Şafak Herdem of Herdem Attorneys 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?

Differences in the cultural and legal background may pose a challenge for negotiation since healthy communication is a must for the negotiation process. Based on our experiences of negotiating international contracts, we find that mechanising the negotiation process is a safe technique that greatly helps to overcome challenges during the negotiations. Mechanising the process means setting the agenda ahead of the meetings while getting the required documentation ready before the meetings; and, most importantly, sticking to the plan.

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

Suretyship clauses (or agreements for that matter) in commercial contracts in Turkey are important. As per Turkish Law, maximum surety amounts and the date of surety are handwritten by the suretor. The existence of a joint surety would also require an affirmation of such surety in handwriting as well.

Lack of compliance with such rules causes the suretyship clause or agreement to be null and void. Secondly, contractual breach damages is also an issue that all lawyers and legal counsels should be aware of. Very often, commercial contracts in Turkey have penalty clauses that are used as an estimation of damages in the event of a contractual breach. The claimant may claim damages in accordance with such penalty clauses and has the option to claim positive or negative damages as per the Turkish law. Positive damages include damages incurred due to the non-performance of a specific obligation as stipulated in a contract. Negative damages, on the other hand, include losses suffered by the claimant due to the reliance on the validity of the contract. Clauses stating that the defaulting party shall be liable for all damages are misleading, as the claimant may not claim positive and negative damages concurrently. Only negative damages and damages stipulated in a penalty clause may be claimed if the contract is terminated by the claimant. If the contract is still in effect, positive damages and damages stipulated in a penalty clause may be claimed.

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?

Shareholders agreements are widely used, especially post-share transfers to stipulate the rights of the shareholders. Contrary to their popularity, shareholders’ agreements, unlike the articles of association (AoA), are not required under Turkish legislation. An AoA and a shareholders’ agreement may have similar provisions, but the AoA of a company and amendments thereto (if any) is declared in the Turkish Trade Registry Gazette. It binds the third parties who enter into a contractual relationship with the company as a prospective shareholder or a creditor. On the other hand, a shareholders’ agreement does not bind third parties; it only binds signatory parties. Turkish Law offers protection measures against a breach of AoA by the board of directors or other shareholders. Parties to the shareholders’ agreement shall not benefit from additional protections offered by the Turkish Law. The shareholders’ agreement may offer remedies such as a penalty clause or contractual breach damages.

Rights such as tag-along, drag-along and the right of first refusal, generally are not stipulated in AoAs. However, in some cases, such rights may be stipulated under an AoA by the parties, especially after a merger or acquisition. Their inclusion in an AoA would not give shareholders the right to refer to the remedies offered for AoAs in Turkish Law.

TOP TIPS FOR: Successful negotiations

Finding a common ground

Never forget the goal is to close the deal, not make the other party suffer. Always remember that everyone has their own goals and agendas. Compromise when necessary to get a good deal for your client. Do not overlook major points when focusing on minors.

Leading the negotiation

Always bring written documentation in the form of draft agreements, memorandum of understandings and letter of intents. Anchoring bias may work in favour of the negotiators that present written documents first. Setting the rules first may shift the balance in your
favour.

Don’t ignore the physical factors

Your arguments in the negotiation matter, but what also matters is the physical factors. Do not let the counterparty’s team outnumber yours. Negotiating is like playing chess, sometimes a pawn can be a game-changer.