Contract clauses, one at a time

Most UK commercial contracts cap liability, and most disputes about caps turn on one question: is it one cap for everything, or a cap per claim? The 2023 judgment in Drax v Wipro showed how much money that drafting choice can move.

A liability clause is read backwards in a dispute, starting at the carve outs. A cap with four exceptions is not really a cap, and a cap with none is rarely enforceable.

A delay claim without this clause turns into an argument about lost trading, months after the job has finished and the evidence has gone cold. A rate agreed at signing replaces that argument with arithmetic, as long as the rate can survive the penalty test.

Singapore takes a different line from the UK on liquidated damages. In Denka Advantech v Seraya Energy in 2020, the Court of Appeal kept the traditional test from Dunlop, asking whether the sum was a genuine pre estimate of loss, and declined to adopt the UK Supreme Court's legitimate interest test from Cavendish. It also held the penalty rule applies only to sums payable on breach.

Symmetry is not fairness by itself. Two parties with very different exposures can sign identical wording and end up with a clause that only ever runs one way.

Charging for a breach is lawful; punishing it is not. Since the Supreme Court's 2015 decision in Cavendish Square v Makdessi and ParkingEye v Beavis, the question is not whether a sum is a genuine estimate of loss but whether it is out of all proportion to a legitimate interest.

Two consultants make the same mistake on one project and one of them has gone under. Whether the survivor pays half or all of it is decided by a clause most people skip.

A release is the only clause in most settlements that actually ends anything. Everything else is administration around the two questions of who is released and from what.

Two parties agree who carries a risk, one of them insures it, and then the insurer pays out and sues the other party anyway. This clause closes that loop, which is why it turns up in almost every lease and equipment hire agreement.

A warranty is worth what its remedy is worth. A twelve month promise whose only answer is a repair the supplier controls is a very different bargain from one that gives money back.

An index linked increase looks mechanical and still produces disputes, almost always because the clause names the index loosely. The fix is to name the series, the quarters and the arithmetic.

A cross border invoice can be paid in full and still arrive short. The clause decides whose problem that is before the first transfer rather than after it.

A default interest clause charges an extra rate on overdue amounts, such as 4 per cent a year above the loan rate. Courts accept modest uplifts that reflect the higher credit risk of a borrower in default, but an uplift out of all proportion to that interest can be unenforceable as a penalty.

A deposit does two jobs at once, funding the early cost of a job and proving the customer is serious. The clause only works if it says which of those jobs it is doing.

Nobody argues about the fee on the first invoice. They argue about the flight, the parking and the stock photography licence, because nothing in the contract said who was paying for those.

A price written without a tax position is a price that is ten per cent wrong to somebody. The clause exists to put the argument before the first invoice instead of after it.

A payment term is only as good as the invoice that triggers it. Most late payments that look like bad behaviour start as an invoice missing something the customer's system insists on.

Interest on an overdue invoice is rarely collected in full, and that is not the point of the clause. Its value is that it gives a small supplier something concrete to write in the second reminder.

Milestones sound like a scheduling device and behave like a credit control device. The stage that is worth arguing about is never the first one, it is the last one, where most of the margin usually sits.

A buyer asks for this clause to stop shopping every year. A supplier gives it and quietly loses the ability to discount anywhere else, which is why the definition of comparable does all the work.

Most invoice disputes are not arguments about the amount, they are arguments about the date. A payment terms clause removes the argument by naming the trigger, the period and the method before any work starts.

A multi year contract at a fixed rate is a bet on costs, and one side always loses it. An adjustment clause replaces the bet with a procedure.

Rebate clauses come in two forms. In a supply agreement, a volume rebate pays the buyer back a percentage once its purchases pass a target. In an agency, planning or procurement contract, a no rebate clause promises the client that the agent takes nothing from suppliers on the side. Both need exact definitions to work.

A retainer clause trades certainty for availability: the client pays a fixed amount each month and the agency or consultant sets aside capacity for it. The clause has to answer four questions clearly, what the fee covers, what happens to unused time, what extra work costs, and how the arrangement ends.