The Conflict of Interests vs. the Common Interest: Will we see a paradigm shift after COVID-19?

Ioana Hategan, Managing Partner

Sooner or later, any contract negotiation fits the paradigm of the conflict of interests or the opposing interests. Any business lawyer is inevitably taking sides by protecting the interest of one party „on the expense” of the other. This is the way this profession works pro parte, therefore it is divisive in most cases. You are someone’s lawyer, you defend someone’s interests, you represent a certain party. It is either you or the other party’s lawyer who is right. There is hardly a middle way. If one wins, the other one inevitably loses. For this reason, the contracts also become more and more complex. From the very beginning, a simple fact is clear: the conflict of interest in unavoidable throughout the negotiation process and therefore the clauses in the contract need to prevent or avoid that situation.

The current COVID-19 crisis we are experiencing, and which affects our businesses, sheds a whole new light on human relations, but also on the business relations. We now realise more than ever that we are an integral part of the economic chain just like in a castle of cards where the cards support each other.

Our interdependence however should make us search for the common interest. If one is well, this resonates in the entire economic chain. Nonetheless, if one card goes down, the entire castle falls apart. This crisis gave us the opportunity to realise that if we look at „the big picture”, it is better to have a „common interest” than to be in a „conflict of interests”.

In this new paradigm, the main concern should not be how a company makes more profit by cutting its costs. It should rather seek what is necessary for all the contractual partners to be satisfied in their needs, while at the same time searching for a higher goal, that of serving the community and the eco-system that we are all part of.

The common interest means to re-discuss, re-schedule, do common concessions, postpone, understand each other in the way we have been affected, and, above all, carry on TOGETHER, for a higher common goal, rather than an individual one.

I hope that once this pandemic is over, we will have learnt our lessons. First of all, the negotiations should (by any possible means) prioritize equally the needs of every party and focus on the way these needs can be met through the contract, while focussing also on the common goal of the parties. The goal should be oriented beyond the mere financial gain (but without disregarding it), towards the objective of the contract and what its benefits for the parties involved are, as well as the impact on the indirect beneficiaries of the contract’s implementation.

Consequently, the role of a business lawyer could be transformed, in a creative way, from the defender of one party’s interest into a facilitator who identifies the mechanisms to meet the needs of every party, with the aim of creating added value for the final beneficiaries of the contract. Such a negotiation will be carried in harmony, transparency and openness and will give each party the reassurance that what they agree upon is sustainable and mutually beneficial, while responding also to the higher goal of living in a society in which what we do serves us all and we all benefit from the result of our work.

Utopic? Unrealistic? Not at all. I will emphasize below a simple and efficient example of implementation of such principle.

The mandatory conditions for the validity of a contract are: ability to contract, parties’ consent, a determined object and a cause (scope) that should be licit and moral. It is interesting that the moral aspect, although regulated as a mandatory condition for the validity of a contract is often disregarded or left aside. In the new paradigm, the process should work from the other direction, having as a starting point of any negotiation the moral cause that should guide both contractual parties throughout the entire process of negotiating a contract.

According to our Civil Code, in order to have a valid cause, this has to meet three conditions: i) the cause should exist ii) it should be licit iii) it should be moral. Lack of cause leads to annulment of the contract. The third condition which refers to the moral aspect should become relevant in the current context. In an economic ecosystem, with a high degree of interdependence such as ours, the moral aspect should be interpreted as the common interest and not (solely) the individual one.

By being aware, both as companies, as well as business lawyers, that we are an inherent part of this ecosystem, we will sit at the negotiation table, either to conclude a contract or to re-discuss it and we will meet the following steps:

  1. Firstly, we identify the cause of the contract (its purpose) and we consider the moral aspect of the clause
  2. We discuss openly and honestly what are the NEEDS of every party in order to fulfil the scope of the contract (thus we grant importance not only to the OBLIGATIONS, but also to the NEEDS of every party).
  3. We regulate these needs in the negotiated contract
  4. We discuss and agree the financial conditions, payment/reschedules/postponements, that will also be subject to the scope of the contract
  5. We regulate realistic deadlines for the fulfilment of the scope of the contract, thereby considering again these needs
  6. We regulate warranties for non-compliance, just as until now, although, if we apply steps 1 to 4, the need of regulating warranties will decrease significantly
  7. We regulate the implementation mechanism that is the subject to the scope of the contract
  8. We regulate the applicable law and the settlement of litigation, although, if we apply steps 1 to 7, we will create the premises of a substantial decrease of the disputes that need court settlement.

How many of the contract negotiations are focused nowadays on the scope of the contract? How many of the contracts concluded during the current period have a focus on the moral aspect of their scope? Which are the means to measure it?

By giving importance to the cause (scope) of the contract, we will subject our actions and regulations to this and we will act having more or less the same objective, not objectives and interests that are in conflict.

This way, all the participants in the economic ecosystem can win and we will live in an economy that will be more harmonious, more productive and less conflictual.