On Drafting the Clauses of a Contract | The Daily Star
12:00 AM, November 24, 2020 / LAST MODIFIED: 02:14 AM, November 24, 2020

Law Opinion

On Drafting the Clauses of a Contract

After the rebound of the economy in Bangladesh, now the businesses are gaining momentum. In the law firms of Bangladesh, we are witnessing an increase of contract making to pursue different kinds of business. Since most kind of contracts are concerned with economic exchanges, the terms and conditions of a contract must inevitably be economic in their purpose. This article sheds light on different types of clauses that parties should consider while making any sort of contract.

An integration clausei. e.entire agreement clause ensures that there are no representations, warranties, terms or conditions between the parties other than those set out in the contract. This clause is essential for any post-contract dispute where a party of the contract desires to rely on any dealings or agreements between the parties entered into before or after the execution of the said contract, to be used to vary or interpret its provisions.

In most of the contracts, time is of essence. Keeping that in mind a time is of the essence clause should be inserted to provide that, in relation to certain events, time is of essence. This would ensure the performance of the contract on time and this way, deadlines, if there are any, shall be strictly observed, lest the contract should be terminated.

Sometimes, to keep pace with the ongoing practical difficulties, a contract may need to beamended. It calls for an amendment clause stating that the contract may be amended only in writing and must be agreed to by the parties or authorised representatives of both parties. The clause may also include the limitations of amendment. This is sometimes essential in order to firmly limit the scope of bringing any fundamental change to the contract.

Apart from the fundamental breach of a contract, there can be other circumstances for which a contract may need to be terminated.Hence, depending on the nature of a contract, a termination clause may be incorporated to identify under what circumstances the parties can terminate the agreement and the procedures for termination.  It is also customary to include a survival clause (such as stating warranty) to specifically provide for the survival of an obligation after the termination of the contract.

It is unlikely to have any dispute regarding applicable law in a contract if both parties of the contract reside in the same territory unless the parties decide otherwise. However, a governing law clause is very important in case of international contracts involving cross-border parties. This clause specifically states the applicable law(s) with which the contract shall be governed. Absence of such a clause may create complexity regarding many compliance issues to carry out the performance of the contract. Moreover, this clause plays a vital role to resolve any post-contract dispute, which may arise between the parties. Although this clause often provides clear advantages to the parties, there must also be a rational reason for the specified choice of law.

Furthermore, alternative dispute resolution clauses can assure the parties that their disputes will be resolved through cost-effective and speedier processes of arbitration or mediation rather than by litigation. With ADR clauses, the parties can agree on whether the arbitration will be binding or non-binding; how the arbitration provision is to be triggered; the place of arbitration; governing law of arbitration proceedings; and the selection of the arbitrators. Such a clause leaves all the tools of flexibility in the hands of the parties involved.

Modern contracts always contain a force majeure clause.This clause dissolves the parties of individual contractual obligations provided there is a supervening event that is unforeseen and not within the control of either party. Particularly, the aim of this provision is to exempt the parties from carrying out their individual obligations under the contract and incur consequential liabilities, when a force majeure event occurs.

A remedies clause in a contract may provide the remedies that are beyond the generally available ones in case of a breach. Such a clause may also expressly state that the remedies shall be available in addition to, and not in substitution for, those generally available under the governing law.

A currency clause comes into play when negotiating an international agreement. Inclusion of this clause ensures the currency in which money owed under the contract is to be paid.  This clause must also specify a conversion date mutually agreed by the parties for avoiding any future disagreement at the time of payment.

Before embarking on a contract, the intended parties should always be aware of the aforementioned issues so as to avoid any unwarranted situations, which may cause severe consequential losses.

The writer is an Associate at Alliance Laws.

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