Service agreements - unpacking the boilerplate (including force majeure clauses)
Service providers embarking on a new contractual relationship will find that most service agreements contain a number of general “boilerplate” provisions. These clauses are sometimes copied directly from other similar agreements and are only briefly considered by the parties. This approach is not advisable.
Boilerplate clauses can end up determining crucial issues that arise. Therefore, accepting, without thoroughly reviewing, these clauses in the service agreement can jeopardize the service providers’ ability to operate successfully. These provisions, like any other, should be carefully considered, included (if applicable) and, where necessary, amended to reflect the parties’ intentions.
For instance, the business restrictions imposed by COVID-19 have thrown force majeure provisions into the limelight. Force majeure clauses act to excuse or modify the performance of one or both parties when, as a leading case says, a “supervening, sometimes supernatural” event beyond the parties’ control makes performance impossible -- something unexpected and beyond reasonable foresight and skill. Force majeure provisions must be included in the contract for the parties to rely on them. There is no force majeure provision at common law and courts will not read in or find that such a clause was implied.
Force majeure clauses are interpreted according to their own wording and within the context of the particular contract. Courts will take numerous considerations into account when interpreting a force majeure clause, such as the definition of a triggering event under that clause, the required impact of the triggering event on the party claiming protection and the effect of invoking the clause. Service providers should keep these issues, amongst others, in mind when drafting or reviewing the force majeure provisions in their service agreements. Force majeure provisions are just one example of the many boilerplate provisions often seen in service agreements. Other key standard boilerplate provisions are:
- Entire agreement This clause forestalls claims that promises, representations and warranties (for example, in promotional or sales materials or RFPs) were provided outside of the written agreement.
- Assignment and change of control Resist assignment and change of control restrictions as they affect the service provider’s marketability and ability to reorganize its corporate structure. If the customer insists on an assignment restriction, sometimes the concern is that the service provider will simply outsource its obligations; if so, clarify that the customer will not unreasonably withhold consent to an assignment, and include an exception allowing the service provider to assign the agreement without consent in association with the sale of all or substantially all of its business.
- Law and jurisdiction To avoid the customer raising defences not known to the service provider, and to ensure that judgment can be obtained and recognized in a known manner, clearly specify that the laws of the service provider’s jurisdiction apply to the contract and that the parties submit to the jurisdiction of its home courts. That said, clarify that either party can apply to any court for any equitable relief such as injunctions.
- Dispute resolution Consider whether a dispute resolution clause is appropriate. This can be as simple as stating that the parties will try to resolve any disputes amicably and in good faith before escalating to court, or as complex as requiring non-binding mediation to be followed by binding arbitration, if necessary.
Service providers that are familiar with the above provisions and take the appropriate measures to protect themselves in reviewing and amending them, greatly reduce the risk of later being caught unawares when issues arise and the parties are forced to turn to the boilerplate language in the contract for answers.
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