Introduction to survival of clauses
Introduction to survival of clauses in a contract - image showing a signboard says To Be Continued
Image credit - Unsplash
One of the misconceptions in the business world is that there is no risk after a contract is ended. It’s true that risks are reduced when the services/business arrangement finishes, but it does not mean that the risks or even obligations finish.
Why do clauses survive after a contract ends
Let’s first understand why would clauses continue to apply even when the contract has finished, with a few examples:
Confidentiality & Data
Confidentiality as an example of the clauses that survive contract termination or expiry - image showing finger on the lips
Image credit - Unsplash
Certain obligations like confidentiality can be continued after the contract expiry/termination, and it’s a common practice to do so - this is required because the value of information does not cease with the contract, it remains.
Having said that, it needs to be clearly stipulated in the contract, and also for how many years after the contract ends - 3-5 years after contract termination/expiry is industry practice, but it really depends on certain variables like the type of information, how long it continues to stay relevant/sensitive, and whether you are receiving more or sharing more.
If the confidentiality clause says something vague like during and after, that means perpetual, which on another note is vague and impractical to comply with.
Liability & Indemnity
Liability continues as per the statutory period of limitation, which is the time period allowed under the law under which the parties may bring a claim. This is relevant because, if something goes wrong right towards the end of the contract, the parties should not forego the legal rights that their chosen governing law provides them, for bringing a claim.
In some cases, the above two can be combined, making a perfect example of survival of clauses - liability related to a data breach or data leak, which can happen even after the agreement finishes.
Intellectual Property
The ownership of copyright, trademark, etc. does not end with a contract ending. This usually remains forever.
Payments
For payments and refunds, it’s always advisable to have a specific clause which addresses the topic, since the payments usually continue after the contract ends, to close out the final services. Unless of course all amounts were paid in advance - and even if that were the cause there should be clarity around refund surviving, which is usually under the payments clause.
Governing Law, Jurisdiction & Disputes
Governing law and jurisdiction clauses continue because without that the parties can’t resolve claims on a formal/legal basis.
For the other topics as well it’s best to have a survival clause in the contract so that it’s clear that the parties meant for such provisions to survive.
How to build a survival clause in contracts
It can be done in two ways:
Option 1:
Have a generic survival clause which says the provisions which are meant to survive expiry or termination so survive. Many people don’t prefer this, but I believe this is a decent option because, practically speaking, most people who choose Option no. 2 get it wrong, which is riskier.
Option 2:
Have a specific survival clause which lists every clause that will survive - but the reference and numbering needs to be cross-checked so that it doesn’t lead to confusion or ambiguity. Because if a specific reference is made and then relevant clauses are not included, it will lead to a bigger issue. Let’s say someone forgets liability or indemnity or intellectual property while listing down the rest but wants to claim indemnity later, it can cause an interpretation dispute, which is one of the biggest wastes of time and resources.
Even with a survival clause it does not mean that the liabilities continue forever - it’s still subject to the statute of limitations. So, a party can’t bring a claim 25 years after the incident happened, if the limitation period is lesser - like 15 years in the UAE for most kinds of matters, lesser in the UAE for other kinds of matters, and much lesser like 6 or 3 years in certain other countries, etc.
Confidentiality is more nuanced. Since the obligations itself are mentioned for let’s say 5 years after the contract expiry/termination - if the breach happens in the last year of these 5 years, which means 4 years after the contract expiry, the limitation period starts from that incident. Again, a nuanced example of how liability and confidentiality work practically when related to each other.
This is on the commercial contracts side, while we go to a specific topic like employment, let’s say a non-compete claim, the limitation period for that runs a different timeline, and hence survival in those kinds of contracts are to be treated, written and interpreted differently.
If the survival clause is not clear, the court might have to apply its own interpretation. And we definitely don’t want that uncertainty. Commerce and business thrive on certainty, fulfilled promises and consistency, not on issues and disputes.
In a nutshell:
(1) How business thinks: The contract is over, no risk now.
(2) How contract reviewers/legal think: Obligations and liabilities continue after the agreement.
(3) Where the truth lies: Much closer to the second one.
(4) What you should be doing: Checking which clauses should survive, and building a suitable survival clause for that, with professional support.
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