Service agreements - unpacking the boilerplate (including force majeure clauses)‎

UNPACKING

Corporate Update

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‎‎ 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:‎ ‎‎ ‎

  1. Entire agreement
  2. ‎ 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.‎ ‎

  3. Assignment and change of control
  4. 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. ‎

  5. Law and jurisdiction
  6. 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. ‎ ‎

  7. Dispute resolution
  8. ‎‎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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