José María Dutilh of LeQuid, Social Enterprise and Business Law Firm 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?

Confirming the identity of the specific company, alongside your counterpart’s mandate to negotiate can be a useful technique. The decision-making chain is often too long and negotiation can get stuck easily. To avoid this tired contract negotiation tactic, it is important to ask the counterpart before the negotiation to clarify the ability to make a commitment on behalf of the organisation. Clarifying the other party’s negotiating authority could pay off if the deal ever ends up in court and if the other side argues that its negotiator did not have the necessary authority to bind the organisation to a deal.

Breaking the negotiation into parts can also help to drive a successful negotiation forward. Some negotiations disintegrate because the parties take an ‘all or nothing’ approach, in which the other party must agree to all of their terms in order to move forward. A good way past this type of issue is to compartmentalise the negotiations into sections and reach an agreement on each part separately. This makes it feel as if you are reaching a series of solutions and making progress, rather than fighting one big war.

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

Laws on contracts are set by every individual state, however, the European Union (EU) has harmonised some aspects of contract law across the whole of the European Community. Spain, as an EU Member, is obligated by European legislation. In addition, some EU legislation affects contract law because it takes precedence over national laws.

Every contract in Spain should follow the regulations listed below regarding jurisdiction and governing law:

• Brussels Regulation EU 1215/2012
• Rome II Regulation EC 864/2007
• Rome I Regulation EC 593/2008
• Regulation EU 2016/1191 regulation for presenting public document within European Union territory.

General Counsel should also be aware of the changes to the New Spanish Commercial Code related to the general norms applied to obligations and contracts. Generally, these norms have an efficiency purpose and will only be mandatory in the cases expressly provided for.

The Commercial Code regulates the different phases of a contract’s life, from the pre-contractual phase to the contract’s extinction and incompletion, and goes over the perfection, modification, interpretation and compliance of each phase.

The Spanish legal system follows the principle of freedom of form in legal transactions and, therefore, special attention must be paid to electronic mails exchanged with counterparts.

The regulation of electronic contracting concentrates on the principles of functional equivalence, technological neutrality, freedom of pact and good faith. Additionally, the Code regulates contracting through public auctions and automatic machines as special forms of contracting. The provisions regarding the General Conditions of Contract and the Confidentiality and Exclusivity Clauses are included as well.

The Code includes a vast number of commonly used commercial contracts in the economy, in order to promote legal security through the establishment of a previously known legal regime. Financial or provision of computer services contracts is regulated for the first time at the legislative level. The possibility of considering other contract types as commercial is maintained. General norms on obligations and commercial contracts will be applied to these atypical contracts.

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?

The Law 31/2014, of 3 December, amending the Law on Capital Companies for the improvement of corporate governance, is a recent legislative development in Spain. It affects commonly drawn up contracts such as articles of incorporation, shareholders ‘agreements or executive remuneration.

Perhaps the most noteworthy novelty in this area, is the introduction in the legal text of a differentiated regime for the faculties of Directors, according to the functions they perform for the company.

A series of formal requirements are added to the delegation of powers by the Board:

• A formal delegation requirement (already incorporated in registry practice) is the indication of the content, limits and modalities of delegation.
• The need is established for a contract to be signed between the company and the CEO or its executive directors, which must be approved by two-thirds of its members. Article 249.3 LSC establishes that such a contract must necessarily include details of all remuneration items. It is explained that the executive director may not receive any remuneration that is not explicitly contemplated in the contract.
• The contract should also include the list of rights and obligations assumed by the executive director and the company. It is expressly required that the director concerned to abstain from attending the deliberation and from participating in the vote. Finally, it is indicated that said contract must be attached to the minutes in which his appointment is agreed.
• Spain has also incorporated within the directors’ liability system the so-called ‘business judgement rule’ under which the board of directors should be allowed to make decisions without fear of being prosecuted. The business judgment rule further assumes that it is unfair to expect those managing a company to make perfect decisions all the time. As long as the courts believe that the board of directors acted rationally in a particular situation, no further action will be taken against them.

TOP TIPS FOR: Successful negotiations

Identifying and assessing the potential for risks, working to reduce them and being able to anticipate what could happen if things go wrong.

Defining a staggered resolution to conflicts is particularly important when it comes to resolving a conflict with a minimum amount of time and money. We recommend beginning with negotiation, continuing with mediation and arbitration and eventually ending up in a previously agreed jurisdiction venue for litigation, when the previous stages have failed.

Including a specific arbitration clause in contracts is important. When it comes to international contracts, arbitration is usually the best bet because disputes can be resolved on neutral ground. Not including this clause can lead the company to litigate in a foreign
jurisdiction, under foreign laws, where it’s unlikely to succeed.

Anticipating contract termination means that the contract should outline the steps necessary for a valid termination, without a material breach of the agreement, with the least possible damages. For example, how far in advance must each partner be notified, and
how should that notification be delivered? Also, it is important to define what situations might be grounds for termination, particularly before the end of a defined contract term.

You should also include anticipated liquidation of damages penalty clauses in order to pre-determine the minimum amount of damages, but with the right to claim a higher amount once solid evidence is provided.