Eight critical contractual clauses to pay attention to

Fungai Chimwamurombe and Simbarashe Mukwekwezeke

Contracts have become the cornerstone of not only the economy, but our everyday lives and their interpretation has become key in not only avoiding disputes but allowing for greater ease of business.

 It is therefore incumbent on persons undertaking commercial contracts such as leases, service level agreements and even more complicated commercial contracts to watch out for eight critical clauses which if unchecked will cause trouble for any party who over looks them.

The first critical clause if the Variation clause which in essence prescribes the manner in which the agreement may be amended by parties. The needs of the business or the specific contract may create the need for a specific method of variation which is most suitable. 

It is critical to ensure the contract provides for an up to date and ideal provision of variation which you as a party will not be burdened with. Start-ups and entrepreneurs are advised to provide for variation via email and other electronic means as opposed to sticking to the traditional written means by way of an addendum which we have become accustomed to. 

In the event that parties agree to non-variation which is a contractual provision that restricts the variation or cancellation of an agreement, which usually stipulates that no variation or consensual cancellation of the agreement in which it is contained will be of any effect unless reduced to writing and signed by the parties, it is best attention is paid to the clause beforehand. 

Jurisdiction under which the agreement falls is another critical area which attention must be paid to, given globalisation of business and the growth with trade. A party must always ensure that an agreement falls under a jurisdiction under which he/she is conversant in its laws to avoid nasty surprises which other jurisdictions may bring as well as legal issues around enforcement and cost of enforcement.

The third clause to pay attention to it often titled “WHOLE AGREEMENT “which effectively means that the contract constitutes the entire agreement to the parties excluding pre-contractual and other related documents. A party must always make sure and insist this clause reflects the correct position between parties falling which it will apply while unfairly but be valid.  

Confidentially clauses are critical and important in securing secrecy around communication between parties as well as the information trading during the subsistence of a commercial contract. The confidentiality clause protects not only the intellectual property   of a party but trade secrets, making it a key clause to include in any commercial agreement and compliance is critical in avoiding lawsuits emanating from breach.

Termination and cancellation clauses are inherently critical to the needs of the commercial world. The aforementioned clause sets out the manner in which the agreement may be terminated, causes of termination as well as effects of termination. 

Parties considering the complexity of the agreement as well as value of the same ought to ensure the termination clause is suitable and specific to the desired objectives. Parties must also ensure termination clause should be worded in simple text which is clear and unambiguous which ultimately provides no interpretation disputes. A party must make sure they are able to terminate the agreement in commercially viable means as well as avoiding termination clauses which are arbitrary.

Dispute resolution and forum clauses are clauses which indicate the manner and forum in which disputes between parties can be resolved. It is critical for a party to ensure that they agree on the cheapest and most accessible dispute resolution as well as forum. The speed of resolution must also play a factor in deciding in which method and forum to choose. 

Parties have the option to choose from the jurisdiction of their local Magistrate court, High Court and in the event of a technical area, agree on arbitration. Parties are advised to be specific and straight forward when agreeing on the forum and mechanism. 

In the event that parties agree on arbitration, parties must prescribe the manner in which the arbitrator must be appointed as well as how the costs of arbitration or any chosen dispute resolution mechanism will be catered for. An alert party is also advised to make sure any chosen dispute resolution and forum must be within its jurisdiction and accessible.

The Covid 19 pandemic has cemented the importance of the seventh clause which is the Force Majeure. This is a clause which cancels the agreement should an Act of God occur rendering performance impossible but no fault of either party. 

This clause is critical to avoid unfairness and damages should a party be unable to perform in circumstances which are beyond its control owing to force majeure. Additionally, it is important to note the definition of force majeure is too broad and parties ought to agree on factors that are considered force majeure such are civil wars.

The final critical clause is the Domicilium citandi et executandi which is the address which parties elect to receive legal notices and processes. The said address should be accessible as it is applicable to all legal agreement and merely proof of service upon the address is sufficient and any tribunal seized with it may not give any value to the fact that the party may have not had sight of the legal notice of process. 

Each party must ensure their address of service is current to avoid default judgements being enforced adjustment them.

While there are many other important clauses the brief summary provides a comprehensive summary which if followed will improve contract entered into by parties and their commercial viability. 

Fungai Chimwamurombe is a registered legal practitioner and Senior Partner at Chimwamurombe Legal Practice and can be contacted for feedback at fungai@zenaslegalpractice.com and WhatsApp 0772 997 889. Simbarashe Mukwekwezeke is a Senior Associate at Chimwamurombe Legal Practice and can be contacted at simbarashe@zenaslegalpractice.com

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