Urs Breitsprecher of AQUAN Rechtsanwälte takes part in Negotiating Effective Contracts & Dealing with Disputes

QUESTION ONE – Which techniques are typically used by international counterparties in your experience to overcome challenges in the negotiation process?

It is important to be well informed before the first meeting, especially regarding cultural differences. A lack of information here will be a deal-breaker and will guarantee misunderstandings. You should also be prepared and have an agreed agenda, so everyone’s expectations are the same.

Focus is crucial, as is being specific about what you want from a negotiation. Ask yourself what is the purpose of the negotiation? What do you actually want? What is an affordable price for you? Be firm and stick to it.

Communication in international negotiations is also key. Speak clearly and precisely with easy words. One should not confuse others. Playing with words is one of the biggest threats to negotiation, especially if one or both don’t speak in their mother tongue. Don’t use derogatory or lewd remarks against anyone.

QUESTION TWO – Is there anything special or peculiar about commercial contract law in your country that General Counsel should be aware of?

In Germany, as in many other countries, the parties to commercial contracts cannot always agree on everything and a lot of regulations are in national legislation and implied by law. As a result, the contracts tend to be shorter than those drafted in Anglo-American systems.

The law on the sale of goods in section 437 of the German Civil Code – Bürgerliches Gesetzbuch (BGB) – specifies the rights to which the purchaser or ordering party is entitled in contracts where a defect exists. The law on contracts for work in section 634 of the BGB, does the same.

The purchaser or ordering party in principle only has the right to supplementary performance (sections 439 and 635 BGB). Only if the seller or contractor has failed to comply with the request for supplementary performance within the (reasonable) time limit set out does the purchaser or ordering party have other rights, such as the right of rescission or entitlement to damages. Claims based on defects become statute-barred in most cases two years after the delivery of the purchased item or acceptance of the work.

Exclusion of warranty is possible in German law only to a very limited extent because the lists of clauses contained in sections 308-309 BGB have, according to the BGB, a statutory model character and, therefore, apply to general terms and conditions in B2B transactions as well. For example, exclusion of liability for damages is invalid in the event of personal injury or death, or gross negligence (section 309 (7) BGB). Exclusion of liability in the case of negligent violation of material contractual obligations is also invalid. In the case of contracts for deliveries of newly manufactured items and for work, a limitation of the customer’s rights to supplementary performance is, in principle, invalid (section 309 (8) (b) (bb) BGB). The limitation period may only be reduced at most to one year. This, inter alia, does not apply to damage claims within the meaning of section 309 (7) BGB and damage claims for negligent violation of material contractual obligations.

QUESTION THREE – What recent legislative developments in your jurisdiction affect commonly drawn up contracts such as articles of incorporation, shareholder agreements or executive remuneration? Can you provide any relevant case law to illustrate this?

Most contracts fall within the scope of the BGB’s provisions on general terms and conditions. For this reason, there is only limited potential for limiting contractual obligations.

Exclusion of liability is therefore generally not possible with respect to:

• intentional or grossly negligent breach of duty;
• violation of material contractual obligations (the BGH has held that these are ‘obligations, the fulfilment of which determines the contract, and on which the customer may rely’);
• personal injury or death;
• default, if delivery by a fixed date is agreed;
• where a guarantee for the quality or existence of an outcome of performance or a procurement risk is assumed; and
• liability under mandatory statutory provisions, in particular, the Product Liability Act.

If a clause re the exclusion of liability does not include one of these (mandatory) limitations, it will be invalid.

It is possible to limit the scope of liability to ‘typical’ and ‘foreseeable’ damages that are not based on an intentional or grossly negligent breach of duty. Caps to limit the liability for breach of contract must, however, take into account the exceptions pointed out.

Furthermore, caps must be reasonable and reflect the ‘average damages in the relevant industry sector’. Caps with too low an amount are considered void by German courts.

TOP TIPS FOR: Successful negotiations

Do your homework. Some negotiators say that to get to the root of the issue, you must ask yourself five different ‘why’ questions. You don’t have to know everything, but you do have to understand what everybody wants and why. What are their needs? What pressures do they feel? What options do they have? You can’t make accurate decisions without understanding the other side’s situation. The more information you have about the people with whom you are negotiating, the stronger you will be. People who consistently leave money on the table probably fail to do their homework.

Shut up and listen. Ask your question and the other negotiator tells you everything you need to know – all you have to do is listen. Many conflicts can be resolved easily if we learn how to listen.

Always make an agenda. It’s amazing how often people forget to define clearly what people want to agree on at an appointment and what the goal is. Always define this exactly before the negotiation and stick to it.

Meet face-to-face. Phone and video conferencing, chats and email are great tools. But not when it’s important. Then you have to meet in person. With a face-to-face meeting, you avoid misunderstandings, while giving the other side respect.

Don’t take the other person’s behaviour personally. All too often negotiations fail because one or both of the parties get side-tracked by personal issues unrelated to the deal at hand. Successful negotiators focus on how they can conclude an agreement that respects the needs of both parties. Obsessing over the other negotiator’s personality, or over issues that are not directly pertinent to making a deal, can sabotage a negotiation. If someone is rude or difficult to deal with, try to understand their behaviour and don’t take it personally.