While drafting a contract, it is pertinent to keep in mind that apart from capturing the business arrangement between the parties, the contract must contain provisions with respect to confidentiality, representations and warranties, force majeure, termination, indemnity and limitation of liability, dispute resolution. The confidentiality clause defines what all information has been received and events/circumstances when such confidential information can be disclosed pursuant to the arrangement under the contract. The representations and warranties clause as the name suggests, lists out each party should provide representation and warranty in relation to their; (a) ability and authority to enter into and execute the contract and further undertake the responsibilities mentioned therein, (b) having the relevant skill and expertise (in case of a service provider) to undertake the obligations mentioned in the contract, amongst others.
Further, the importance of the force majeure clause has escalated due to the situation faced by entrepreneurs as a result of the novel COVID-19 pandemic. The parties to the contract have started including the terms such as ‘epidemic’ and ‘pandemic’ within the definition of a force majeure event in order to avoid any issues arising as a result of the COVID-19 pandemic.
In addition to the foregoing, it is pertinent to note that the termination clause also holds an important value in a commercial contract as it sets out the events and conditions when the contract can be terminated by either party. The indemnity clause plays a vital role in managing the risk associated with commercial contracts as indemnity is an undertaking to make good any monetary or other loss that may be caused due to damage. The key concept behind the indemnity clause is to bring a person back in the position he/she was before the damage happened.
Considering that a suitably drafted indemnity clause does not mandate the requirement of proving a loss in order to invoke indemnity, therefore, including a limitation of liability clause helps in capping the extent of claim against the indemnifying party.
Finally, the dispute resolution clause defines the process agreed between the parties for the resolution of a dispute which may arise in relation to the subject matter of a contract and therefore must be drafted in a manner to avoid further delays in the resolution of a dispute.