Abstract
This essay focuses on the manner in which an attorney from a civil law jurisdiction may use the World Commerce & Contracting Principles dated February 2020 (hereinafter:
Keywords
Introduction
An attorney from a civil law jurisdiction will need to evaluate whether it is necessary to adapt or supplement some of the principles contained in the World Commerce & Contracting Principles (hereinafter:
This essay argues that applying the WCCP in the described way, with necessary adaptations, may speed up the negotiations between the parties, result in a quicker closing of a transaction and result in an agreement which better reflects parties’ true intention thereby contributing to the avoidance of possible future disputes between the parties.
Using the WCCP in practice
When starting negotiations, businesspeople sometimes agree on the main commercial issues related to the transaction and then they leave it to the attorneys to resolve the “technical details” of the transaction, while in other situations the negotiations are done with the attorneys being present from the outset of the negotiations until the signing of the contract. Whichever approach is used by the business people, the technical details left to the attorney to resolve often prove to be more than just technical and sometimes may even be deal breakers. Often enough, attorneys try to maximize their clients’ position in the transaction by taking an aggressive approach in negotiation and maximizing their client’s position for the short-term benefit of the client, which may increase the risk of no-deal and result in long-term loss of added value that the deal could have created for the parties. This is where the WCCP may be very useful. Since the WCCP are drafted in a very balanced way, they may smooth out the opposite views of the parties and thereby facilitate negotiations and reaching the agreement in the end.
The parties who agree to apply WCCP will have an agreement regarding the basic issues in the transaction at the outset from the negotiations and consequently, will be closer to reaching an agreement as opposed to a situation where the parties have not agreed on a common commercial starting-point and might have a completely opposite view on the issue in question.
Therefore, the WCCP may provide benefits to the parties in three ways: (a) speeding up the negotiations which will reduce the costs parties bear as a result of the negotiations; (b) facilitating the agreement which will provide long term benefit to the parties, as opposed to a situation where both parties leave the negotiations with no deal; and (c) since the WCCP are drafted in a well-balanced manner, the WCCP provide additional comfort to both parties that, as long as the agreement they negotiated stays within the boundaries of the WCCP, one-sided and excessively cumbersome deals for either of the parties should be avoided.
However, when parties agree on using the WCCP, they should bear in mind that they should make some adaptations to the WCCP, especially in situations where parties come from civil law jurisdictions. Namely, it will be necessary to adapt and supplement the WCCP regarding:
legal concepts and terminology specific to the civil law jurisdiction, the rules and trade usages specific for a given commercial sector, and the specific conditions applicable to the concrete transaction.
A more detailed explanation of these adaptations and supplementations of the WCCP is provided hereunder.
Adapting the WCCP to legal concepts and terminology specific to the civil law jurisdiction
Although the WCCP are drafted for wide use across different jurisdictions, some necessary adaptations of the principles may be recommended when the parties come from a civil law background. This is not in contradiction with the WCCP—even the WCCP themselves recognize differences between civil and common law jurisdictions, and thereby caution the parties to take this into consideration when implementing the WCCP. 1
The need to amend the WCCP is apparent in situations when the principles themselves use certain common law concepts. For example, the legal concept of “material breach” is explicitly referred to in the WCCP. 2 The term “material breach” is linked to common law jurisdictions terminology but is not defined by the WCCP. A breach may be defined as material if it goes to the “root” (Vidalia Outdoor Prods., Inc. v. Higgins, 2010, 219; Forsyth County v. Waterscape Servs., LLC 2010, 110–112) or “essence” (D’Andrea Bros. v. United States, 2013) of the contract and if “as a result of the breaching party’s failure to perform some aspect of the contract, the other party receives something substantially different from what the contract specified” (Breach of Contract, n.d.). A material breach gives rise to the aggrieved party’s right to terminate the contract (Forsyth County v. Waterscape Servs., LLC 2010, 110–112; Vidalia Outdoor Prods., Inc. v. Higgins, 2010, 217, 219).
In civil law jurisdictions the legal concept of “material breach” is used in very particular and limited situations and is largely unknown in national legislation since the legislators use different legal concepts when proscribing breach of a contract
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(Runjić, 2019). As an example, Croatian Civil Obligations Act (hereinafter:
Even though the use of common law terminology is not generally forbidden in civil law countries, since it falls within the parties’ right to freely agree on the terms of their commercial agreement, using common law terminology may result in difficulties during the negotiations or in the drafting of the contract. If one party used such common law terminology during negotiations, it could be expected that the other party coming from a civil law country would rightly object since such terminology does not have a clear definition in a civil law context. The other party could legitimately require that the term needs to be precisely defined or simply adjusted to civil law terminology to avoid any misunderstanding. It is conceivable that such approach—adjusting the WCCP to the applicable civil law terminology—should result in the agreement reached to be clearer in its wording, better reflecting the true intent of the parties and thereby contributing to the avoidance of possible future disputes between them.
Adapting the WCCP to commercial sector-specific rules and trade usages
The WCCP are generally intended to serve for facilitating negotiation or drafting of a contract for various industry sectors. 5 However, due to the specifics of various industry sectors and differences between them, it may be advisable to adapt the WCCP to the rules and trade usages specific for a particular commercial sector.
This suggestion is not contrary to the WCCP as the principles themselves also envisage their adaptation when appropriate for a particular industry. 6
The parties should always be hesitant of applying one set of principles and allocation of commercial risks across different sectors and transactions that are not comparable. Many commercial sectors have specific rules and trade usages for dealing with commercial issues which are often not comparable to other industries. Sometimes the applicable law generally refers to these rules and trade usages and sometimes these rules and trade usages are codified as a set of norms and prepared in such detail they represent ready-to-use contract terms. For example, in Germany trade usages are legally relevant for both contract interpretation and performance of obligations arising thereof (Dedek, 2013). A similar situation exists in other civil law countries such as Belgium and Croatia (Van Muylem, 2016). 7 In Croatia, construction trade usages are codified in the Special Trade Usages for Construction which are publicly available, regulate a broad scope of issues regarding construction, and represent ready-to-use contract terms. 8
Since trade usages are sector-specific and well-established, it may be expected that parties dealing in the sector where these trade usages exist, will give priority to sector-specific trade usages and adapt the WCCP to such trade usages when appropriate. Using the WCCP in such a way, with necessary adaptations and supplementation specific for a particular commercial sector, will bring the WCCP even closer to the parties’ needs and result with a higher probability of reaching the agreement, which is the purpose of the WCCP. Also, it is conceivable that such an agreement will better reflect parties’ true intent and will thereby contribute to avoiding possible future disputes between the parties.
Adapting and supplementing the WCCP to the specific conditions of the concrete transaction
Due to their general nature, the WCCP are not specific enough for the parties to simply incorporate them into their agreement nor do they cover all issues that might arise in a particular transaction. 9 Therefore, if the parties apply the WCCP to their negotiations and drafting of the contract, they will inevitably need to regulate issues not covered by the WCCP and thereby supplement these principles (assuming that these issues are not already regulated by the law norms or industry practices applicable to the transaction).
Also, it is conceivable that the parties may want to adapt certain principles contained in the WCCP (although they generally agree on their application) for their particular transaction since such adaptation suits the needs of the transaction better. Ideally, this process would refine the principles turning them into such concrete provisions so they can be included in the text of the contract and specific enough to be enforceable. Although it is unlikely that the parties reach such a concrete agreement at the outset of negotiations regarding all principles concerning their transaction, it is conceivable that they reach such an agreement regarding at least some of the principles contained in the WCCP. Such an agreement is likely to result in speeding up the negotiations and reaching an agreement with a reasonable allocation of risks, thereby contributing to the avoidance of possible future disputes between the parties and giving the parties a competitive advantage in relation to their competitors, which is the purpose of the WCCP.
A practical example of using WCCP at the beginning of the negotiations
Although there are many imaginable examples of using WCCP, one example may be using the WCCP as a starting point for the drafting of the initial term sheet which provides for all necessary commercial points in a transaction. In this case, a party sending the term sheet to its counterparty could specify main principles regarding any commercial issue provided in such term sheet by simply referring to the WCCP, which would be later incorporated in the contract. As an example, such party could refer to the WCCP regarding the issue of liability and offer to its counterparty the following:
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that a party seeking damages should always have the burden of proof for the specific amount of damages unless the parties agreed on penalties for a particular situation,
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that a damaged party should always have the responsibility to mitigate its damages to the reasonable extent,
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a liability cap that is reasonable—proportional to the value of the deal and adjusted according to various factors: value of the deal, duration of the agreement, type of data given to the contractor, and other factors, while in some situations higher liability cap may be warranted (e.g. for certain breaches of the agreement that result in direct damages that exceed the overall liability cap),
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that liability arising from gross negligence or willful misconduct should be excluded from the liability caps or the exclusion from liability, etc.
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Therefore, all these issues do not have to be specifically negotiated from scratch as the WCCP provide a well-balanced approach on the contentious issue of liability which is a topic of special interest for businesspeople in almost all transactions and which issues arise in virtually all contract negotiations. Reference to WCCP in such a term sheet would need to be adjusted as argued in this article—to legal concepts and terminology from a specific civil law jurisdiction,
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specific rules and trade usages applicable for the sector in question, and specific conditions of the concrete transaction
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(Markesinis, Unberath and Johnston, 2006, 443–454; Gorenc, 2005, 517–520). In the same manner, the parties could use the WCCP to resolve other contentious commercial issues such as dispute resolution, subcontracting, privacy issues and others, and consequently speed up the negotiations and drafting of the contract.
Conclusion
In today’s competitive market, it is important for businesses to have a tool that helps them to negotiate transactions quicker and enter a contract where the risk is evenly allocated. Reasonable allocation of risk and quicker signing of the contract are more likely to result in added value for both parties in the transaction. Therefore, it is important for the businesses to have at their disposal tools such as the WCCP which facilitate negotiations and reaching the agreement.
The WCCP represent a good starting point for negotiation since they represent a neutral and well-balanced set of rules not favoring any of the parties. However, it might be expected that the parties will need to supplement and adapt the principles to the terminology and legal concepts used in their jurisdiction, to rules and trade usages for the industry sector related to which the transaction is connected and to the specific agreement the parties may have already reached regarding the transaction.
This essay argues that when using the WCCP, businesses may negotiate their agreement faster and reach the point of signing of the contract quicker which will give such businesses competitive advantages in relation to businesses which start their negotiations without any common ground. Another advantage is that using the WCCP should result in an agreement which better reflects parties’ true intention and thereby contributes to avoiding possible future disputes between the parties.
Footnotes
Declaration of conflicting interests
The authors declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The authors received no financial support for the research, authorship and/or publication of this article.
