Does Boilerplate Matter?

Plain talk advocates accuse lawyers of padding their contracts, thereby needlessly increasing their bills, by the inclusion of what is derisively called “boilerplate”.

In this context, “boilerplate” refers to standardized provisions at the front or back of agreements. These provisions are rarely discussed between attorney and client during the preparation of the contract, and they look the same from agreement to agreement.  But, boilerplate provisions often save the day for one or both parties.

Here are some examples of typical boilerplate clauses:

– choice of law

– entire agreement

– successors and assigns

– notices

– force majeure

– interpretation, definitions

– counterpart execution

– time of essence

– further assurances

– gender

– amendments

– waiver  and others…

Are these provisions really necessary? Why? What would happen if we just left them out?

Well, the best rationales for boilerplate provisions are:

1.         they aid interpretation of the agreement in ways that are well established thru caselaw – such as defining key terms to avoid debate and uncertainty;

2.         they wrap around the core business terms of the contract to provide valuable terms that  don’t need customization or negotiation – such as the method of giving notice;

3.         the wording of boilerplate is standardized – this avoids the cost of preparing something special (re-inventing the wheel) every time you do a deal;

4.         often, a particular boilerplate clause has evolved into common usage because there was a gap or problem created elsewhere in the contract, leading to a dispute, even a court case – so boilerplate is aimed at keeping the parties away from litigators and the courts.

Imagine: one group of lawyers – solicitors – trying to reduce the workload of another group, barristers! Strange but true.

Each type of boilerplate has a specific purpose to make the agreement function. In this series of Bucky’s Blurbs, I will go thru some boilerplate clauses to explain their history and function. You might not love pages of boilerplate after this series, but at least you’ll have a better appreciation of their value.

The first one I will look at is the snake in the grass, “Choice of Law” or “Governing Law” provision. I may regret taking on this one at the outset, because it is one of the most complex and controversial provisions. These provisions determine what laws must be used to interpret and enforce a contract, and often specify that any action or other dispute resolution process must take place physically in that jurisdiction

Let’s start with a simple principle: if the parties and the performance are all within Ontario, you probably don’t even need a Choice of Law provision.

At gbtlaw, we find that more and more of our clients’ dealings involve cross border elements, where our client is in Ontario and the other party or service is somewhere else. Or the contract is performed outside of Ontario. Or both parties are outside of Ontario.

Where there is even one element of the deal that is outside Ontario, you will need to have a Choice of Law clause. If you are in Ontario, then you want to choose Ontario, because your lawyer is qualified to give Ontario law advice, only. Most smaller law firms are qualified only in the province of their office location. Be wary of legal counsel who downplays the importance of this issue to hold on to work they are not qualified to do.

But what if the other party is in New York? They will want New York state law to govern. If they win that debate, your lawyer won’t be able to advise you on New York law. It might be very similar to Ontario law, or not. You don’t know, nor does your Ontario lawyer know what the differences are. To appreciate what the differences between New York and Ontario law are, you must be qualified in both jurisdictions. Otherwise, as Donald Rumsfield said as Secretary of Defence, “you don’t know what you don’t know”.

In larger international deals, two parties will sometimes choose a third jurisdiction as the choice of law, eg, an Ontario and a Delaware deal might choose New York law to govern as a compromise – but this does nothing to eliminate the problem of the lawyers being qualified to advise on New York law.

Usually, the more powerful party, the party with the most leverage, insists on their jurisdiction as being the governing law and the place where the parties must go to resolve any disputes. This means the Ontario party must hire a New York lawyer and fight the issue in New York if there is any dispute, be it arbitration or court litigation. Ideally, if the stakes are high enough, the Ontario party will hire New York counsel to advise on the contract before it is signed, and it must do so later on if there are problems.

The thing is, the world may be smaller or business may be more global, but most lawyers and law firms are still only qualified and insured to practice in their home jurisdiction.

There is no one-size fits all solution to this issue. Every contract situation is different. A good start to resolving the problem is to appreciate that it is a real issue with real risks and costs. At the least, ensure your legal counsel addresses the pros and cons with you.