Contract Law

Marie Anouk: What must be clarified before a contract negotiation?

Antoine F. Goetschel: Laozi wrote: solve problems before they arise; bring order before chaos sets in. One should think in advance about the ultimate purpose of the contract — why am I entering into this relationship, to what end? When the focus falls entirely on the contractual provisions — and we have gone from one- or two-page contracts to documents of 50, 60 or 100 pages in the American tradition — what should be resolved often is not. Trust should come first, then the purpose. The clearer and simpler a contract, the more it signals that the parties want to be part of the solution, not the problem. Recently I concluded an agreement on a major project with a handshake. Because I trust the person, that handshake means more to me than a 50-page lawyers' contract with jurisdiction in Gibraltar and governing law in America — or Uganda.

Marie Anouk: When is a contract valid and when is it not?

Antoine F. Goetschel: Law is, in essence, form. Lawyers look first at whether the required form has been observed: was land sold without notarial authentication? Then the contract is void. Lawyers love to check the form first — is a signature missing, is the date absent? «I want out of this» — colloquially, we look for the hair in the soup. A contract is also void when the parties had entirely different understandings of its basic subject matter — I wanted sugar, you delivered salt, and because both look similar a false delivery occurred: that raises the question of mistake. The fundamental principle is that contracts must be honoured — this was already true in ancient Roman law. Breaking a contract one has already partly performed is not easy, especially when the other party insists on it.

Marie Anouk: Which clauses carry the greatest risk?

Antoine F. Goetschel: Clauses on governing law — when a Swiss or European contract applies American or Chinese law that the parties have no knowledge of and that has no connection to the subject matter. When the jurisdiction clause requires bringing claims in a completely different location: I recall a major case in Canton Lucerne where proceedings had to be brought in Gibraltar even though substantial sums were based in Lucerne. Beyond that: if I cannot explain a clause to a friend in plain language, or if behind the façade of grandiose terms something lurks that I do not actually understand, I would be sceptical. Terms like «compliance» mean different things to different people. If I do not understand what was agreed, or what I can demand from whom, under what conditions and with what guarantees, I would ask questions and only enter the contract once I know precisely what I am committing to.