 background information: meaning, 413
requirements, lack of, 380 background intellectual property,
responsibilities under, 381 ownership of, 409–410
restrictions on indemnified party’s actions background IP: meaning, 413
following claim, 383 consultation—
security contractor, by, 386 agreements, 188
software etc, by licensor of, 387–388 infringement of rights, 191
supplier of services, for, 385 definition—
third parties, whether covering, 383 approach to dealing with, 406
time for payment under, 381–382 description of property, in conjunction
Indexation with, 406
appropriateness, 389–390 lack of, 405
circumstances for use, 389 need to provide, 405
date of, 390 precedents, 411–414
drafting issues, 389–390 type to be used, 408
increase— drafting issues, 408–410
automatic, whether, 390 due diligence, carrying out, 408
notice, 390 foreground information: meaning, 413
linkage and use, 391 foreground IP: meaning, 413
location in agreement, 391 franchise agreement, 414–416
matters for consideration, 390 issues to be addressed, 404, 408–410
precedents, 391 know-how—
purpose, 389 accepted definitions, lack of, 406
relevant index, use of, 390 confidentiality obligations, need for, 408
worked example, 390 generally, 406–408
Inflation law of confidence, protection under, 406
indexation of see Indexation legislative definition, 406

684

Z02_Boilerplate_Index.indd 684 30/08/2017 13:50

 Index

Intellectual property—contd Interest—contd

know-how—contd drafting issues, 422–423
licence with product development, equity, in, 420
418–419 fixed rate, 423
scope of term, 406–407 linkage and use, 423
technical information, need to protect, location of clause in agreement, 423
407 precedents, 423–424
term insufficient to identify protected purpose of clause, 420–422
information, 407–408 statute, under—
linkage and use, 411 Consumer Credit Act 1974, 422
location of clause in agreement, 410–411 County Courts Act 1984, 420
maintenance, right of, 409 Late Payment of Commercial Debts
non-intellectual property type agreements, (Interest) Act 1998, 420–422
410 supply agreement, 423
ownership where created etc under or underpayments, including, 424
during contract, 409 Interpretation
patents: meaning, 412 Acts and Measures, use of, 430
precedents, 411–419 amendment of statutes—
product development joint venture, catering for, 425
416–418 further amendments, 426
purpose for which property used, 409 future, inclusion of, 426–427
purpose of clause, 403–408 generally, 425–428
rights, examples of, 405 Interpretation Act 1978, 429–430
services agreement— subordinate legislation, 426
advice in form of report, 403 clauses, references to, 427–428, 430–432
important information in— drafting issues, 425–428
issues to address, 404 exclusive rights, 432
precedent, 532 gender references, use of, 427, 429
limited licence to use report, 404 headings, 428, 430–432
precedents, 414–416 his/her references etc, 427, 429
software— Interpretation Act 1978, 425–426
licensing of, 414 legislation—
protection of, 415–416 amendment see amendment of statutes
stamp duty on transfer of, 562–563 above
statutory provisions, 404, 405 extracts from, 429–430
suing infringers, 409 licence, exclusive rights, 432
technology: meaning, 414 linkage and use, 428–429
termination, use after, 409 location of clause in agreement, 428
third party claims, 409 month: meaning, 429
trade secret— person: meaning, 429, 430
meaning, 407 precedents, 430–432
accepted definitions, lack of, 406 purpose of clause, 425
confidentiality obligations, need for, 408 replacement of statutes see amendment of
employment law, meaning in, 407 statutes above
examples, 407 short contract, omission from, 425
generally, 406–408 singular and plural, use of, 427, 430–431
law of confidence, protection under, 406
term insufficient to identify protected J
information, 407–408 Joint and several liability
transfer of rights, 409 meaning, 437
types of business, 403 case analysis, 437–439
value, 403–404 composition, power to accept, 437
warranties as to validity of— compounding with persons, 437
due diligence, following, 408 consumer issues, 437
purpose, 408 contract for services, 437
see also under Warranty discharge, power of, 437
work: meaning, 413 drafting issues, 434–435
Interest effect, 434, 437
base rate, calculated from, 423 generally, 434
common law, under, 420 interpretation, 432, 433
completion delayed, compounding, 424 joint promisees, presumption in case of,
compounded, 424 433
consumer agreement, 423 linkage and use, 436
consumer law, protection afforded by, 422 location of clause in agreement, 436

685

Z02_Boilerplate_Index.indd 685 30/08/2017 13:50

 Index

Joint and several liability—contd Law and jurisdiction—contd

nature of, 434 foreign element to agreement, 443–444
obligations extending to, 435 interim injunction outside UK, 450
partners, parties acting as, 435 international conflicts of, 447–448
precedents, 436–437 jurisdiction—
purpose of clause, 433 Brussels Regulation, use of, 445
several liability, effect, 433 determining, 445
several persons constituting party, where, English courts, of, 451
434 exclusive, 446, 451–452
single party, reference to but more than non-exclusive, 446, 448–449, 451–452
one party within definition, 435 partially exclusive, 451
whether clause necessary, 434 precedent, 451–452
wording to ensure, 434 rules outside EU, 447–448
Joint venture UN Convention, whether applicable, 447
meaning, 32 law—
denial of, clause as to, 32 applicable, determining, 448
drafting issues, 32 correctly described, whether, 449
examples of, 32 outside EU, 447–448
group company as, 16 prevailing, 446–447, 449
linkage and use of clause, 33 Rome Convention, use of, 446
location of clause in agreement, 33 Rome I Regulation, use of, 446–447, 448
non-existence of, 33 UK, determining whose laws to prevail
precedents, 33–34 in, 449
Jurisdiction see Law and jurisdiction UN Convention, whether applicable, 447
linkage and use, 449–450
K location of clause in agreement, 449
Know-how see under Intellectual property precedents, 450–452
purpose of clause, 443–448
L Rome Convention, use of, 446
Language Rome I Regulation, use of, 446–447, 448
amendments, 440 scope of clause, 443
authoritative version, decision as to, 440 service of proceedings, 450–451
documentation, supply or generation, 441 several countries involved, 444
drafting issues, 440–441 UK, determining whose law to prevail in,
English— 449
prevailing language, as, 442 UN Convention, application of, 447
wide use of, 440
law and jurisdiction, prevailing, 441 M
linkage and use, 442 Meanings see Definitions
local law, required by, 441 Member
location of clause in agreement, 441 meaning, 17
more than one, use of, 440
party’s language to prevail, 442 N
precedents, 442 Net invoice price see Net sales value
purpose of clause, 440 Net sales value
translation required, where, 440, 441 cap on amount deducted, inclusion of, 467
Law and jurisdiction drafting issues, 466–467
agreement or dispute, country having generally, 465–466
jurisdiction over, 445 income as basis for deductions,
another country’s laws, whether applicable, determining, 467
448 income not derived from sales of licensed
Brussels Regulation, use of, 445 products, receipt of, 467
confidential information, disclosure and items deductible by licensee, 466–467
misuse, 444 linkage and use, 468
dispute or agreement, country having location of clause in agreement, 467
jurisdiction over, 445 precedents, 468
domicile, rules for deciding, 445 price as basis for deductions, determining,
drafting issues, 448–449 467
England and Wales, party located outside, purpose of clause, 465–466
448 Non-exclusive see Exclusive, non-exclusive and
English competition laws, whether sole
prevailing in non-EU contract, 447 Notices
English parties only to agreement, 443 address, statement as to correct and
EU, parties not located in, 447–448 current, 473

686

Z02_Boilerplate_Index.indd 686 30/08/2017 13:50

 Index

Notices—contd Option and right of first refusal—contd

case analysis, 470, 480–482 option—contd
communication other than by post, mode example, 483
of confirming, 472–473 exercise, statement as to, 485
different addresses for service, use of, extension of agreement, subject to new
475–476 price being agreed, 489
different parties for service, use of, 475–476 lapse, 484
drafting issues, 470–476 licence agreement, to enter, 487
effectiveness, 470 nature of, 483
email, sent by, 472 non-exercise of, consequences, 486
fax, precedents for sending by, 476–478 notices, 486
importance, 470 number of occasions for exercise, 486
linkage and use, 476 payment, 486
location of clause in agreement, 476 right of first refusal distinguished from,
mistake in, effect, 470 483–484
multiple, 476 right to exercise, clear description of
partnership, to, 476 circumstances for, 485
personal delivery— rights under, 483
meaning, 471, 474 shares, as to purchase of, 487–488
clarity of wording advisable, 471 termination, 486
senior member of staff, on, 471 time limit to comply with exercise of,
whether permissible, 471 484–485
post, sent by— type to be received, 485
generally, 471–472 precedents, 487–489
precedents, 476–478 purpose of clause, 483–485
precedents, 476–480 right of first refusal—
purpose of clause, 469–470 licence of patents, in, 488
receipt— option distinguished from, 483–484
deemed time of— precedents, 488
electronic mail, 475 separate option clause in franchise
generally, 473 agreement, added to, 488
personal delivery, 473–474
post, 474–475 P
specification of time, need for, 473 Parent company
method of proof required, whether, 475 statutory definition, 16
proof of, 477–478 Parent undertaking
service— meaning, 23, 24
generally, 470 legislative provisions as to, 26–28
proof after extensive period, 476 rights attributed to, 28
urgent personal service with priority, statutory definition, 16, 23
478–479 Part payment see also Deposit
statutory etc requirements, whether appropriation of, 289
necessary to comply with, 470 consumer law, effect, 288
telex, precedent for sending by, 476 deposit distinguished, 285, 287
usefulness of clause, examples, 469 drafting issues, 287
writing— linkage and use, 288
types of, 470–471 loan agreement, in, 289
whether need for, 470 location of clause in agreement, 268
Novation see Assignment and novation partial performance, consequences, 287
meaning, 82 precedents, 288–290
purpose of, 287
O purpose of clause, 284–287
Option and right of first refusal recovery of, 286
case analysis, 489–493 refund—
drafting issues, 485–486 consumer rental agreement, 289
linkage and use, 486 supplier’s warranty, 289
location of clause in agreement, 486 retention, right of, 287
option— share option price not to be, 289
meaning, 483 unfair, where, 288
arising, where, 483 use of, 284
change of parties, effect on power to Partnership
exercise, 485–486 meaning, 30
clarity, need for, 485 contractual relationship only, 33
consideration, provision of, 485 denial of, clause as to, 31

687

Z02_Boilerplate_Index.indd 687 30/08/2017 13:50

 Index

Partnership—contd Payment terms—contd

drafting issues, 32 statements, receipts and invoices, 504
existence of, 30–31 sterling, conversion into, 506
liability arising from, 31 terms of payment, 507
limited liability, 31 time of essence, whether, 504
linkage and use of clause, 33 timing of payments, 503
location of clause in agreement, 33 VAT, whether payment including, 504, 507
no intention to create, 31, 33 Performance
precedents, 33–34 impossibility of, doctrine of frustration and
purpose of clause, 29 see under Force majeure
Party Priority of terms
meaning, 497, 498, 499 agreement dealing with or linked to
address, provision of, 496–497, 498 another agreement, 511
default clause, 498 case analysis, 514–519
description of party, 499–501 conveyance to prevail, 513
descriptive names, use of, 497, 498 drafting issues, 511–512
differently named parties treated as one linkage and use, 512
party, 495, 499 location of clause in agreement, 512
drafting issues, 494–497 manual to prevail, 513
head of agreement, mentioned in, 494 particular schedule to prevail, 513
identification, need for, 494 precedents, 513–514
linkage and use, 498 prevailing agreement, 513
location of clause in agreement, 498 purpose of clause, 510–511
name and status, use of, 17, 495, 498 reference to other agreements etc, 511
numbering and paragraphing, 494–495 relevance of other agreements, 511–512
precedents, 498–501 several documents incorporated into
purpose of clause, 494 agreement, 512
role, whether described by, 494–495 shareholders’ agreement to prevail, 514
signature as, 17 special conditions to prevail, 513
status and name, use of, 495–496 standard conditions to prevail, 513
whether person or organisation statute law to prevail, 514
constituting, 497 Property and risk see also Title and risk
Payment terms delivery, risk passing on—
amount payable, statement as to, 502–503 agency agreement, 629
ancillary costs, payment of, 504 generally, 629
confirmed letter of credit, payment by, 506 freedom of negotiation as to, 626
consultant, services provided by, 506–507 implied terms, in absence of agreement,
currency for payment, 504 626
deductions, 504, 506 legislation, extracts from—
drafting issues, 502–505 intention to pass property, 630
failure to state, consequences, 502 need to ascertain goods, 630
fixed payments, 506–507 right of disposal, reservation of, 632
frequency of payments, 503 risk, passing of, 632
guaranteeing of payment etc, 505 rules for ascertaining intention, 630–632
interest, payment of, 504 location of clause in agreement, 629
internet, goods ordered on, 508–509 ownership not passing on delivery, 629
invoices, sending of, 505 payment, title passing on, 630
letter of credit, payment by, 506 precedents, 629–630
linkage and use, 505–506 purpose of clause, 626–627
location of clause in agreement, 505 sales with international element, in—
long term supply of goods, 507–508 buyer’s duties, 628
method of calculating payment, 503–504 generally, 627–628
method of making, 504 INCOTERMS, applicability of, 627–628,
order numbers etc, use of, 505 630
ownership of goods, 505 seller’s duties, 628
precedents, 506–509 time at which risk passes, 628
price by reference to list, 506 specific goods: meaning, 626
purpose of clause, 502 statutory rules—
records, 504–505 modification, 627
refunds, deposits and part-payments, 504 summary of provisions, 626–627
royalty payment— time for risk passing—
accompanied by statement, 506 generally, 626–627
sales on, 507 see also delivery, risk passing on above
set-offs, 504 unascertained goods: meaning, 626

688

Z02_Boilerplate_Index.indd 688 30/08/2017 13:50

 Index

R Recital—contd
Reasonable endeavours see also Best precedents, 527
endeavours presumptions as to, 524
absolute obligations, examples of, 102 purpose of clause, 523–525
all— real property transactions, use in, 525
avoidance of expression, 106 transfer of registered land, 525
case law, 105–106 unintended consequences, 525
generally, 105–106 wording to be used in, 526, 527
avoidance of expression, 106 Records
best endeavours, compared with, 104–105 auditing and inspection of—
case analysis, 113–115 agreements, examples of, 94
delivery, for, 110 books see inspection of books below
dispute resolution, 109, 110 case analysis, 98–101
drafting issues, 106–107 confidentiality, 96
employees, retention of, on sale of business, contents of clause, 94
110 drafting issues, 95–97
installation, to achieve, 110 examinable records, 95–96
lease renewal, agreement as to, 109 licensing agreement, 97, 98
location of clause in agreement, 108 linkage and use, 97
other expressions, use of, 106 location of clause in agreement, 97
precedents, 108–111 parties required to keep records, 95
purpose of clause, 102 patent licensing agreement, 98
qualified obligations, examples of, 102–104 persons permitted to carry out, 96
time of essence unnecessary, where, precedents, 97–98
110–111 purpose of clause, 94–95
Receipts refusal, consequences, 95
meaning, 520 variable factors allowing for, 94
acknowledgment of sum paid, 522 inspection of books—
drafting issues, 521 generally, 97
evidence as to payment, 521 licensing agreement, 97
identifying thing or payment, 521 patent licensing agreement, 98
information necessary to perform services, licensing agreement—
of, 522 inspection of books, 97
location of clause in agreement, 522 inspection of records, 98
necessity for clause, whether, 521 Release see Waiver and release
patent renewal fees, payment of, 522 Reporting
precedents, 522 completion of agreement, on, 530
property transactions, in deed involving, confidentiality, 529, 530
521 consequences of termination, 530–531
purpose of clause, 520–521 drafting issues, 528–529
statement as to fulfilment of obligation, 521 expiry of agreement, on, 530
types of agreement in which clause appears, format of report, 529
520 frequency of information, 529
uses of clause, 520–521 information required, 528
Recital linkage and use, 529–531
admissible background for interpretation location of clause in agreement, 529
of contract, as, 524 other than in writing, 529
binding obligations, avoidance of, 525 ownership of reports, 530
case law on legal effect, 523–525 precedents, 531–532
commencement of clause, 526, 527 purpose of clause, 528
consultant, appointment of, 527 receiver of information, rights of, 529
drafting issues, 525–526 reports—
effect— consultancy or advice, provision of, 532
case law on, 523–525 intellectual property in, ownership of,
generally, 11–12 531
rules from case law, 523–524 licensee of software, sales by, 532
estoppel, and, 525 provision of—
inappropriate, where, 525 fixed periods, at, 531
interpretive aid, as, 524 on request, 531
layout considerations, 526 sales by agent, distributor etc, 531–532
legally binding, whether, 523 termination of agreement, on—
linkage and use, 526–527 generally, 530
location of clause in agreement, 526 return or destruction of information,
necessity for clause, whether, 525 530–531

689

Z02_Boilerplate_Index.indd 689 30/08/2017 13:50

 Index

Reporting—contd S
third parties, reports from, 529 Schedule
types of agreement required in, 528 agreement, whether part of, 544
Retention of title attachment or index distinguished, 544
meaning, 534 contents, 544
agreement, effect of breaches on, 538 drafting issues, 545–546
all monies clause, 535 linkage, 548
beneficial title, 536 location of clauses in agreement, 546
change to goods, retention in case of, more than one, agreement containing—
535–536 identification, 545
charge over goods— overlap on issues dealt with by, 546
creation of, 533, 534, 536 not attached to agreement but referred to
duty to register, 543 in agreement, 545–546
clarity, need for, 536–537 numbering, 548
classification of clauses, 534 precedents, 548
current account clause, 535 purpose of clause, 544–545
drafting issues, 536–537 status, clear statement as to, 545
equitable title, 536 terminology, 545
extension of seller’s rights, clause providing usage, 547
for, 535–536 Set-off and retention
fiduciary relationship, establishing, 535 retention—
franchise supply agreement, 541–542 generally, 549
full title, whether, 536 sum of money, 549
generally, 533 title to goods see Retention of title
goods losing original identity, 536 set-off—
identification of goods, need for, 537 meaning, 549
importance of retaining ownership, 533, 534 availability of defence, 550
interest payment in case of, 538 buyer’s clause, 553
legal problems arising, 535–536 consumer contract, and, 551
linkage and use, 537–538 court rules, under, 550
location of clause in agreement, 537 drafting issues, 550–551
long-term supply agreement, 540, 542–543 express right of, 550–551
payment in case of, 538 extending right of, 551
precedents, 538–543 generally, 549
principle, 533–534 guarantee agreement, 552
product clause, 535–536 linkage and use, 551
purpose of clause, 533–536 loan agreement, 553
recovery of possession on buyer’s premises, location of clause in agreement, 551
535 no right to, 550, 552
reprocessing of goods, right of, 537 precedents, 552–553
risk, need to consider which party bears, purpose of clause, 549–550
537 right to, 550, 552–553
sale of goods agreement, 539–540, 540–541 sale agreement, 553
termination of agreement under clause, seller’s clause, 552
538 situations covering no set-off provision,
time for passing of property, 533 550
tracing clause, 535–536 types of situation envisaged, 549
tracing of proceeds clause, 535 validity of clause, 549
variation of statutory rule, operating as, 533 waiver, 552
warranty that goods not subject to, 538 Severance and invalidity
Right of first refusal see Option and right of blue pencil test, 555
first refusal case analysis, 558–561
Rights contract failing, circumstances in which, 555
disregarded, where, 26, 28 drafting issues, 555–556
exercisable in certain circumstances, 25, 27 effectiveness of clause, matters ensuring,
fiduciary capacity, held by person in, 25, 27 554
held by one person on behalf of another, example of clause, 561
25, 27 illegality, question of, 555
holding company, attributed to, 25 implications of severance, 557
legislative provisions as to, 25–26 judicial approach to, 554–555, 558–561
parent undertaking, attributed to, 28 linkage and use, 556–557
shares held by way of security, attached to, location of clause in agreement, 556
25, 27–28 negotiation after severance of clause, 556,
temporarily incapable of exercise, 25, 27 557

690

Z02_Boilerplate_Index.indd 690 30/08/2017 13:50

 Index

Severance and invalidity—contd Sub-contracting—contd

one party allowed to sever clause, 556, 558 contractor carrying out obligations
post-termination covenants, examples of, personally, whether, 567–568
560 consultation with customer, whether
precedents, 557–558 necessary, 567
purpose of clause, 554–555 contractor’s responsibilities, 566
remainder, enforceability of, 555 customer’s right to sue contractor, 566
rescuing defective clauses, 555 drafting issues, 567–569
restraint of trade clause, 558 intellectual property created, ownership
termination following severance, right of, of, 568
556, 558 linkage and use, 569–570
unenforceability, question of, 555 location of clause in agreement, 569
useful, where, 556–557 obligations sub-contracted—
Shares extent of, 567
meaning, 22–23 terms and conditions applicable, 567
held by way of security, attached to, 25, 27 permitted, whether, 566, 570–571
Signature block precedents, 570
agreement under hand, forms of, 44 purpose of clause, 566
deed executed by company, 45–46 specific parts of contract, of, 571
drafting issues, 42–43 sub-contractor—
linkage and use, 44 meaning, 570
location, 42, 43 supervision, 570
nature of, 40, 41 third party, to be, 570
parties signing, 41 without permission, consequences, 568–569
precedents, 44–46 Subject to contract
terminology, 40 meaning, 572
witnessing signature, 42 case analysis, 580–588
Sole see Exclusive, non-exclusive and sole commercial parties, approach of, 573–574
Stamp duty see also Stamp Duty Land Tax documents to be labelled, 575
admissibility of unstamped documents, drafting issues, 574–578
562 England and Wales, party not based in, 576
agreement linked to, or relying on, other final binding contract, obligations carried
transactions, 564 out before entry into, 575–576
drafting issues, 564 formal style and wording, avoidance of, 575
instrument: meaning, 562 land, contracts as to, 573
intellectual property, transfer of, 562–563 legislation, extracts from, 588
limited situations for payment, 562 letter of intent, 580
linkage and use, 564 linkage and use, 578
location of clause in agreement, 564 location of clause in agreement, 578
not payable, where, 562 location of phrase in documentation,
payable, where, 562 578–579
payer, 564 lock-out agreement for sale of land, 579
penalties for late stamping, 562 negotiations, during—
precedents, 565 generally, 573–574
purpose of clause, 562–564 foreign parties, involvement of, 574
whether document attracting, 564 non-binding documentation, generation of,
Stamp Duty Land Tax see also Stamp duty 573–574
agreement linked to, or relying on, other obligations performed prior to contract
transactions, 564 being concluded, 576–578
compulsory nature of tax, 563 phrases, need for care in using, 575
drafting issues, 564 precedents, 578–580
exemptions and reliefs, 563–564 pre-contract documentation with binding
linkage and use, 564 obligations, 576
location of clause in agreement, 564 problems arising in use of phrase, 572
payable, where, 563 purpose of clause, 572–574
payer, 564 sale of business, 579
purpose of clause, 563–564 status of documents, indicating, 575
self-assessment basis of accounting, 563 wording to create binding contract,
whether document attracting, 564 inadvertent use of, 576
Stamp duty reserve tax work begun prior to concluding contract,
precedent for payment of, 565 effect, 576–578
Sub-contracting Subsidiary
arising, where, 566 meaning, 20–22
confidentiality, and, 568 absence of, 21

691

Z02_Boilerplate_Index.indd 691 30/08/2017 13:50

 Index

Subsidiary—contd Termination—contd
definition— consequences of see Survival of terms
alternative wording, use of, 17 insolvency, for see Termination for
extracts from legislation, 21–22 insolvency
intention of parties, relevance, 17 Termination for breach
statutory, 16, 20–21 case analysis, 605–610
legislation relevant to— categories of termination provision, 594
definitions, 21–24 cause, for, whether permitted, 598–599
supplementary provisions, 24–26 cause, without, whether permitted, 599–600
location in agreement of clause as to, 18 circumstances for, consideration of, 601
member of: meaning, 17 common law rights, 593, 598
statutory definition— consequences of termination, clauses to
generally, 16, 21–22 cover, 594
power to amend, 22 corporate insolvency, 603, 605
undertaking— default, for, 605
fellow: meaning, 23 drafting issues, 598–600
legislative provisions as to, 26–28 effluxion of time, by see expiry of
statutory definition, 16, 22–23 agreement, on below
wholly-owned, statutory definition, 16, 22 expiry of agreement, on—
Successors and assigns see also Assignment and clauses, 602
Novation fixed term, where, 602
assignment clause, wording as part of, 591 generally, 600
associates, assignees etc, party to include, matters to be clarified, 600
592 express provision, need for, 598
binding nature of agreement on, 592 failure to remedy breach, 603–604
drafting issues, 590 fault, without, 601–602
foreign parties, effect of involvement, 590 fixed period of time agreement, following
indemnity, increase or alteration of, 590 expiry, 600, 602
location of clause in agreement, 590 generally, 603
operation of law, effect, 590 importance of including clause in contract,
party clause, wording with, 591 593
party to include, 591–592 insolvency, 603–605
power to assign, 592 judicial approach to, 593
precedents, 591–592 licensing agreement, 602
prohibitions on assignment— linkage and use, 601
contradiction of, avoiding, 590 liquidation, 603
no inclusion or cross-reference to, 591 location of clause in agreement, 601
purpose of clause, 589 misconduct, 605
use of clause— multi-party agreement, by one party to, 602
generally, 589 non-payment, 603–605
UK and USA, in, 589 non-performance, 604–605
Survival of terms non-remedy of breach, 603
accrued rights, survival of, 186 notice of—
completion, after, 187 form and content, need to consider, 601
consequences of termination, 186 ineffective service, 601
continuance for lengthy period etc, 183 whether effective to terminate, 600
documents etc, whether need to return, 184 obligations of a continuing nature, breach
drafting issues, 184–185 of, 593
limited time, for, 183 patent assignment, 605
linkage and usage, 185–186 points to consider, 598–599
liquidation, termination arising from, 183 precedents, 601–605
location of clause in agreement, 185 purpose of clause, 593–598
materials etc, whether need to return, 184 quality of breach, specifying, 595–598
non-survival of terms, 186 reasons for—
onerous contract, right to reject, 183 generally, 595–598
precedents, 186–187 important obligation, failure to fulfil, 595
purpose of clause, 183 insolvency of party, 595
rights up to termination, 186 payment, failure to make, 595
types of clauses that survive, 185–186 seriousness of see serious breach, for
winding-down phase, whether need for, 184 below
specified date, failure to meet, 595
T relation of termination clauses to each
Termination other, 600
breach see Termination for breach remedies available following, 594, 598

692

Z02_Boilerplate_Index.indd 692 30/08/2017 13:50

 Index

Termination for breach—contd Testimonium clause see Execution clause

serious breach, for— Time
judicial approach to, 597 ‘after’, date calculated, 456–457
material or substantial, use of wording, ‘as soon as possible’, use of expression, 459
596–597 bank holiday, use of expression, 458
minor nature, examples of, 596 ‘beginning from’, date calculated, 456–457
multiple obligations, in case of, 596 business day: meaning, 454, 457–458
need to specify seriousness, 597 business hours: meaning, 457–458
‘seriousness’ standard, use of, 595 calculation, principles of—
significant nature of breach, 596 corresponding date rule, 455
wording, need for clear and appropriate, day on which time begins to run,
596 exclusion, 455
services, contract for, 602 end of period, 455
simple clause as to, 601 month, end of, 455–456
steps to be taken to terminate, 598 calendar month: meaning, 453
survival of terms after, 594 case analysis, 463–464
third party rights, need to consider, 601 conventional day: meaning, 454
types of clause, 594 day—
will, termination at— meaning, 454, 456
fixed period, after, 602 precedents, 461
generally, 602 essence, of the see Time of the essence
wording in addition to notice, whether expressions generally, 458–459
required, 600 ‘forthwith’, use of expression, 459
Termination for insolvency ‘from’, date calculated, 456–457
corporate party, in case of, 392–393 legislation, extracts from, 463
drafting issues, 394–395 linkage and use, 459–460
foreign parties, 394 location of clause in agreement, 459
insolvency of one party only, 394 month—
linkage and use, 395 meaning, 453, 456, 460, 463
liquidator’s rights, 395 end of, 455–456
location of clause in agreement, 395 general principles of calculation see
onerous contracts, right to reject, 395 calculation, principles of above
partnership, in case of, 392 notice, examples, 456
pre-1987 terminology, 393–394 part of, 460
precedents, 396–397 precedents, 460–461
purpose of clause, 392–394 precedents, 460–462
specific types of insolvency, reference to, public holiday, use of expression, 458
395 purpose of clause, 453
terminology, correct use of, 395 quarters: meaning, 454–455
time for termination, 394, 395 start and end points of defined periods,
whether termination inevitable, 394–395 calculation of, 456
Territory stated length of agreement, 457
agreements where clause likely, 611 ‘until’, date calculated, 457
British Isles: meaning, 612 usual quarter days: meaning, 454–455
clear definition, need for, 613 working day: meaning, 454
date at which definition used, 613 year—
drafting issues, 613 meaning, 453–454, 456
England: meaning, 612 precedents, 462
Europe: meaning, 616 year of this agreement: meaning, 453–454
European Economic Area, 613 Time of the essence
European Territories: meaning, 616 agreements in which found, 617
European Union— bargaining power of each party, relevance,
meaning, 615 618
generally, 612–613 case analysis, 619, 620, 624–625
Great Britain: meaning, 612, 616 compromise provision, example of, 618
linkage and use, 614 consequences of beach of term—
location of clause in agreement, 614 generally, 617–618
precedents, 615–616 need to set out, 621
purpose of clause, 611 contract not expressly providing for, 620
UK: meaning, 611–612, 615, 616 delivery term, standard conditions of
use, 610, 614 purchase, 623
Wales: meaning, 612 drafting issues, 621
within a country: meaning, 616 extensions, allowing for, 622
world: meaning, 615 feasibility of compliance with, 618

693

Z02_Boilerplate_Index.indd 693 30/08/2017 13:50

 Index

Time of the essence—contd U

general provisions, 622 Undertaking
generally, 617–618 directors, appointment or removal, 26–27
location of clause in agreement, 621–622 dominant influence, right to exercise, 27
mercantile contracts, in, 620 member of another: meaning, 23–24
non-mercantile contracts, in, 619 parent see Parent undertaking
not of the essence— statutory definition—
case law, 619 extracts from legislation, 21–22
distribution or supply agreement, 623 generally, 16
licence or supply agreement, 623 voting rights in, 26
one party’s obligation only, 622 Unincorporated society
party not wishing to make, compromise signature mandate by, 130
clause, 618 Unregistered land
payments, for— deeds, acknowledgment for production
all payments, 623 of, 14
payment term, standard conditions of
sale, 623 V
specified, 623 Value added tax
precedents, 622–623 additional charge to price, whether
purpose of clause, 617–621 wording suggestive of, 633
reasonable time, need for, 618 chargeable, where, 633
sale agreement, in, 622 drafting issues, 633–634
sale conditions, in, 622 inclusion of VAT in pricing or payment
sample clause, 617 provision, 633, 634
specified payments, for, 623 linkage and use, 634
statutory provisions— location of clause in agreement, 634
goods, as to, 620–621 payment exclusive of, 635
land, as to, 621 payment ‘net 30 days’, 634–635
services, as to, 621 precedents, 634–636
termination for breach, right of, 617 prevailing rate at tax point, whether
times and dates, need to set out, 621 chargeable at, 633–634
use of exact wording not essential, 621 purpose of clause, 633
wording needed to make provision of the share sale agreement, 635–636
essence, 618–619 supplier registered for VAT, whether, 634
Title and risk see also Property and risk tax deduction authorisation, 636
freedom of negotiation as to, 626 tax indemnity by independent contractor,
implied terms, in absence of agreement, 636
626 undertaking as to withholding taxes, 636
legislation, extracts from— warranties, 635–636
intention to pass property, 630 Variation see Amendment
need to ascertain goods, 630 Voting rights
right of disposal, reservation of, 632 legislative provisions, 24
risk, passing of, 632 subsidiary, in, 26
rules for ascertaining intention, 630–
632 W
location of clause in agreement, 629 Waiver and release
ownership not passing on delivery, 629 drafting issues, 640
payment, title passing on, 630 generally, 637–638
precedents, 629–630 linkage and use, 640
purpose of clause, 626–627 location of clause in agreement, 640
sales with international element, in— precedents, 641–643
buyer’s duties, 628 purpose of clause, 637–639
generally, 627–628 release—
INCOTERMS, applicability of, 627–628, assignment of franchise, on, 643
630 debtor, of, 642–643
seller’s duties, 628 mutual, 642
time at which risk passes, 628 novation agreement, in, 643
specific goods: meaning, 626 precedents, 642–643
statutory rules— purpose, 639
modification, 627 subject matter, need to specify, 639
summary of provisions, 626–627 waiver, distinguished from, 639
time for risk passing, 626–627 waiver—
unascertained goods: meaning, 626 meaning, 637
Trade secret see under Intellectual property appropriate, whether, 640

694

Z02_Boilerplate_Index.indd 694 30/08/2017 13:50

 Index

Waiver and release—contd Warranty—contd

waiver—contd good standing—contd
breach of contract, and, 638–639 US, common in, 645
case law on, 638 goods, provision of, 648
completion, and, 641 intellectual property—
continuing breach, no waiver of, 641 licence of, in, 644
formal document supported by precedents as to—
consideration, 637 business sale agreement, 658–661
functions of clause, 639 industrial property, 660–661
implication based on conduct, 637–638 know-how, 660
limited, one party only, 642 ownership, 656–657
method of making, 637 share sale agreement, 661–662
no waiver, 641 trade marks etc, 658–660
precedents, 641–642 knowledge, as to—
purpose of clause, 639 examples, 647
release, distinguished from, 639 generally, 647–648
situation giving rise to, need for types, 647–648
confirmation or note in writing, 640 liability, cap on, 647
time for making, 637 linkage and use, 649
use of clause, 640 location of clause in agreement, 649
whether clause necessary, 640 matters excluded from, 647
writing, need for, 641 minor claims, exclusion of, 647
Warranty no disputes and litigation, share sale
meaning, 644 agreement, 654–655
agreement not in conformity with, 648 obligations, as to ability to fulfil, 649
assets sale, good standing of business on, power to enter agreement, as to—
652 generally, 649
business sale agreement, intellectual no conflicting agreement, where, 649
property rights, 658–661 third party liabilities, 649
common type of, 644 precedents, 649
competition laws, non-infringement of, 662 purpose of clause, 644–648
compliance with statutes, permissions and repaired or replaced goods or services,
data regulation, 655–656 whether subject to original warranty, 648
conditions, 646–647 sale of business, on, 644, 651–652
disclosure letter, provision for, 651 scheduled limitations on, 651–651
documents, negotiating, 650 services, provision of, 648
drafting issues, 648–649 share sale agreement—
due capacity and good standing— compliance with statutes, permissions
capacity, 645–646 and data regulation, 655–656
due diligence exercise, company good standing of business on, 652–653
undertaking, 645 intellectual property rights, 661–662
generally, 644–645 no disputes and litigation, 654–655
good standing see good standing below vendor’s interests, as to, 653–654
other commercial provisions used in standard types of, provision of, 649
addition to, 645–646 terms, 646–647
standard nature of, 644 time limit, 647
US, common in, 645 ‘to the warrantor’s knowledge’, inadvisable
effect, 11 use of, 648
equipment, as to, 650–651 trade marks etc, 658–660
giving of, readiness as to, 648 transactions, relevance of, 644
good standing— types, 644
business, of, 652–653 vendor’s interests, as to, 653–654
certificate of, 646 vendor’s warranties, as to, 651–652
example, 646 Whole agreement see Entire agreement and
lack of accepted meaning, 646 non-reliance
points dealing with, 646

695

Z02_Boilerplate_Index.indd 695 30/08/2017 13:50

Z02_Boilerplate_Index.indd 696 30/08/2017 13:50