What's Lurking Within the Legal Fine Print?

Updated: Jun 11, 2020

Although these provisions may appear standard, they can have a profound impact on a business relationship, going so far as to turn a big deal into a big mess.

Integration and non-reliance provisions in an agreement can wreak havoc on what otherwise looks like a perfect lawsuit. These provisions, along with others, are often buried in fine print in exceedingly long commercial agreements. This article briefly highlights three: the force majeure provision, the choice of law clause and provisions limiting a party’s liability.

FORCE MAJEURE: Force majeure is a supervening event which makes performance impossible but the question to be assessed is what may or may not include FORCE MAJEURE. This is a radical discussion ongoing in the current times of business halts and suspension of activity due to impact of Corona virus. Whereas people may tend to say otherwise but the governing aspect are the terms of your contract. The interpretation of the text of the contract in certain cases has overdone the spirit of the transaction therefore it is necessary to take utmost caution while executing such agreements. It is necessary to decide whether to draft an exhaustive list or inclusive list of events wherein the liability of the defaulting party will be limited and these are not general blanket clauses i.e. these are to be specifically drafted in each case individually considering the facts and circumstances so that the defaulting party may not wriggle out of their responsibility at a later stage.

Choice of Law: Another ever going discussion of the choice of the governing law in regards Arbitration matters, International Commercial Contracts and even investment disputes has been ghosting the contract failiures. It is extremely important to explicitly mention what would be the applicable law and jurisdiction of courts/intervening authorities to ensure clarity and precaution. Whereas in case such a practice is not followed a party may be trapped with the bar on prosecution in their home country and may have to incur extra time, efforts and money on international prosecution. In Arbitration agreements (Incorporated Arbitration Clauses act as separate agreements) the Seat is referred to as the place whose law would govern the transaction whereas the venue is any physical place wherein the dispute resolution proceedings would go on. For instance for a transaction between Indian merchant and an American citizen the governing law could be Indian therefore the seat would be India whereas the venue could be any place like Singapore. In Mankastu Impex[1] The Supreme Court, instead of decisively settling the controversy by affirming Soma JV, decided to sidestep it altogether. It noted that the use of the expression “place of arbitration” could not decide the intention of the parties to designate that place as the seat of arbitration and such intention had to be determined from other clauses in the agreement between the parties and their conduct. Wherein the precedence itself is still not settled it adds up as a duty of the drafting lawyer to ensure the contract does not go through a fallacy.

Provisions limiting a party’s liability: The contracts negotiated in bad faith may be inclusive of such provisions that may later turn out to be detrimental factor in enforceability of contracts therefore it is radical to invest in proper time and efforts while going through the contract to preserve any such causality. It is even important to foresee while executing bills and other such instruments that no such provisions as such are inculcated as they act as binding contracts in itself.

[1] Mankastu Impex Pvt. Ltd. v. Airvisual Ltd., 2020 SCC OnLine SC 301

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