Oscar Conde of Legem Attorneys takes part in Negotiating Effective Contracts & Dealing with Disputes

QUESTION ONE – Typically used techniques by international counterparties to overcome challenges in the negotiation process?

Establishing a minimum of rules regarding the process and steps that will guide the negotiation is helpful, as is understanding that the party with the apparent least negotiating power, might have broader protection under the applicable law, which in most cases applies in substitution for the non-negotiated terms of the agreement.

Maintaining communication allows both parties to maintain the focus of the negotiation in the common interest, rather than in their positions, as well as to identify a zone of possible agreement.

It is also essential to have at least one alternative option to the business in negotiation, in order to keep negotiation power and be able to say no to a non-appealing contract.

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

Electronic Contracts

The validity of electronic contracts (e-mail, word, PDF) causes big controversy before the courts in Mexico, given that it is often considered that the legal requisites of consent are not fulfilled, thus making them invalid. In order to comply with the principle of functional equivalence of the data message with the information documented in non-electronic means, and of the electronic signature with the original handwritten signature, the suggested strategy is always to use the valid electronic signatures of the parties.

Contractual Penalties and Damages

A very common mistake when drafting a contract is including both the payment of a contractual penalty and damages in case of default. Mexican trade law establishes that, in case of breach of contract, claimants must choose between the payment of one of these.
Additionally, it is often a challenge for attorneys in court to prove the value of the damages that were effectively caused by a breach of contract. Therefore, in order to avoid both a nullity statement regarding these two penalties and the burden of proving the quantification of the damages, it is advisable to establish a unique consequence for the cause of default: the contractual penalty.

Services Agreements

When drafting personal services agreements, it is important to clearly differentiate labour from commercial obligations. For an agreement not to be considered as labour subcontracting, but rather as a pure services agreement, Mexican legislation establishes the following requirements regarding the services provided:

• They may not constitute the totality of the activities developed in the company;
• They must be justified by their specialised character; and
• They may not include similar or equal activities to the ones developed by the employees of the contracting party.

Any case that does not fulfil each and every one of these requirements will be considered subcontracting. Therefore, the client and the services provider will be jointly and severally liable with regard to labour obligations.

Non-Compete Agreements

Derived from the systematic interpretation of the Mexican Constitution, Federal Law of Economic Competence and Federal Labor Law, non-compete agreements in Mexico must always delimit the validity of the non-compete obligations, as well as the matter of the restriction as much as possible. Otherwise, Mexican Courts consider these agreements as unconstitutional, based on the criterion that they limit the freedom of work granted by the Constitution.

Data Protection Clauses

The protection of personal information has become increasingly important in contracts, due to recent reforms on the matter establishing high fines in case of non-compliance. The most important obligation regarding personal information in contracts is the inclusion of a transference clause, through which the parties establish the terms in which the personal information is being transferred.

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?

Shareholder Agreements

An important reform to the General Law of Commercial Companies took place in 2014, allowing the existence of shareholder agreements -previously prohibited and considered as invalid- regarding, among other things, purchase rights and limits to voting rights. This reform constitutes a big step towards more flexibility and the prioritisation of the principle of party autonomy, governing in private law.

Unipersonal Legal Entity

As of 2016, the General Law of Commercial Companies includes the existence of a unipersonal legal entity. The Simplified Joint-Stock Company, grants legal personality and thus a separate patrimony to a Commercial Company with a social partnership of one or more shareholders. This legal entity must be incorporated through the electronic system of the Ministry of Economy and requires the Advanced Electronic Signature of the shareholder(s).

TOP TIPS FOR: Successful negotiations

DOS

Do keep in mind the necessity of the negotiation 

It is important to always keep in mind why the business must take place. By doing so, it will be easier to identify the zone of possible agreement, as well as to actively seek solutions to the impediments that may arise during the negotiation. This is preferable to not closing the deal.

Do use a trustworthy third-party

The presence of a third party trusted by both sides may help move things forward. They may have a valid opinion regarding the best way to make the business happen.

Do have equivalent offers prepared

When a condition to negotiate is presented, it is important to have in mind other equivalent options, which may replace the one suggested.

DON’TS

Don’t look for non-ethical or non-legal alternatives to close a negotiation

It is important to keep in mind that anticorruption regulations impose dire consequences for non-compliance, some of which may include criminal charges and high fines.

Don’t enter a negotiation before having analysed all the required information

Take enough time to evaluate alternatives, study the applicable law, and gather as much information as possible.