An A to Z of Contract Clauses - Key Terms for your Contracts

Navigating a commercial contract and appreciating the implications, both legal and practical, can be a daunting task. This article provides a snapshot of key clauses typically found in a standard commercial contract and looks at the implications of those clauses for the contracting parties.

A is for Assignment

English law states that, in the absence of express drafting to the contrary in a contract, either party to that contract may:

  1. Assign their rights to a third party (subject to limited exceptions); but

  2. May not transfer obligations arising under that contract to a third party.

This 'default' legal position exposes the parties to the undesirable reality that a contract they have entered into can be freely assigned to a third party without their consent. Particularly in services contracts this is far from ideal as it could expose the service provider to the situation where a third party of which they have no knowledge (including its ability to pay) is utilising its services under a contract.

It is therefore common to see the inclusion of the following clause, or some variation on it:

Neither party may without the prior written consent of the other, such consent not to be unreasonably withheld, assign or in any way dispose of its rights under this agreement to any third party.

Such drafting is neutral and protects both parties from the eventuality discussed above. However, it would not be unusual to see a one way obligation to seek consent to assign, if the party seeking to impose that obligation on the other party has concerns as to who might end up providing it with services or products.

B is for Boilerplate

'Boilerplate' describes provisions which are common to most commercial contracts and which do not relate to the main object of the contract but which are required for regulate its operation. Although such clauses are often considered 'standard', their ramifications are far from so, and careful thought should always be given to the impact of the clause in the specific commercial context of the contract.

C is for Confidentiality

Contracts will typically include a clause requiring the parties to protect each other's confidential information. The inclusion of such a confidentiality clause is imperative in the situations where the parties' confidential information will be exposed to the other. The wording below is a simplified example of a confidentiality clause:

The parties shall keep confidential all Confidential Information and not, without the prior written consent of the other party, disclose the Confidential Information to any other party save to the extent required by law.

The definition of 'Confidential Information' is often drafted widely to include all written, pictorial, machine readable or oral information which relates to trade secrets, customers, suppliers, or business associations...

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