Client Engagement Agreement: Essential Clauses

A fundamental element of any commercial relationship is the contract between the supplier and the client. Experience demonstrates that the absence of such a contract is a source of significant problems. Small claims courts are frequently burdened with lawsuits filed by clients against independent business owners, most of which revolve around the contract. The client claims one agreement was made, the business owner claims another, and without a properly documented contract, both parties face difficulties.

What constitutes a commercial contract? Is a lawyer necessary to draft one? Are there standardized contracts for specific industries? What clauses must a commercial contract contain? We have compiled all this information in the following article. And more! We have included a sample contract.

What is a Commercial Contract?

A contract is formed through an offer and acceptance [(Section 1 of the Contracts Law (General Part), 5733-1973)]. A contract may be concluded orally, in writing, or in any other manner, unless a specific method for drafting the contract is stipulated [(Section 23 of the Contracts Law)]. For example, an agreement concerning real estate rights (ownership, lease, loan, mortgage, or easement) must be in writing [(Section 7(a) of the Land Law)].

Generally, a commercial contract with a client does not have to be in writing. Thus, even if the supplier or client presents evidence of oral agreements, they are legally binding. However, as mentioned, experience shows that a written contract is a commercial necessity that prevents many difficulties in the relationship with the client. Even a work order form, a series of correspondence, or a detailed transaction invoice can constitute a binding contract.

Is a Lawyer Necessary to Draft a Commercial Contract?

There is no legal obligation to draft a commercial contract (or any contract) with a lawyer. Even a property sales agreement can be drafted independently, although most people prefer not to do so due to a lack of expertise in real estate law.

It ultimately depends on the type of agreement. For example, in complex commercial agreements or those dealing with sensitive matters (e.g., beauty treatments with a medical aspect), professional advice is advisable. However, if the terms are simple, a few clauses may suffice.

Are There Mandatory Contracts Based on Industry?

The short answer is no. The longer answer is that most industries operate according to established custom. For example, most nail salons display a price list and additional terms (e.g., refunds or damages) behind their counters. Such a clearly displayed sign constitutes a sufficient contract with the client.

Freelancers (such as plumbers, electricians, painters, etc.) often do not use contracts (which is regrettable). A better approach is to specify the terms of the agreement on an order form signed by the client before commencement of work.

Essential Clauses in Client Contracts – For All Business Types

Date of Contract Signature

It is advisable to note this near the signatures of the parties. If the contract is a sign displayed in the business, retain documentation of the date of display and note the date on the sign itself. This protects against claims that the sign was not in place or contained different wording at the time of the transaction.

Definition of Services/Products and Delivery Times

Details of the type of service/product provided; the duration of the contract; the delivery dates of the product/service; and the method of service/product delivery.

Payment Arrangements – Terms and Dates

Many payment arrangements exist, and an exhaustive list is impossible. However, we have summarized the most common and prominent points:

• Cost of the product/service;
• Payment milestones;
• Final payment date;
• Agreed payment method;
• Penalty for late payment (late payment interest, delay in service/product delivery).

Terms for Cancelling the Agreement (Including Consumer Protection Law, where applicable)

Regulations for cancelling consumer transactions are stipulated in the Consumer Protection Law. Even if cancellation terms are not written in the contract, this does not affect their validity. However, it is preferable that the client is aware of the cancellation terms, especially when the business offers better cancellation terms than those stipulated in the Consumer Protection Law. For more information on contract cancellation under the Consumer Protection Law, click here.

When defining contract cancellation, it is important to specify the cancellation method (e.g., written notice and address); cancellation deadlines; any exceptions to cancellation; the implications of cancellation (partial refund for product/service); and so on.

Action in Case of Breach of Contract by Either Party

Definition of the consequences of a breach of contract by either party. For example: circumstances under which service will be terminated or the client will be required to return the product; circumstances under which a refund or compensation will be provided; and so on.

Jurisdiction for Dispute Resolution

Pre-determination of the jurisdiction where the parties can file a lawsuit. This allows the business to sue/be sued in a convenient location, particularly for businesses operating nationwide and accepting online orders. According to local jurisdiction laws, a lawsuit related to online commerce can be filed in the district of the plaintiff’s (not the defendant’s) residence/business. For example, if you live in Tel Aviv but sold a product online to a client in Kiryat Shmona, you might be required to travel there. A jurisdictional clause would prevent this.

Dismissal of External Representations

A clause explicitly stating that no external representation of the agreement (such as conduct or oral conversation) is valid, and that any change to the agreement requires a written document signed by both parties.

What to Do If the Client Breaches the Contract?

First, assess whether the dispute can be resolved amicably. If not, a warning letter can be sent to the client stating the breach of contract and the corresponding demands. If this is unsuccessful or you choose not to send a letter, a civil lawsuit can be filed against the client.

If the business is not a corporation (such as a limited company or non-profit organization) and the claim amount does not exceed NIS 38,900 (as of January 2023), a small claims lawsuit can be filed. Small claims lawsuits offer numerous advantages for smaller disputes; these include: the process is conducted without lawyers, resulting in significantly lower costs; the process is significantly faster than a regular civil lawsuit; the small claims filing fee is less than 50% of a regular civil lawsuit fee; and so on.

Dino’s system allows you to generate a small claims lawsuit online, from any device, on any subject, in just three steps! Dino’s system is a unique Israeli development that enables users to generate a small claims lawsuit independently in approximately 14 minutes on average.