In the world of business, contracts are the bedrock of every partnership, transaction, and agreement. They are the documents that define relationships and protect your interests. However, they are often filled with dense legal language that can obscure significant risks.

While a thorough legal review is always recommended, understanding the key clauses is the first step towards proactive protection. This newsletter highlights five critical clauses that demand your attention in any commercial contract you encounter.

1. The Liability and Indemnity Clause

This is one of the most heavily negotiated clauses, and for good reason. It governs who is responsible—and to what extent—if something goes wrong.

• Limitation of Liability: This part sets a cap on the financial liability one party has to the other. Look carefully at this cap. Is it a reasonable figure, or does it leave you exposed to significant potential losses?

• Indemnity: An indemnity clause is a promise by one party to cover the losses of the other in specific situations, such as a lawsuit from a third party. It's crucial to understand exactly what events trigger this indemnity and what losses are covered. An poorly worded clause could see you taking on responsibility for another party's mistakes.

2. The Termination Clause

Knowing your exit strategy is as important as knowing how to enter an agreement. This clause dictates how the contract can be legally ended.

• Termination for Cause: This allows a party to terminate if the other party breaches the contract (e.g., fails to pay or deliver services).

• Termination for Convenience: Does the contract allow a party to terminate without any reason, simply by giving notice? This can provide flexibility, but it can also create instability if your counterparty can exit the agreement at any time. The notice period is a critical detail here.

3. The Confidentiality Clause

In the course of doing business, you will likely share sensitive information—financial data, trade secrets, client lists, etc. This clause is your shield. It should clearly define what constitutes "confidential information" and outline each party's obligations to protect it, both during and after the contract term.

4. The Force Majeure Clause

This clause has gained prominence in recent years. It addresses "Acts of God" or other unforeseeable events beyond a party's control (such as pandemics, natural disasters, or war) that prevent them from fulfilling their contractual obligations. A well-drafted clause specifies what events qualify, what happens when an event occurs (e.g., suspension of duties), and for how long before the contract can be terminated.

5. The Dispute Resolution Clause

When disagreements arise, this clause provides the roadmap for how they will be handled. It prevents disputes from escalating into costly, public court battles without a clear process. It should specify:

• Method: Will disputes be settled by mediation, arbitration, or litigation?

• Jurisdiction: In which country or legal system will the dispute be heard? This is especially critical in international contracts.

Expert Review is Your Best Protection

While this guide covers key areas, it is not a substitute for professional legal advice. The interplay between clauses and the specifics of your business can create risks that are not obvious on the surface.

At KarSen Legal, we specialise in meticulous contract review and drafting. We ensure the agreements you sign are not just standard documents, but strategic tools that protect your business and advance your interests.

Before you sign your next agreement, let us provide the clarity and confidence you need. Contact us today for a comprehensive contract review.

Disclaimer: This newsletter provides general information and does not constitute legal advice. For advice on your specific circumstances, please contact us directly.

Decoding Your Commercial Contracts: 5 Clauses You Can't Afford to Ignore