QUESTION ONE – Which techniques are typically used by international counterparties in your experience to overcome challenges in the negotiation process?
Counterparts trying to impose their own prepared contract forms is something commonly seen, as is the technique of creating time pressure and attempting to acquire trade secrets or technical know-how without consideration.
During the negotiation process, counterparts will often attempt to add in more supplies or services for no additional cost and may also refuse or postpone payments until advance work has been done.
Changing their negotiating personal in order to start anew and drop promises is common, while many prefer ‘ad hoc’ agreement forms instead of selecting internationally-recognised forms of contracts like FIDIC, UNCITRAL, VIENNA Convention, etc.
QUESTION TWO – Is there anything special or peculiar about commercial contract law in your country that General Counsel should be aware of?
Commercial contracts governed by Swiss law benefit from a very sound body of rules which form part of the Swiss Codification System, which might apply in addition to the various dispositions agreed upon in the Contract (except if they contradict the latter that are not infringing mandatory rules of law). This enables us to draft much shorter contractual texts, than the ‘bibles’ too often seen in the Anglo-Saxon system. The risk of forgetting some points in the Contract is suppressed by the automatic replacement by the adequate rule of law. But one must, of course, be aware of the exact content and meaning of the substitute rule.
In case of dispute, what counts is to be able to demonstrate the real and common intention of the parties, as expressed by the wording of the contract texts and to be understood pursuant to the Principle of Trust. Consequently, it is of the utmost importance to clearly state all details of such intentions, by using proper words, drawings or other specifications. The Principle of Good Face supported by the real intention of the parties surpasses the words used in the contract, in terms of importance.
Swiss laws of Procedure-Evidence-Torts reflect typical Swiss reserve;
• No discovery tools, such as those used in the USA.
• Everything is subject to the rule of reason.
• No triple damages nor large awards.
• Liquidated damages are implemented under strict conditions.
• No jury system except for highest criminal Courts.
• The defeated must pay the winner’s attorneys & court costs.
• Switzerland is known as the world centre for Commercial Arbitration.
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?
Articles of Association (AoA) are indirectly affected by the increasingly strict treatment of members of boards of corporations by the Swiss courts.
These courts no longer hesitate to condemn members for their law violations. Board Members’ duty of due care and duty of loyalty, can no longer be ignored. The Swiss Federal Tribunal or Swiss Supreme Court decided on Jan. 23, 2018 (4A_349/2017) to confirm the immediate termination of the employment contract of a President of the Board of Directors of a Swiss company because of his violations of several obligations and duties.
Mr Pierin Vincenz was a super banker and President of the Board of Raiffeisen Banks, the third largest bank-group in Switzerland, for more than a decade. After spending more than three months in jail, he is facing severe condemnation for mismanagement decisions and wrongful enrichments, with a possible lengthy prison term and the requirement for him to restitute large sums of money. This is a totally new situation for our country.
The issues of a duration of a Shareholders’ Agreement and of the right to terminate such an agreement have been amended by the Federal Tribunal (Swiss Supreme Court; 4A_45/2017; June 27, 2017), as follows:
Under Swiss law, a contract cannot be validly entered into for an indefinite period. There is a risk that such agreements be terminable at will by giving six month’s written notice. Long term commitments in a Shareholders’ Agreement are valid under strict conditions, like the respect of the personality rights of all signing shareholders, including the threat to the economic freedom/existence of a signatory, and the balance of their rights and duties. In case of violation of such conditions, the contract can be declared as no longer valid.
French Saint Gobain Corp’s. attempts to take over the Swiss SIKA Corp. have been the subject of a judicial saga over several years, terminated in 2018 by a settlement agreement. The court decisions made during this process, have widely enriched Swiss corporate and contract law, including the dos and don’ts in shareholders’ agreement.
Internationally speaking, Switzerland is ranked in second or third position on the scale of very high executive compensations. CEO compensation increased by 41.2 per cent between 2009 to 2016 on average, and, contrary to general belief, compensation in non-financial services firms grew faster than in financial services firms (banks, etc.).
The aftermath of the MINDER Initiative (Swiss people refused by votes to institute caps for executive bonuses) cannot be summarised as ‘business as usual’: First of all, shareholder representative institutions, like ETHOS, are exercising growing control over the policies of large companies, by imposing guidance during general assemblies. Second, most companies are self-imposing sound internal rules in response to such pressure, often reported in the media. UBS just disclosed a total change in their ‘bonus’ policy’, which included the suppression of bonuses for more than 10’000 executives, or the reduction of all bonuses in line with proven results.
Finally, the Socialist Party is proposing a whole new Swiss Companies Compliance Charta, with a lot of change proposals. The fact that this legislation bill has very little chance of being approved by Parliament does not prevent large debates on all kinds of topics taking place, preparing the way for future, better-designed proposals.
TOP TIPS FOR: Successful negotiations
Should English be foreign to my French/German clients, then one of the other languages should be selected as the contract language.
Engage in systematic preparations with clients and learn all about their strengths and weaknesses, plus the deals at stake.
Write down the list of all legal issues to be considered, while preparing a list of solutions in Swiss law to the most important legal issues to be considered.
Communicate with clients/their customers in a clear, transparent, complete and professional fashion, systematically confirming in timely writing all information exchanged and decisions (to be) taken.
Divide work by topics and elect a responsible person for each topic in order to facilitate proper communication.
Above all, do think preventively: Corporate lawyers should always be focused on AVOIDING future problems as much as possible. Disputes are a curse for business.