The Boilerplate: What does it Accomplish?

© 2001, 2000, Deeth Williams Wall LLP. All Rights Reserved.

By: Gervas W. Wall and Nicholas Whalen (Articling Student at the Firm)

It has been said that every contract is made of two parts: the boilerplate and the important stuff i. For many lawyers, boilerplate has become the drafting equivalent of wallpaper -it looks nice, is always around, but after a while you don’t notice it any more. Black’s Law Dictionary defines “boilerplate” as:

"Language which is used commonly in documents having a definite meaning in the same context without variation; used to describe standard language in a legal document that is identical in instruments of a like nature." ii

Although efficiency, cost reduction and experience would lead many jurists to accept boilerplate provisions as a routine and, perhaps, encouraged practice, the boilerplate continues to connote language that is "hackneyed" or "predictable" iii. With the increasing use of word-processors, self-help books and electronic precedents, the urge to use boilerplate is greater than ever before. Yet a danger awaits the careless practitioner who "cuts and pastes" but fails to consider in each case the appropriateness of a boilerplate provision. A court may interpret vague or unclear provisions against the drafting party or severthe provisions entirely. Worse still, an inappropriate boilerplate may divest a client of certain rights.

This paper will restate principles of contractual interpretation before stepping through some of the common terms used in intellectual property licences with guidelines on when they should be included and when to leave them out. In particular, this paper will deal with the following standard clauses:

  • Governing Law;
  • Attornment;
  • Enurement;
  • Waiver;
  • Entire Agreement;
  • Notice;
  • Severability;
  • Counterparts;
  • Further Assurances; and
  • Amending the Boilerplate Consents to Sublicense or Assign

General Rules of Contractual Interpretation

Intellectual property licensing agreements should be interpreted according to the general rules of contractual interpretation. The written words are given their plain and ordinary meaning. The clauses themselves are not to be interpreted in isolation, and are themselves part of the consideration flowing in the agreement. Finally, where the intentions of the parties are difficult to establish, recourse may be had to "the ‘factual matrix’ in which the agreement was made because an agreement should be construed with reference to its objects." iv It is well settled, however, that where the words of the contract areclear and unambiguous, then no extrinsic parole evidence may be admitted to assist in the contractual interpretation. v

The general rules of contractual interpretation follow a mandatory sequence. Where inconsistencies or ambiguities are found, the principles, or canons, of construction should be applied sequentially, so as to discern the intent of the parties and to allocate the contractual obligations accordingly. vi

The written provisions of an unambiguous agreement will be paramount to other considerations when determining its interpretation. The plain meaning of the document represents the unequivocal intention of the contracting parties. The supposedly unequivocal presumption regarding boilerplate language is really a question of fact. In the context of a lengthy agreement, inconsistencies and ambiguities may develop between competing clauses.

Inconsistencies are resolved by Implied Exclusion or Implied Exception.

Provisions in an agreement are inconsistent if they cannot be sensibly read together. Competing terms may counsel different resolution to the same situation. Expresio unius est exclusio alterius means to express one thing is to exclude another vii. The implied exclusion rule implicitly excludes unmentioned options where others are mentioned (as in notice by fax would exclude notice by mail). The generalia specialibus non derogant rule states the principle that specific contractual provisions trump general contractual provisions. The terms of specific application are an implied exception to the general terms, which should yield accordingly viii.

Ambiguities invite extrinsic evidence and a hierarchy of interpretation rules.

Ambiguity arises where a contract is self-contradictory and there is no direct evidence of the intention of the parties to resolve the ambiguity. Ambiguity is resolved through the use of extrinsic evidence (an exception to the parole evidence rule), and a hierarchy of interpretation rules ix.

Under the parole evidence rule, extrinsic evidence may not be used to vary, contradict, add to or subtract from a written contract, subject to certain exceptions of course. One class of exceptions arises to affirm a collateral contract, where objective evidence supports the finding that the written document did not constitute the whole agreement x. A second type of exception exists to help divine the true intent of the parties in the face of ambiguous drafting. The third common law exception allows parole evidence to establish that a condition precedent has been fulfilled xi. Statutory exceptions may allow parole evidence for proof of unfair business practices xii.

Further clarification can be found by sequential application of three additional interpretation tools. The court can be convinced to examine the commercial impact of the deal, the purposive implications of boilerplate language, or, if all else fails, the true intent of the parties can be discerned by resort to the contra proferentem rule.

When words bear two constructions, the interpretation resulting in the most "sensible commercial result" should be applied to resolve the conflict. Provided that the parties are of comparable bargaining power, or the possibility for real negotiation governs the relations.

Where words may bear two constructions, the more reasonable one, which produces a fair result, must certainly be taken as the interpretation which would promote the intention of the parties. Similarly, an interpretation which defeats the intentions of the parties and their objective in entering into the commercial transaction in the first place should be discarded in favour of an interpretation [...] which promotes a sensible commercial result xiii.

Recent case law suggests that boilerplate provisions are not particular to any one contract and should therefore be given a consistent, uniform interpretation. In the context of successor obligor clauses standard to all trust indentures, the American Second District Court of Appeals said that:

such boilerplate must be distinguished from contractual provisions which are particular to a particular indenture and must be given consistent, uniform interpretation xiv.

This American principle has been adopted in Canada to interpret a similar boilerplate contract xv.

Contra proferentem is the interpretation rule of last resort. It comes into play only when ambiguities or inconsistencies are irresolvable through other rules of interpretation. It provides that contracts should be read against their authors only where the terms of the contract favour the author and when the counter-party had no reasonable possibility of negotiating more favourable terms.

The use of contra proferentem is contingent on an absence of meaningful negotiating ability. So long as a party is permitted to participate in real negotiations, even if he chooses not to do so, it is inappropriate to invoke the rule xvi.

However, once ambiguity and adhesion are found to co-exist in a single document, contra proferentem is readily employed to interpret the contract against the drafter.

Leaving Out Boilerplate

Where one’s client has limited bargaining power, it sometimes makes sense to just leave a particular provision of a contract out, especially when it relates to a minor matter. For instance, if your client will inevitably lose the battle over where disputes must be settled, you may prefer to just keep any provision that deals with the issue out of the agreement. The danger to this approach is that absent such a provision, the parties’ rights may not be clear. The cost of subsequent court imposed clarification may be substantial. On the other hand, the default regime may have benefited your client in any event and omission of the clause may have avoided the need to make a concession.

Governing Law

A "governing law" clause indicates whose law should govern the contract. If the contract is interpreted and construed in court, the court will apply the selected jurisdiction’s body of law. For instance, it is very common in today’s global marketplace that online (i.e. Internet based) contracts or licensing arrangements will involve parties from numerous jurisdictions. As a result, the agreement should probably establish which party’s law will govern. The governing law can be expressed as the law of a particular country, but more often in Canada and U.S., the governing law is expressed as being the law of a particular province or state with reference to federal laws as they apply.

In addition to a "governing law" clause and for the greatest certainty, parties sometimes refer to particular statutes in association with specific parts of the agreement (such as setting out the use of the Arbitration Act (Ontario) in an Arbitration Clause, or excluding the application of the International Sale of Goods Convention in the warranties section). The governing law jurisdiction is usually, but not always, the same as the forum jurisdiction. In addition to the choice of governing law, it may be appropriate to select a currency in a separate clause.

If you do not include a governing law clause, and the parties are from different jurisdictions, your client may find itself saddled with the German civil law approach to interpretation of contracts, for instance, which your client’s lawyer may know nothing about, by virtue of the application of the "real and substantial connection test" xvii. The choice of governing law thus gives you some assurance that you are operating with a set of laws that you understand, or at least may remind you to have a foreign lawyer review the agreement before it is executed.

Generally, courts are happy to accept the stipulated choice of law in a governing law clause as the proper law of the contract. However, where the choice of law was made in bad faith, or there are public policy grounds for voiding the stipulated law, the courts may reconsider xviii. Governing law will not exclude the application of local public policy to your agreement. The most common instance of this that I encounter is US anti-trust law. If you are licensing into the US, you should not expect to avoid the application of US anti-trust law just by selecting the laws of Ontario as your governing law. The clause should be drafted to ensure that the agreement can be both construed and interpreted in accordance with the stipulated law xix.

Example 1: This Agreement shall be exclusively governed by, and construed in accordance with, the laws of the Province of Ontario, and the federal laws of Canada applicable therein. This Agreement shall exclude, and not be governed by, either the provisions of the International Sale of Goods Act, or the United Nations Convention on the International Sale of Goods, regardless of that Convention’s legal or statutory adoption by any jurisdiction.

Attornment

The choice of the governing law of the contract and the forum in which disputes will be heard are two separate issues xx. Parties may choose to be governed by the laws of Ontario, but attorn to the jurisdiction of the courts of British Columbia. The parties may prefer a particular law because of legal benefits to the substantive matters of the contract, but prefer a different forum for matters of convenience, cost or procedural rules. An "attornment" clause sets out the forum expressly chosen by the parties as the jurisdiction in which a dispute is to be resolved, or where the parties agree to be hauled into court. The "attornment" clause should also state whether the parties attorn to the exclusive or non-exclusive jurisdiction of the named court: the former indicating that no other court would have jurisdiction to hear disputes under the contract; and the latter indicating that more than one court may have authority to hear the issue. Explicitly stating the chosen forum can help prevent conflict over where a dispute will be heard.

The clause is important in international deals where performance is going to be carried out over a number of jurisdictions. The clause prevents a court from having to resort to real and substantial connection analysis, which can generate highly inconvenient or unpredictable results for the parties.

The selected forum should also be where the parties are available to accept service according to the rules of civil procedure.

Another valid consideration when determining the "attornment" jurisdiction is where – in the event of a breach – the parties’ assets will be. It may not be convenient to obtain a judgment in one forum when you have to go elsewhere to seize the assets.

Example 2: Each party irrevocably attorns to the [exclusive or non-exclusive] jurisdiction of the Courts of the Province of Ontario. Each of the parties waives any right, and agrees not to apply, to have disputes arising under this agreement determined by jury.

Enurement

An "enurement" clause indicates that an agreement continues to the benefit of assigns, heirs, or other designated third parties. This clause allows the benefit of the license to continue without disruption in the event of a death, or in the event of corporate changes such as mergers or corporate restructuring. The ability to sue on the terms of the agreement is extended to these designated third parties without the loss of privity. The nature of the parties involved will dictate the appropriateness of the listed third parties. That is, "heirs, executors and administrators" refer to individuals and "successors" refer to corporations. An heir is a beneficiary of a deceased’s estate. An executor or administrator is the person appointed to manage the estate of a deceased person. A successor is an entity that succeeds a corporation (i.e. through merger, amalgamation or change of corporate name).

An assign is a person to whom a party assigns its rights, which presumes that assignment of the contract is permitted. As intellectual property licenses typically are personal to the licensee, and do not imply a right of assignment by the licensee, it is generally recommended that the right of assignment (or lack thereof) be specified in the agreement including any necessary condition precedent (e.g. prior written consent, notice, payment of administrative fee).

On the other hand, the inclusion of the word "assigns" in the enurement clause, without dealing with assignment in the rest of the agreement, may be enough to show that the license is intended to be freely assignable. This could be disastrous for a licensor who does not expect to face a competitor, for instance, as a licensee.

It is essential to review the drafting of this clause to establish exactly what rights and liabilities will continue under the contract and the parties’ ability to control who successors may be, and to avoid inconsistencies within the agreement itself. For example, in Air Transit Ltd. v. Innotech Aviation of Newfoundland Ltd. xxi the court found the reference to “assigns” in the enurment clause of the agreement was not conclusive evidence of the parties’ ability to assign the entire agreement without the consent of the other. Clear and precise drafting of the insignificant boilerplate enurement clause to ensure it is in keeping with the entire agreement cold can help avoid misunderstanding and costly settlements.

In agreements where confidential information is at stake, an enurement clause would be inappropriate where it would result in third parties gaining access to the confidential information.

Sub-licensing, where permitted, is usually dealt with in its own section where special conditions – such as notice requirements – are set out. Otherwise, similar issues arise.

Example 3: This Agreement will be binding upon and enure to the benefit of the [heirs, executors, administrators,] successors and permitted assigns of the parties.

Waiver

A "waiver" or, more properly, "non-waiver" clause establishes the party’s ability to enforce terms of agreement in spite of that party’s silence, inaction, or certain other types of conduct. It clarifies exactly what constitutes an intentional relinquishment of a contractual right by a party xxii. Typically, these clauses make it an express requirement that the waiver be in writing before it will constitute a true waiver. This type of clause is useful to prevent allegations of estoppel, acquiescence or delay where the licensor may have slipped in enforcement or been lenient. When drafting these clauses, explicitly addressing conduct that may be interpreted as waiver such as those mentioned above, and whether failure or delay in exercising a right will constitute a waiver will help avoid confusion at a later date. For instance, if a licensee encounters financial difficulties, the licensor may try to help by delaying termination. If not contemplated by the waiver clause, the licensee could assert this courtesy as a waiver of the termination provision.

Usually, waiver clauses are for the benefit of the licensor, and the licensee gains nothing by having that clause included. Licensees may prefer not to have any such provision. It can be disconcerting to be told that the arrangement for provision of samples, for instance, that you have been following for months is actually in contravention of the agreement. However, where the licensor has significant obligations, it may be a benefit to the licensee to have the protection afforded by the waiver clause.

Example 4: Neither party may waive or release any of its rights under this Agreement except in writing. The failure of the Licensor to assert a right under this Agreement or to insist upon compliance with any term shall not constitute a waiver of that right by the Licensor or excuse a similar subsequent failure to perform by the Licensee.

Entire Agreement

An "entire agreement" or "integration" clause defines what is and is not a part of the agreement. It is intended to prevent parol evidence or other agreements from being read into the agreement. It defines the four corners of the agreement so that the terms will be interpreted without reference to extraneous agreements or documents. There is some debate as to whether the integration clause is simply a restatement of the parole evidence rule. The British Columbia Court of Appeal has observed that an entire agreement clause may be broader than the parol evidence rule. Otherwise the clause would be redundant xxiii. Any increased protection offered by an "entire agreement" clause will depend on its precise wording xxiv.

The clause should expressly state that all prior agreements regarding the same subject matter are specifically excluded from the new agreement and no longer have any force of effect, unless specifically included in the new agreement. All material terms are considered by this clause to be included in the agreement xxv.

The advantage of this clause is certainty. The parties get what they bargained for, as it is contained in the text of the agreement.

However, it is good to remember that "[c]ertainty generally is illusion, and repose is not the destiny of man." xxvi Courts do not always strictly interpret these clauses and may integrate extrinsic evidence not included in the agreement, particularly where agreement is induced through misrepresentation or oral representations that are inconsistent with the written agreement. These situations are of course, considered on the facts of each case.

As well, parties entering into a long-term agreement should beware the effect of their "entire agreement" clause on the future of their dealings with each other. Changes of legal or factual circumstances may be hard to predict. There should be a degree of flexibility to permit certain types of changes without having to re-negotiate the entire deal. For instance, where royalty rates, timing of certain events, or lists of products are subject to change, the "entire agreement" clause should permit schedule changes with written agreement signed by both parties.

The license agreement may also be part of a larger multi-faceted deal. There may be a separate maintenance or consulting agreement in computer software or hardware deals, or a separate non-disclosure agreement in patent deals. Once the parties have decided to adopt an integration clause, it is a good idea to include these additional agreements by making them exhibits or schedules to the main license agreement.

Where parallel agreements exist (i.e. for different licensed subject matter), the entire agreement clause should specify that the Agreement constitutes the entire agreement with respect to the specific subject matter. Better yet, a list of agreements not superceded may be specified.

Example 5: This Agreement constitutes the entire agreement of the parties and supercedes all prior representations, proposals, discussions, and communications, whether oral or in writing. This Agreement may be modified only by written instrument signed by both parties.

Notice

A "notice" clause provides for the form of notice, which will satisfy any notice requirements in the agreement (such as notice of intent to terminate or notice in the event of assignment). It should be tailored to suit the needs of each agreement and include language indicating whether the clause is permissive and will permit notice by alternative means to those stated, or is mandatory and notice may only be in the forms stated in the clause xxvii. Typically it is not in a client’s interest to draft a notice clause in mandatory form as it prevents flexibility. Like all of the other standard clauses, the more clearly and comprehensively notice is dealt with, the less room courts will have to apply interpretive freedom should a dispute arise. Courts do appear to take a very practical approach to interpreting contractual notice provisions though. Actual notice, if established, is sufficient to override a mandatory notice provision. xxviii

The notice clause is important to provide procedural clarity for performance of this technical requirement under the agreement. For instance, an otherwise valid termination will not be defeated on the technicality that notice was in the wrong form.

The forms of notice selected should reflect what the parties are comfortable with and what customs are typical in their industry. Electronic mail and facsimile, for instance, are very routine in certain sectors and will be comfortable and efficient methods of communication between some parties. For other parties, registered mail or courier are more familiar. Outdated or obsolete technology references should be avoided, such as telex or certified mail. Registered mail is now limited to small deliveries and so may not be useable. Obviously, geographical distance may determine whether hand-delivery or messenger will be appropriate.

Ideally, each company should have a day-to-day license administrator designated to receive and respond to various types of notices. This individual should be named as the notice contact in the agreement, with his/her title, address and telephone and fax contacts. Depending on the frequency and nature of notices, additional notice may be required to be sent to the General Counsel or to the law firm for each party. In long-term agreements, the person responsible, as the rest of the address, may be subject to change by notice.

The notice provision may also refer to the preferred language of communication. Otherwise, the preference may be included in a separate language clause. The notice clause may also contain a "mailbox" or other rule to designate deemed times of sending or receipt. For example, it may be provided that a notice is deemed to be received on the 7 th day after sending. Where electronic communication is permitted, safeguards to ensure receipt should be included. For example, whether or not an original must follow a faxed notice.

Example 6: All notices under this agreement shall be in writing and shall be served by personal delivery or by mail at the address of the receiving party set forth in this Agreement (or at such different address as may be designated by such party by written notice to the other party). All notices by mail shall be by registered mail, return receipt requested and shall be deemed complete upon receipt. In the event that receipt is refused by the other party or the other party has changed address without so notifying the sending party, notice shall be deemed given on the seventh (7 th) day following the first post mark of the sender’s postal service.

Severability

A "severability" clause indicates that the agreement itself will not be void if certain provisions are unenforceable or defective such as for vagueness or illegality. Severability is not to be confused with "survival" clauses which set out the specific provisions which will continue to apply in the event that one or both parties terminates the agreement. A severability clause is intended to preserve the heart of the agreement even if certain provisions fail. This is especially relevant where there are two or more distinct parts of a deal encompassed within the agreement, such as a licence with option to purchase or a non-disclosure agreement within the license agreement. Generally, unless, the offending portion is vital to the contract, an invalid or unenforceable part of a contract can be severed and what the remains will operate as if it were the entire contract.

It is also a serious issue when the agreement includes a non-competition clause, as those are the most likely provisions to be subject to attack.

A severability clause is particularly useful where there are multiple legal systems involved in the performance, and as a result provisions of the agreement may become illegal by virtue of the parties being unable to predict the effect of the terms under each of the affected legal systems. A severability clause may also be appropriate where laws or standards are changing rapidly, such as export laws. Bear in mind that the seriousness of the defect or illegality may determine whether any part of the contract should be salvaged. You may wish to deal with the non-competition clause separately from the other provisions; and if you have a number of linked agreements or points, you may wish to specify what happens if one of those fails. To take an extreme example, your client may not want to be saddled with a license if the payment provision is contrary to the laws of the licensee’s jurisdiction because of newly instituted currency controls.

I do not recommend that parties draft in the alternative to permit the blue pencil of the trier of fact to choose the acceptable alternative. In my view, this promotes a fundamental uncertainty about what the parties have in fact agreed upon, and it creates an undesirable reliance upon litigation to construe the parties’ intentions.

Even if an agreement does not contain a severability clause, a court is still likely to apply the doctrine. According to the British Columbia Supreme Court, the presence of a severability clause is not determinative of the issue, rather it is an indication of intent and as such is only one factor to be considered xxix. Even if only as an indication of intent, it is advisable to include this clause in agreements.

Example 7: Any term in this Agreement which is unenforceable or illegal shall be severed from the Agreement and shall not affect the enforceability of other terms of the Agreement.

Counterparts

A "counterparts" clause sets out that the parties may sign separate – but identical – paper copies and that this practice will constitute valid acceptance. This is a useful and attractive solution when parties, for various reasons, cannot be together in the same place at the same time to signal their acceptance. The few cases dealing with a counterpart clause appear to accept the validity of the clause without question xxx.

One caution is that the agreement copies provided to each party must be identical. The risk is two-fold: that a party will sign something other than the final draft of the agreement; and, that a party will merely have access to the signature page instead of a full copy of the agreement. It is arguable that there is in fact no agreement amongst the parties if they have signed different agreements.

As a procedural safeguard, all of the originals of the counterparts should be kept together in one place with copies to be distributed to all parties. Another safeguard is to have all parties sign the same copy but to apply separate signing dates beside each of their signatures. It is most desirable to have all of the signatures appearing on the same page on the same copy of the agreement, even if all parties did not sign together at the same place and time.

Example 8: This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which taken together constitute one and the same instrument.

Further Assurances

In a "further assurances" clause the parties expressly agree to cooperate in whatever further steps may be required to carry out the intent of the agreement. It is particularly useful where the agreement places obligations on the parties that will terminate at some point, or where further actions are necessary to cure a defect in the transaction contemplated.

The clause is especially useful in rushed deals where additional documents will need to be executed and delivered after closing. Where documents are to be delivered for evidentiary reasons (such as to prove registration of intellectual property, or to prove DIN approval of a drug product), such documents may come under the scope of the further assurances.

Keep in mind that rushed deals are more likely to contain serious drafting flaws or missed steps. If you are tempted to include a "further assurances" clause to overcome serious insecurities about the coverage of the agreement itself, it is probably a good idea to spend more time in the drafting stage and to have other people assist in the textual review. Ensure that as many items as possible are agreed upon and delivered at the closing to prevent over reliance on "further assurances" which some parties will take as a carte blanche to make frivolous and costly requests.

These provisions are frequently drafted very broadly, which could invite abuses. Therefore, parties may wish to include details of the types of "assurances" that are to be made available (such as providing certain documents in the future or being available to answer questions) and the parties may wish to set a reasonable sunset period for such assurances to be available.

Courts will uphold these clauses, although just how effective, and how far they can extend obligations, is not clear xxxi. Once again, clear explicit drafting can help avoid confusion and conflict at a later date. To that end when drafting these clauses ensure the clause survives the termination of the agreement. Also, clearly express at whose and at what expense such assurances shall be undertaken and ensure you are not limiting yourself to requesting further assurances only once by including language such as "from time to time".

Example 9: The parties shall execute such further documents and do any and all such further things as may be necessary to implement and carry out the intent of this Agreement.

Amending the Boilerplate Consents to Sublicense or Assign

Two relatively recent decisions from the Ontario Court of Appeal display the importance of contractual interpretation and a thorough knowledge of the impact of boilerplate language. Kentucky Fried Chicken Canada, a Division of Pepsi-Cola Canada Ltd. v. Scott Foods Ltd. xxxii ("KFC") and Welch Foods Inc. v. Cadbury Beverages Canada Inc. xxxiii ("Welch") both demonstrate how successful manipulation of boilerplate language can protect the legitimate interests of licensees. Both decisions also address the nuanced and personal nature of intellectual property licensing. In residential lease assignments, the presumption remains that consent to sublet will be given. In intellectual property leases, issues of confidentiality and competition make this presumption untenable. The current state of the law requires consent to assign intellectual property rights, such consent to be given in writing.

In KFC, the Court of Appeal reversed the trial judge’s finding that a certain clause 16.1 xxxiv in the licensing agreement gave the franchisor a right to approve of change in control of the franchisee, Scott Foods. The licensing agreement had been negotiated outside the standard form. Since the new licensing agreement was a modification of a standard form, the standard form agreement was considered part of the factual matrix for interpreting the new document. The Court of Appeal used the principle (although not explicitly) of implied exclusion to negate KFC’s right to approve a change of control of the licensee. KFC was left with only an initial right to approve of controlling shareholders ab initio, and not going forward in time. The Court of Appeal also found that the equality of bargaining power between the parties, an abnormality in the industry, defeated the presumption that the franchising industry standards should apply to allow the franchisor its typical right to oversee control of its marks. Maintained was the view that licensing agreements are personal to the licensee, but this factor did not come into play since no assignment occurred.

In Welch, the Ontario Court of Appeal affirmed that parties may draft a new consent clause to be interpreted according to the rules of contractual interpretation. Welch Foods granted Cadbury the right to produce Welch’s Grape Concentrate in Canada. As co-packing gained popularity in Canada, Cadbury hoped to benefit by subcontracting with Imperial, a company that also co-packed for Welch Foods’s American competitors. The contract provided that:

6.02 Any approval or consent required of either party hereunder shall be in writing signed by an executive officer or by an agent designated in writing for that purpose by an executive officer. Both parties agree that no such approval or consent will be unreasonably withheld, consistent with the tenor and purpose of this Agreement.

The unreasonableness of the consent became an issue by virtue of Welch Foods’s concession during negotiations.

Welch’s conduct was found to be objectively unreasonable for three reasons: it used co-packers itself in the US; it gave provisional approval for the 3rd party co-packer Imperial; and the facts established that Welch was interested in breaking the agreement to assume Cadbury’s business, not to protect its proprietary information or brand quality.

The courts will impute meaning to deviations from the standard form.

Conclusion

Carefully negotiating and drafting the so-called “boilerplate” clauses in any licensing agreement is key to getting the best strategic advantage for your clients.

Taking your client step-by-step through all of the terms of the agreement, including the boilerplate, will require you to think about what you draft, and how the language helps or hurts your client in his/her particular deal. If you take one piece of advice away from this paper, let it be the following:

Endnotes

  1. I thank Ailbe Flynn and Jennifer Jannuska for their assistance in the preparation of the first edition of this paper, and my articling student, Nicholas Whalen, for his help bringing the work up to date.
  2. Black’s Law Dictionary, 6th Ed. (St. Paul: West Publishing Co., 1990) at 175.
  3. The Canadian Oxford Dictionary (Toronto: Oxford University Press, 1998) at 154.
  4. Prism Hospital Software Inc. v. Hospital Medical Records Institute (1994), 57 C.P.R. (3d_ 129 at 155.
  5. C.N.R. v. C.P.R. Ltd., [1979 1 W.W.R. 358 (B.C.C.A.); aff'd [1979] 6 W.W.R. 96 (S.C.C.).
  6. G.H.L. Fridman, The Law of Contract in Canada, (Scarborough, Ont.: Carswell, 1999) at 473-531.
  7. R. Sullivan, Driedger on the Construction of Statutes, 3rd ed., (Buterworths: Toronto, 1994) at 168ff.
  8. K. Lewinson, The Interpretation of Contracts (London: Sweet-Maxwell, 1997) at 248-250.
  9. Fridman, supra note 6.
  10. Hawrist v. Bank of Montreal, [1969] S.C.R. 515 (S.C.C.).
  11. Fridman, supra note 6.
  12. For example, Business Practices Act, R.S.O. 1990, c. B.18, s. 4(7).
  13. Consolidated-Bathurst Export Limited v. Mutual Boiler & Machinery Insurance Company, [1980] 1 S.C.R. 888 at 901 [hereafter Consolidated-Bathurst].
  14. Sharon Steel Corp. v. Chase Manhattan Bank, N.A., 691 F.2d 1039 at 1048 (2d. Cir. 1982).
  15. Canadian Broadcast Corporation Pension Plan (Trustee of) v. BF Realty Holdings (2000), 18 C.B.R. (4th) 181 at 191 (Ont. S.C.J.).
  16. Hillis Oil and Sales Limited v. Wynn’s Canada Limited, [1986] 1 S.C.R. 57 at 68-69. And see Manulife Bank of Canada v. Conlin, [1996] 3 S.C.R. 415 at 425.
  17. Indyka v. Indyka, [1969] 1 A.C. 33; Moran v. Pyle National (Canada) Ltd., [1975] 1 S.C.R 393.
  18. Vita Food Products Inc. v. Unus Shipping Co. Ltd. [1939] 1 All E.R. 513 (P.C.), [1939] 2 D.L.R. 1 (Can. P.C.).
  19. Black’s Law Dictionary, supra, note 2 at 819 where construction is distinguished from interpretation.
  20. The default regime holds that the lex fori (law of the forum) will apply to procedural matters irrespective of the choice of law clause, while the lex loci contractus (law of the place where the contract was entered into) will apply to substantive matters.
  21. (1989), 78 Nfld & P.E.I.R 24 (Nfld. T.D.)
  22. British American Oil Co. v. Ferguson, [1951] 2 D.L.R. 37 (Alta. C.A.)
  23. Turner v. Visscher Holdings Inc. (1996), 23 B.C.L.R. (3d) 303 (C.A.) at 308 and 318.
  24. Chitty on Contracts, 27th ed., vol. 1 (London: Sweet & Maxwell, 1994) at para. 12-089.
  25. Israel v. Townsgate 1 Ltd., [1994] O.J. No.3187 at para. 43 (Gen. Div.), (December 30, 1994) Doc. Toronto 92-CQ-13954 unreported.
  26. Oliver Wendell Holmes Jr., speech (1897), which is probably a realist response to another notable ‘certainty’ quote. “Certainty is the mother of quiet and repose, and uncertainty the cause of variance and contentions.” Edward Coke, The First Part of the Institutes of the Laws of England. Source online http://www.geocities.com/Athens/Oracle/6517/intro.html.
  27. Canada Safeway Ltd. v. A. Schiel Construction Ltd. (1993), 34 R.P.R. (2d) 320 (B.C.S.C.)
  28. Ross v. T. Eaton Co.(1992), 27 R.P.R. (2d) 33 (Ont. C.A.).
  29. 356226 British Columbia Ltd. v. Vancouver (City) [1993] B.C.J. No. 749.
  30. Fund v. Jeanrie (1992), 113 N.S.R. (2d) 45 (N.S.S.C. (T.D.)).
  31. See Casano v. C & K Express Inc. 1991, 57 B.C.L.R. (2d) 62 (B.C.C.A.).
  32. [1998] O.J. No. 4368 (C.A.).
  33. [2001] O.J. No. 275 (C.A.).
  34. KFC, supra note 32, at para. 8.

    16.1 The grant of the License hereunder is personal to Licensee. The grant of the License hereunder is based upon full disclosure in writing by the Licensee to KFC, and approval by KFC, of all directors and holders of majority control of the voting shares of Licensee and of any corporation or corporations which directly or indirectly (whether by means of any intermediate corporations or otherwise) own or control or have an interest in the shares of the Licensee. Licensee acknowledges that the restrictions provided in this Paragraph 16 are reasonable and necessary to protect the KFC System and the KFC Marks and are for the benefit and protection of all KFC licensees as well as KFC.

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