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Espagne
Spain – New laws on equal pay and equality plans
30 novembre 2020
- Entreprise
- Travail
Arbitration is a procedure for resolving disputes between parties that is very successful in the Anglo-Saxon legal system. But much less in our country.
Arbitration has advantages and disadvantages; it is more expensive than the Courts, but it is much quicker; and speed is essential for justice to be such.
Typically, an arbitration lasts six months plus a couple of months for the appointment of the arbitrator; in total, a dispute, however important and difficult it may be, can be definitively resolved in eight months.
To compare with the Courts, in Spain today it takes on average eighteen months to obtain a judgement at first instance and another eighteen months for an appeal; without considering the possibility of an appeal to the Supreme Court.
The cornerstone on which arbitration rests is that the arbitral award is final and definitive and cannot be reviewed or appealed; this statement has certain exceptions, mainly of a formal or procedural nature: basically, the legality of the arbitration agreement, the arbitrability of the matter and the procedural regularity in the conduct of the arbitration proceedings. These defects can be attacked by means of an action for annulment, which is heard by the ordinary courts.
But in addition to the possible “formal” defects, the action for annulment can be based on the allegation of a breach of “public order”, which the Constitutional Court has defined and outlined as “those public and private, political, moral and economic legal principles which are absolutely obligatory for the preservation of society in a given people and at a given time”.
As this definition of “public order” is undoubtedly broad and unspecific, the use of the violation of public order as a tool for declaring the nullity of arbitral awards by the ordinary courts has produced an “overflow” effect that has required, in the words of the Constitutional Court, “a restrictive interpretation of it, on pain of violating the autonomy of the will of the parties and their waiver of judicial protection”.
This is what the Court has proclaimed in the very important judgement of 15 February 2021, which is the reason for this legal note.
In recent years, the High Court of Justice of Madrid has resorted to the argument of “public order” in an extensive and “overwhelmed” manner to annul arbitral awards and “supplant the arbitral tribunal in its function of applying the law”, becoming “a second instance reviewing the facts and rights applied in the arbitral award, a control mechanism for the correct application of jurisprudence”.
And this expansive and “overwhelmed” interpretation of public order as a tool for annulling arbitral awards by the High Court of Justice of Madrid had become a serious problem for the arbitral institution and for the confidence of the contracting parties when including arbitration agreements in their contracts.
The principle that the arbitral award was the final and definitive solution to the dispute it was intended to resolve, except for procedural breaches or breaches of public order limited to those cases in which the arbitral award was arbitrary, illogical, absurd or irrational, was called into question and was a clear deterrent to contracting parties deciding to resolve their discrepancies through arbitration.
Well then, the Constitutional Court, in a categorical and explicit manner, repeating what it had already stated in its judgement of June last year, confirms that the need for the arbitral award not to contravene public order cannot result in the judicial body replacing the arbitrator in his function of applying the law, nor can it become a second instance reviewing the facts and legal grounds applied in the arbitral award, nor a mechanism for controlling the correct application of case law.
The principle of party autonomy prevails; and this means that when there is submission to arbitration, the parties have agreed that it should be through this channel that disputes between them are to be resolved, by means of the arbitrator’s decision, which can only be annulled through the strict channels that the Arbitration Act regulates; we insist, for procedural reasons or for violating public order in the restricted interpretation explained in the judgement we are commenting on; but in no case, by way of a second instance where the facts and legal grounds applied are re-evaluated once again.
In short, Spanish arbitration is to be congratulated, and will be able to recover the momentum that caused it to lose, in part, the extensive interpretation of public order defended by some High Courts of Justice. From now on, the Courts will not be able to ignore the Constitutional Court’s interpretation, which is a breath of fresh air for Spanish arbitration.
International debt recovery is perhaps one of the most challenging issues in business. Companies are usually excited when starting their new international ventures, but when payments of distributors, clients, franchisees… stop, difficulties arise, particularly when they happen abroad. Recovery is most of the times complicated, causes expenses, nightmares and sometimes undertakings simply decide to give up. We herein provide some tips to consider in the prevention phase.
The following is a summary of the ideas which were discussed in a webinar organized by Legalmondo and the Chamber of Commerce of Treviso/Belluno in Italy in November 11, 2020.
What are the best practices to manage international receivables?
The first question regards the best practices companies could put into practice to avoid or, at least, to try to minimize the impact of lack of payment when international businesses are concerned.
The following main points were mentioned as worth considering at an early status of the negotiations and business development.
Verification of the identity of the company
Who is the company we are dealing with? It is important to check its existence, legal situation and capacity to carry on business. And also, the faculties or authorization of the person signing the type of contract. Is this the right authorized person? Has this person followed the legal requirements to do it? In particular, during this period of international pandemic, when the electronic signatures are used and when agreements are frequently signed with non-original signatures but only on pdf documents.
Request of financial information
What is the credit rating of the company? Seek to obtain official accounting information, either filed with the register of companies (when possible according to the local rules), or through private investigation research: tax regularity certificate to attest that the company is in compliance with applicable rules (in places when this is possible), comfort letters from shareholders or third parties (banks)… It is important to have a reasonable certitude about the capacity of that company to carry on the concrete business. And when possible, to do it on a regular basis.
Use the right contract
What is the correct type of contract for the commercial relationship? Seek advice from a lawyer specialized in the law of the country where the debt will be collected. This will be an essential element, for example, to know when the ownership of the acquired asset is legally transferred; when the parties have agreed to pay the invoices; the validity of the general conditions (or if they have to be drafted in the local language or in the language of the negotiations or what happens when they are contradictory: the seller’s and the purchaser’s); whether this is a distribution contract or a mere supply of products and the related obligations and consequences depending on the applicable law…
Write down your agreements
Avere le condizioni per iscritto non solo sul tipo di contratto ma anche sulle modalità, condizioni e ritardi di pagamento. Ed essere consapevoli del tipo di documenti necessari per la validità dell’accordo. Uno scambio di e-mail creerebbe un obbligo? Sarebbero necessari passaggi più formali per avere un contratto / obbligo valido (notaio, registrazione, firma separata di alcune condizioni)?
Follow your contract
If there is a contract in place, it is important to follow what has been signed or agreed, to ensure that these conditions are then respected. A different and sustained commercial practice could imply a tacit change the original written agreement.
Document all transactions
From the order by the client/distributor, its acceptance by the manufacturer, the transport document, linked to the receipt of goods, and until the final invoice, all paperwork should be clear and consistent. In case of lack of payment, all these documents might be necessary to prove the correct performance of the contract.
Has the debtor risen objections?
Also check your own defaults. It is quite frequent that the non-paying party justifies its decision on a previous breaching. If there is such previous alleged infringement by a supplier, for instance (related to the shipment of goods: delays, defective products, etc.), it will be probably more complicated to ask for the payment from the distributor or, at least, it will be required an additional procedure.
Be clear on the accrual of interests for late payments
In EU countries, legislation based on the 2011/7 Directive allows to combat late payment in commercial transactions with special interest rates: make sure this is mentioned in the contract, as non-EU based companies might not be aware of this, and the difference with the general legal interest can be substantial.
Seek guarantees for your credits
This obviously can vary depending on the type of contract and the relationship between the parties. A guarantee is advisable not only at the beginning, but also when the relationship lasts for several years. Sometimes, trust in your counterparty in the past makes more difficult to ask for additional guaranties and this could imply that late payments are not correctly managed.
Consider also additional guaranties on sold goods such as, when permitted by the law, retention of title. This will imply that the ownership remains in the vendor’s hand until the complete payment. In some cases, it is also possible to have additional guarantees when the retention of title can be registered at special public registries. These special conditions should also be verified locally in order to know their extent and to respect the way they shall be agreed, accepted, and documented.
Check out our webinar on debt collection
On November 11, 2020, I had the pleasure to participate to the webinar on International Debt Collection organized by the Chamber of Commerce of Treviso and Belluno and Legalmondo: we discuss the best practices and share practical information on debt collection in Spain, Germany, France, USA, China, Vietnam and Singapore.
You can watch the recording of the webinar here.
Legalmondo’s helpdesk on international credit collection
If you would like to know more about how to collect a debt overseas, you can find the reports of our experts from 20 countries here.
The Spanish government has recently approved two new rules on equal pay and equality plans which will come into force in January and April 2021 and affect all companies.
1. Royal Decree 901/2020, of October 13, which regulates the equality plans and their registration
An « equality plan » is understood to be that ordered set of measures adopted after carrying out a situation diagnosis, aimed at achieving equal treatment and opportunities between women and men in the company, and eliminating discrimination based on sex.
All companies that have 50 or more workers are obliged to draw up and apply an equality plan, its implementation being voluntary for other companies. In any case, equality plans, including previous diagnoses, must be subject to negotiation with the legal representation of the workers, in accordance with the procedure legally established for that purpose.
Regarding the content of the plans, they must include, among others, definition of quantitative and qualitative objectives, description of the specific measures to be adopted, identification of means and resources, calendar of actions, monitoring and evaluation systems, etc. In addition, they must be subject to mandatory registration in a public registry.
This new Royal Decree will enter into force on January 14, 2021.
2. Royal Decree 902/2020, of October 13, of equal pay between women and men
The purpose of this new Royal Decree is to implement specific measures that make it possible to enforce the right to equal treatment and non-discrimination between women and men in matters of remuneration.
For this, the companies and collective agreements must integrate and apply the so-called « principle of remuneration transparency« , which applied to the different aspects that determine the remuneration of workers, allows obtaining sufficient and significant information on the value attributed to such remuneration.
For the application of the aforementioned principle, the Royal Decree provides, fundamentally, two instruments:
- remuneration registry: All companies must have an accessible remuneration registry for the legal representation of workers. It must include the average values of salaries, salary supplements and extra-salary perceptions of the entire workforce (including managers and senior positions) disaggregated by sex.
- remuneration audit: Those companies that draw up an equality plan must include a remuneration audit in it. Its purpose is to check if the company’s remuneration system complies with the effective application of the principle of equality, defining the needs to avoid, correct and prevent obstacles and difficulties that may exist.
The measures contained in this new standard will come into effect on April 14, 2021.
A recent Judgment of the Social Chamber (4th) of the Supreme Court has concluded that those commonly known as « riders » are false self-employed, that is, they are linked to the distribution platforms through a labour relationship.
This ruling took place on the occasion of the dispute between the company « Glovo » and one of its “riders”, who filed an appeal before the Supreme Court after obtaining a dismissal ruling from the Superior Court of Justice of Madrid.
The High Court bases its decision, particularly, on the concurrence of dependency and alienation of the “riders”, characteristic notes of the existence of an employment relationship. This is deduced from the existence of the following indications:
- “Glovo” geolocates the “riders” by GPS while they carry out their activity, recording the kilometres they travel, which implies business control over the performance of the service provided.
- « Glovo » establishes the conditions under which the service must be provided and gives instructions to the “riders”, who limit themselves to receiving orders.
- “Glovo” provides the “riders” with a credit card to buy the products of the final consumer, and provides them, if they need it, with a payment in advance of part of their remuneration, for them to be able to start their activity.
- “Glovo” exclusively makes all commercial decisions: it sets the price of the services provided, the form of payment and the remuneration of the “riders”.
- Furthermore, it is “Glovo”, and not the final clients of the platform, who pay the “riders”, and the company is also in charge of preparing each of the invoices.
- Although the “riders” use their own mobile phone and motorcycle, the truth is that the essential means of production of the activity are not the mobile phone and the motorcycle, but the digital platform of « Glovo », which reflects that the “riders” are not the owners of the essential means of production.
- “Glovo” has the power to sanction its “riders” for different behaviours, which constitutes a manifestation of the managerial power of the employer.
Thus, the Supreme Court concludes that « Glovo » is not limited to being a mere intermediary between “riders” (distributors) and businesses, but that it is a true company that provides delivery services, which sets the « riders » the essential conditions for the provision of the service, so that these remain incardinated in the organizational sphere of the employer, without having an autonomous business organization.
It should be borne in mind that this new pronouncement has important consequences, since the existence of a relationship of an employment nature between the “riders” and the digital distribution platforms such as “Glovo”, “Deliveroo” or “Just Eat”, obliges these companies to pay the contributions to the Social Security of the « riders », corresponding to the last 4 years, plus a 20% surcharge and the corresponding financial penalty.
This criterion of the Supreme Court will undoubtedly affect other equivalent economic activities.
The arbitration procedure in Spain is characterized, and constitutes one of its great advantages, by the difficulty of judicially annulling or revoking the award; the parties know that the award that is issued is in most cases firm and final and ends the conflict.
The art. 41 of the Spanish Arbitration Law only allows the annulment of the award for formal reasons (nonexistence or invalidity of the arbitration agreement, failure to notify any of the parties of the appointment of the arbitrator or of the arbitration proceedings, improper appointment of the arbitrators or that the arbitrators have ruled on matters that were not or could not be arbitrated by rule of law). And additionally the award is also voidable when it is contrary to « public order« .
That « public order » is such as to give rise, in case of violation, to the annulment of the award, is a matter that has always been controversial and debated; already in the 1958 New York Convention, “public order” is alluded to as a cause of refusal to recognize foreign awards. As the Constitutional Court (“CC”) recalls in the judgment that we commented, citing its own jurisprudence, “the material public order is the set of public and private, political, moral and economic legal principles that are absolutely obligatory for the preservation of society in a town and in a certain time and the procedural public order is configured as the set of formalities and necessary principles of our procedural legal order and only arbitration that contradicts any or some of such principles may be considered null and void for violation of public order”.
As an example, during 2018, 38 requests for annulment of awards were filed before the Superior Courts of Justice (“SCJ”), of which 31 were based on violation of public order; 8 of the lawsuits (21%) were estimated, 5 for violation of public order, and 3 for invalidity of the arbitration agreement.
The Madrid SCJ has been maintaining in recent times a very « expansive » interpretation of public order, which has generated doubts and fears in the institutions and Arbitration Courts, due to the dissuasive effect that this position could have when choosing Madrid as the seat of arbitrations, national or international.
And in the interpretative line to which we refer, the Madrid SCJ has maintained the following and surprising criterion: once an award was made and a request for annulment was filed by one of the parties, the litigants reached an out-of-court agreement and jointly requested the filing of the cancellation request; that is to say, both gave the award as good and final; the SCJ rejected the petition and continued to issue a judgment annulling the award, arguing that since the application for annulment was based on the violation of public order, then the matter was no longer available to the parties and was not, in the opinion of the Court, subject to transaction or resignation.
This was not the first time that the SCJ of Madrid had adopted this position: impeded the annulment of an award as being contrary to « public order », the parties no longer had the possibility to compromise and renounce the demand for annulment.
For the first time the matter has reached the Constitutional Court (CC): in a recent ruling on June 15, 2020, the CC has been clear and resounding; recalls in its ruling that the civil process is based on the principle of « the parties’ willingness to regulate their private interests, that is, to initiate jurisdictional activity, determine the purpose of the process and end it when they deem appropriate ». It is what we call « justice begged for »; and this principle applies not only to civil proceedings before ordinary courts but also to arbitration proceedings. The judgment also affirms that arbitration is configured by law as a heteronomous mechanism for conflict resolution, to which the minimal intervention of the judicial bodies in favor of the autonomy of the will is essential.
And it concludes by stating that the annulment action must be understood as a process of external control over the award that does not allow a decision on the merits of the arbitrators’ decision, since the causes are assessed, which justifies that “the control of the awards are limited and annulment of the award can only be obtained in exceptional cases”.
Summarizing, the CC understands and proclaims that it is contrary to the right to effective judicial protection protected by art. 24 of the Constitution, the Court’s refusal to recognize the validity of an agreement reached between the litigants based on the parties’ power to act without a prohibitive norm authorizing it, and imposing a decision that subverts the « justice » principle that inspires the civil process; reason why it grants the requested protection and orders to roll back the proceedings to the moment before the order that denied validity to the joint request for file, so that the SJC dictates another resolution accompanied by the CC’s criteria.
Therefore, the SCJ will no longer be able to prevent litigants from settling and ending a claim for annulment of the arbitration award (as it usually occurs peacefully and with appeals or cassation remedies) and it must also take into consideration the restrictive interpretation of the concept of public order that the CC has established in this important judgment. Indeed, Spanish arbitration is greatly reinforced by this judgment of the CC.
It is usually said that “conflict is not necessarily bad, abnormal, or dysfunctional; it is a fact of life[1]” I would perhaps add that quite often conflict is a suitable opportunity to evolve and to solve problems[2]. It is, in fact, a useful part of life[3] and particularly, should I add, of businesses. And conflicts not only arise at the end of the business relationship or to terminate it, but also during it and the parties remain willing to continue it.
The 2008 EU Directive on certain aspects of mediation in civil and commercial matters states that «agreements resulting from mediation are more likely to be complied with voluntarily and are more likely to preserve an amicable and sustainable relationship between the parties.»
Can, therefore, mediation be used not only as an alternative to court or arbitration when terminating distribution agreements, but also to re-organize them or to change contract conditions? Would it be useful to solve these conflicts? What could be the advantages?
In distribution/agency/franchise agreements, particularly for those lasting several years, parties can have neglected their obligations (for instance minimum sales targets not attained).
Sometimes they could have tolerated the situation although they remain not very happy with the other party’s performance because they are still doing acceptable business.
It could also happen that one of the parties wishes to restructure the entire distribution network (Can we change the distribution structure to an agency one?), but does not want to face a complete termination because there are other benefits in the relationship.
There may be just some changes to be introduced, or changes in the legal structures (A mere reseller transformed in distributor?), legal frameworks, legal conditions (Which one is the applicable law?), limitation of the scope of contract, territory…
And now, we face the Covid-19 crisis where everything is still more uncertain.
In some cases, it could happen that there is no written contract and the parties wish to draft it; in other cases, agreements could have been defectively drafted with incomplete, contradictory or no regulation at all (Was it an exclusive agreement?).
The contracts could be perfect for the situation imagined when signed several years ago but not anymore (What happen with online sales?) or circumstances, markets, services, products have changed and need to be reconsidered (mergers, change of directors…).
Sometimes, even more powerful parties have not the elements to oblige the weaker party to respect new terms, or they simply prefer not to impose their conditions, but to build up a more collaborative relationship for the future.
In all these cases, negotiation is the usual strategy parties follow: each one is focused in obtaining its own benefits with a clear idea of, for instance, which clause(s) should be modified or drafted.
Nevertheless, mediation could add some neutrality, and some space to a more efficient, structured and useful approach to the modification of the commercial relationship, particularly in distribution agreements where the collaboration (in the past, but also in the future if the parties wish so) is of paramount importance.
In most of these situations, personal emotional aspects could also be involved and make more difficult a neutral negotiation: a distributor that has been seen by the manufacturer as not performing very well and feels hurt, an agent that could consider a retirement, parties from different cultures that need to understand different ways of performing, franchisees that have been treated differently in the network and feel discriminated, etc.
In these circumstances and in other similar ones, where all persons involved, assisted by their respective lawyers, wish to continue the relationship although maybe in a different way, a sort of facilitative mediation can be a great help.
These are, in my opinion, the main reasons:
- Mediation is a legal and organized procedure that could help the parties to increase their awareness of the necessity to redraft the agreement (or drafting for the first time if it was not already done).
- Parties can be heard more easily, negotiation is eased in the interest of both of them, encourages them to act more reasonably vis-à-vis the other side, restores relationship if necessary, deadlock can be easily broken and, if the circumstances advice so, parties can be engaged separately with the help of the mediator.
- Mediation can consider other elements different to the mere commercial or legal ones: emotions linked to performance, personal situations (retirement, succession, illness) or even differences in cultural approaches.
- It helps to find the real (possibly new or not shown) interests in the commercial relationship of the parties, focusing in developments, strategies, new proposals… The mere negotiation between the parties and they attorneys could not make appear these new interests and therefore be limited only to the discussion on the change of concrete obligations, clauses or situations. Mediation helps to go beyond.
- Mediation techniques can also help the parties to face their current situation, to take responsibility of their performance without focusing on blame or incompetence but on a constructive and future collaboration in new specific terms.[4]
- It can also avoid the increasing of the conflict into a more severe one (breaching) and in case mediation does not end with a new/redrafted agreement, the basis for a mediated termination can be established, if the parties wish so, instead of litigation.
- Mediation can conclude into a new agreement where the parties are more reassured, more comfortable with, and more willing to respect because they were involved in their construction with the assistance of their respective lawyers, and because all their interests (not only new drafted clauses) were considered.
- And, in any case, mediation does not affect the party’s collaborative position and does not reduce their possibility to use other alternatives, including litigation or arbitration to terminate the agreement or to oblige the other party to respect its legal obligations.
The use of mediation does not need the parties to have foreseen it in the agreement (although it could be easier if they did so) but they can use it freely at any time.
This said, a lawyer proposing mediation as a contractual clause or, in case it was not included in the agreement, as a procedure to face this sort of conflicts in distribution agreements, will be certainly seen by his/her client as problem-solving attorney looking for the client’s interests rather than a litigator pushing them to a more uncertain situation, with unknown costs and unforeseeable timeframe.
Parties in distribution agreements should have this possibility in mind and lawyers have the opportunity to actively participate in mediation from the first steps by recommending it in the initial agreement, during the process helping the clients to express their concerns and interests, and in the drafting of the final (new) agreement, representing the clients’ and as co-author of their success.
If you would like to hear more on the topic of mediation and distribution agreements you can check out the recording of our webinar on Mediation in International Conflicts
[1] Moore, Christopher W. The Mediation Process: Practical Strategies for Resolving Conflict. Jossey-Bass. Wiley, 2014.
[2] Mnookin, Robert H. Beyond Winning. Negotiating to create value in deals and disputes (p. 53). Harvard University Press, 2000.
[3] Fisher, R; Ury, W. Getting to Yes: Negotiating an agreement without giving in. Random House.
[4] «Talking about blame distracts us from exploring why things went wrong and how we might correct them going forward. Focusing instead on understanding the contribution system allows us to learn about the real causes of the problem, and to work on correcting them.» [Stone, Douglas. “Difficult Conversations: How to Discuss What Matters Most”. Penguin Publishing Group]
This is a summary of the approved measures, which unfortunately for both tenants and landlords do not include any public aid or tax relief and just refer to a postponement in the payment of the rent.
Premises to which they are applied
Leased premises dedicated to activities different than residential: commercial, professional, industrial, cultural, teaching, amusement, healthcare, etc. They also apply to the lease of a whole industry (i.e. hotels, restaurants, bars, etc., which are the most usual type of businesses object of this deal).
Types of tenants
- Individual entrepreneurs or self-employed persons who were registered before Social Security before the declaration of the state of alarm on March 14th, 2020
- Small and medium companies, as defined by article 257.1 of the Capital Companies Act: those who fulfil during two consecutive fiscal years these figures: assets under € 4 million, turnover under € 8 million and average staff under 50 people
Types of landlords
In order to benefit from these measures, the landlord should be a housing public entity or company or a big owner, considering as such the individuals or companies who own more than 10 urban properties (excluding parking places and storage rooms) or a built surface over 1.500 sqm.
Measures approved
The payment of the rent is postponed without interest meanwhile the state of alarm is in force, but in any case, for a maximum period of four months. Once the state of alarm is overcome, and in any case in a maximum term of four months, the postponed rents should be paid along a maximum period of two years, or the duration of the lease agreement, should it be less than two years.
For landlords different to those mentioned above
The tenant could apply before the landlord for the postponement in the payment of the rent (but the landlord is not obliged to accept it), and the parties can use the guarantee that the tenant should mandatorily have provided at the beginning of any lease agreement (usually equal to two month’s rent, but could be more if agreed by the parties), in full or in part, in order to use it to pay the rent. The tenant will have to provide again the guarantee within one year’s term, or less should the lease agreement have a shorter duration.
Activities to which it is applied
Activities which have been suspended according to the Royal Decree that declared the state of alarm, dated march, 14ht, 2020, or according to the orders issued by the authorities delegated by such Royal Decree. This should be proved through a certificated issued by the tax authorities.
If the activity has not been directly suspended by the Royal Decree, the turnover during the month prior to the postponement should be less than 75% of the average monthly turnover during the same quarter last year. This should be proved through a responsible declaration by the tenant, and the landlord is authorised check the bookkeeping records.
Term to apply and procedure
The tenant should apply for these measures before the landlord within one month’s term from the publication of the Royal Decree-law, that is, from April 22nd, 2020, and the landlord (in case belongs to the groups mentioned in point c) is obliged to accept the tenant’s request, except if both parties have already agreed something different. The postponement would be applied to the following month.
As the state of alarm was declared more than one month ago (March 14th), landlords and tenants have already been reaching some agreements, for example 50% rent reduction during the state of alarm, and 50% rent postponement during the following 6 months. Tenants who do not reach an agreement with the landlord could face an eviction procedure, however court procedures are suspended during the state of alarm. We have also seen some abusive non-payment of rent by tenants.
When is becomes impossible to reach an agreement with the landlord, tenants have the legal remedy of claiming in Court for the application of the “rebus sic stantibus” principle, which was highly demanded during the 2008 financial crisis but very seldom applied by the Courts. This principle is aimed to re-balance the parties’ obligations when their situation had deeply changed because of unforeseen circumstances beyond their control. This principle is not included in the Spanish Civil Code, but the Supreme Court has accepted its application, in a very restricted way, in some occasions.
Summary – What can we learn in the time of Covid-19 that can be used in mediation? And what can we learn from mediation to be used in this crisis?
As you know, mediation is a way to solve conflicts in which the parties keep in their hands the possible solution. They do not need to come to a third party (judge or arbitrator) to impose the answer to them. Parties can imagine more freely what they need, and how to solve their differences.
Some of the elements and techniques mediators use in a mediation can also be used in and learnt from the current Time of Covid-19. And the current crisis also helps us to understand why they are so important in mediation.
Cooperation to get the solution is better than unilateral and imposed decisions
We usually tend to think that cooperation is a sign of weakness and that we recur to it only if we cannot impose or view or win our case. However, as in the time of Covid-19 where countries, scientists and people should fight together, when facing a conflict cooperation and going beyond your positions brings you the possibility to explore solutions that otherwise remain hidden.
« Now it is increasingly recognized that there are cooperative ways of negotiating our differences and that even if a “win-win” solution cannot be found, a wise agreement can still often be reached that is better for both sides than the alternative. […]
Three points about shared interests are worth remembering. First, shared interests lie latent in every negotiation. They may not be immediately obvious. Second, shared interests are opportunities, not godsends. Third, stressing your shared interests can make the negotiation smoother and more amicable. » [Fisher, Richard; Ury, William. “Getting to Yes: Negotiating an agreement without giving in”].
Listening is highly effective
In the time of Covid-19 we tend to accept better information that confirms our beliefs and we accept better indications that are in accordance with our preferences and beliefs. Nevertheless, also in this time, listening is of essential importance to understand the causes and solutions.
A mediator will always listen to the parties and will help them to do the same. Listening the other’s side arguments, its explanation of the facts, interests and needs, the reasons for its decisions… is also of utmost importance to find a joint solution.
«Whether you are a neutral third party (professional facilitator, friend, or manager) or one of the participants, as you listen to all the stories, you begin to sense the best solution. » [Levine, Stewart. “Getting to Resolution: Turning Conflict Into Collaboration.”]
A solution for me can also be a solution for you
In the time of Covid-19 it seems clear to all of us that a common solution is the only possible one. A vaccine will save the entire world. In mediation, the main benefit is to understand that, unlike a court judgement or arbitral award, a joint (not imposed) solution is possible and a benefit for me does not imply a damage or a lost for my opponent.
«A mediator works to understand each disputant’s perspective and to look for the value in it. In this role, you refrain from judging whose side is right or wrong. Instead, you try to see the merit in each side’s perspective. » [Shapiro, Daniel. “Building Agreement”].
We master the solution and we create the agreement in a safe environment
The solution to the current crisis does not only depend on the authorities and on the health professionals. A great part of the solution relies on everybody’s participation, washing our hands, respecting the social distance, staying safe at home avoiding contagion and the collapse of hospitals.
In court we leave the decision of the conflict in the hands of a third party –the judge, the arbitrator–. In a mediation, on the contrary, the solution remains in our hands. We know what our interests are, we create our agreement. Our imagination is our ally in finding the solution together with the counterparty and the assistance and experience of the mediator who does not impose it but helps the parties to find it. Quite often, what parties could get in mediation goes far beyond what a judge would’ve been able to grant. And this in a confidential environment.
«The Sage is self-effacing and scanty of words. When his task is accomplished and things have been completed, all the people say, “We ourselves have achieved it!” » [Lao Tzu]
Emotions do matter
Good and bad emotions are inevitable. Particularly in periods of uncertainty, crisis and loose of control, we all face strong emotions. This is true in situations like this Covid-19 and in all conflicts, and not only in personal ones. Egos, envies, fears, anxieties… are also part of our day-to-day life, work and business, but they are rarely considered in courts when solving your conflicts. A mediator helps you to take them into account in a safe environment and as a part of the conflict itself.
«Solving problems seems easier than talking about emotions. The problem is that when feelings are at the heart of what’s going on, they are the business at hand and ignoring them is nearly impossible. » [Stone, Douglas. “Difficult Conversations: How to Discuss What Matters Most”].
France | Arbitration clauses in international contracts with consumers are not enforceable
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Spain – The Supreme Court concludes that the « riders » are false self-employed
17 octobre 2020
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Arbitration is a procedure for resolving disputes between parties that is very successful in the Anglo-Saxon legal system. But much less in our country.
Arbitration has advantages and disadvantages; it is more expensive than the Courts, but it is much quicker; and speed is essential for justice to be such.
Typically, an arbitration lasts six months plus a couple of months for the appointment of the arbitrator; in total, a dispute, however important and difficult it may be, can be definitively resolved in eight months.
To compare with the Courts, in Spain today it takes on average eighteen months to obtain a judgement at first instance and another eighteen months for an appeal; without considering the possibility of an appeal to the Supreme Court.
The cornerstone on which arbitration rests is that the arbitral award is final and definitive and cannot be reviewed or appealed; this statement has certain exceptions, mainly of a formal or procedural nature: basically, the legality of the arbitration agreement, the arbitrability of the matter and the procedural regularity in the conduct of the arbitration proceedings. These defects can be attacked by means of an action for annulment, which is heard by the ordinary courts.
But in addition to the possible “formal” defects, the action for annulment can be based on the allegation of a breach of “public order”, which the Constitutional Court has defined and outlined as “those public and private, political, moral and economic legal principles which are absolutely obligatory for the preservation of society in a given people and at a given time”.
As this definition of “public order” is undoubtedly broad and unspecific, the use of the violation of public order as a tool for declaring the nullity of arbitral awards by the ordinary courts has produced an “overflow” effect that has required, in the words of the Constitutional Court, “a restrictive interpretation of it, on pain of violating the autonomy of the will of the parties and their waiver of judicial protection”.
This is what the Court has proclaimed in the very important judgement of 15 February 2021, which is the reason for this legal note.
In recent years, the High Court of Justice of Madrid has resorted to the argument of “public order” in an extensive and “overwhelmed” manner to annul arbitral awards and “supplant the arbitral tribunal in its function of applying the law”, becoming “a second instance reviewing the facts and rights applied in the arbitral award, a control mechanism for the correct application of jurisprudence”.
And this expansive and “overwhelmed” interpretation of public order as a tool for annulling arbitral awards by the High Court of Justice of Madrid had become a serious problem for the arbitral institution and for the confidence of the contracting parties when including arbitration agreements in their contracts.
The principle that the arbitral award was the final and definitive solution to the dispute it was intended to resolve, except for procedural breaches or breaches of public order limited to those cases in which the arbitral award was arbitrary, illogical, absurd or irrational, was called into question and was a clear deterrent to contracting parties deciding to resolve their discrepancies through arbitration.
Well then, the Constitutional Court, in a categorical and explicit manner, repeating what it had already stated in its judgement of June last year, confirms that the need for the arbitral award not to contravene public order cannot result in the judicial body replacing the arbitrator in his function of applying the law, nor can it become a second instance reviewing the facts and legal grounds applied in the arbitral award, nor a mechanism for controlling the correct application of case law.
The principle of party autonomy prevails; and this means that when there is submission to arbitration, the parties have agreed that it should be through this channel that disputes between them are to be resolved, by means of the arbitrator’s decision, which can only be annulled through the strict channels that the Arbitration Act regulates; we insist, for procedural reasons or for violating public order in the restricted interpretation explained in the judgement we are commenting on; but in no case, by way of a second instance where the facts and legal grounds applied are re-evaluated once again.
In short, Spanish arbitration is to be congratulated, and will be able to recover the momentum that caused it to lose, in part, the extensive interpretation of public order defended by some High Courts of Justice. From now on, the Courts will not be able to ignore the Constitutional Court’s interpretation, which is a breath of fresh air for Spanish arbitration.
International debt recovery is perhaps one of the most challenging issues in business. Companies are usually excited when starting their new international ventures, but when payments of distributors, clients, franchisees… stop, difficulties arise, particularly when they happen abroad. Recovery is most of the times complicated, causes expenses, nightmares and sometimes undertakings simply decide to give up. We herein provide some tips to consider in the prevention phase.
The following is a summary of the ideas which were discussed in a webinar organized by Legalmondo and the Chamber of Commerce of Treviso/Belluno in Italy in November 11, 2020.
What are the best practices to manage international receivables?
The first question regards the best practices companies could put into practice to avoid or, at least, to try to minimize the impact of lack of payment when international businesses are concerned.
The following main points were mentioned as worth considering at an early status of the negotiations and business development.
Verification of the identity of the company
Who is the company we are dealing with? It is important to check its existence, legal situation and capacity to carry on business. And also, the faculties or authorization of the person signing the type of contract. Is this the right authorized person? Has this person followed the legal requirements to do it? In particular, during this period of international pandemic, when the electronic signatures are used and when agreements are frequently signed with non-original signatures but only on pdf documents.
Request of financial information
What is the credit rating of the company? Seek to obtain official accounting information, either filed with the register of companies (when possible according to the local rules), or through private investigation research: tax regularity certificate to attest that the company is in compliance with applicable rules (in places when this is possible), comfort letters from shareholders or third parties (banks)… It is important to have a reasonable certitude about the capacity of that company to carry on the concrete business. And when possible, to do it on a regular basis.
Use the right contract
What is the correct type of contract for the commercial relationship? Seek advice from a lawyer specialized in the law of the country where the debt will be collected. This will be an essential element, for example, to know when the ownership of the acquired asset is legally transferred; when the parties have agreed to pay the invoices; the validity of the general conditions (or if they have to be drafted in the local language or in the language of the negotiations or what happens when they are contradictory: the seller’s and the purchaser’s); whether this is a distribution contract or a mere supply of products and the related obligations and consequences depending on the applicable law…
Write down your agreements
Avere le condizioni per iscritto non solo sul tipo di contratto ma anche sulle modalità, condizioni e ritardi di pagamento. Ed essere consapevoli del tipo di documenti necessari per la validità dell’accordo. Uno scambio di e-mail creerebbe un obbligo? Sarebbero necessari passaggi più formali per avere un contratto / obbligo valido (notaio, registrazione, firma separata di alcune condizioni)?
Follow your contract
If there is a contract in place, it is important to follow what has been signed or agreed, to ensure that these conditions are then respected. A different and sustained commercial practice could imply a tacit change the original written agreement.
Document all transactions
From the order by the client/distributor, its acceptance by the manufacturer, the transport document, linked to the receipt of goods, and until the final invoice, all paperwork should be clear and consistent. In case of lack of payment, all these documents might be necessary to prove the correct performance of the contract.
Has the debtor risen objections?
Also check your own defaults. It is quite frequent that the non-paying party justifies its decision on a previous breaching. If there is such previous alleged infringement by a supplier, for instance (related to the shipment of goods: delays, defective products, etc.), it will be probably more complicated to ask for the payment from the distributor or, at least, it will be required an additional procedure.
Be clear on the accrual of interests for late payments
In EU countries, legislation based on the 2011/7 Directive allows to combat late payment in commercial transactions with special interest rates: make sure this is mentioned in the contract, as non-EU based companies might not be aware of this, and the difference with the general legal interest can be substantial.
Seek guarantees for your credits
This obviously can vary depending on the type of contract and the relationship between the parties. A guarantee is advisable not only at the beginning, but also when the relationship lasts for several years. Sometimes, trust in your counterparty in the past makes more difficult to ask for additional guaranties and this could imply that late payments are not correctly managed.
Consider also additional guaranties on sold goods such as, when permitted by the law, retention of title. This will imply that the ownership remains in the vendor’s hand until the complete payment. In some cases, it is also possible to have additional guarantees when the retention of title can be registered at special public registries. These special conditions should also be verified locally in order to know their extent and to respect the way they shall be agreed, accepted, and documented.
Check out our webinar on debt collection
On November 11, 2020, I had the pleasure to participate to the webinar on International Debt Collection organized by the Chamber of Commerce of Treviso and Belluno and Legalmondo: we discuss the best practices and share practical information on debt collection in Spain, Germany, France, USA, China, Vietnam and Singapore.
You can watch the recording of the webinar here.
Legalmondo’s helpdesk on international credit collection
If you would like to know more about how to collect a debt overseas, you can find the reports of our experts from 20 countries here.
The Spanish government has recently approved two new rules on equal pay and equality plans which will come into force in January and April 2021 and affect all companies.
1. Royal Decree 901/2020, of October 13, which regulates the equality plans and their registration
An « equality plan » is understood to be that ordered set of measures adopted after carrying out a situation diagnosis, aimed at achieving equal treatment and opportunities between women and men in the company, and eliminating discrimination based on sex.
All companies that have 50 or more workers are obliged to draw up and apply an equality plan, its implementation being voluntary for other companies. In any case, equality plans, including previous diagnoses, must be subject to negotiation with the legal representation of the workers, in accordance with the procedure legally established for that purpose.
Regarding the content of the plans, they must include, among others, definition of quantitative and qualitative objectives, description of the specific measures to be adopted, identification of means and resources, calendar of actions, monitoring and evaluation systems, etc. In addition, they must be subject to mandatory registration in a public registry.
This new Royal Decree will enter into force on January 14, 2021.
2. Royal Decree 902/2020, of October 13, of equal pay between women and men
The purpose of this new Royal Decree is to implement specific measures that make it possible to enforce the right to equal treatment and non-discrimination between women and men in matters of remuneration.
For this, the companies and collective agreements must integrate and apply the so-called « principle of remuneration transparency« , which applied to the different aspects that determine the remuneration of workers, allows obtaining sufficient and significant information on the value attributed to such remuneration.
For the application of the aforementioned principle, the Royal Decree provides, fundamentally, two instruments:
- remuneration registry: All companies must have an accessible remuneration registry for the legal representation of workers. It must include the average values of salaries, salary supplements and extra-salary perceptions of the entire workforce (including managers and senior positions) disaggregated by sex.
- remuneration audit: Those companies that draw up an equality plan must include a remuneration audit in it. Its purpose is to check if the company’s remuneration system complies with the effective application of the principle of equality, defining the needs to avoid, correct and prevent obstacles and difficulties that may exist.
The measures contained in this new standard will come into effect on April 14, 2021.
A recent Judgment of the Social Chamber (4th) of the Supreme Court has concluded that those commonly known as « riders » are false self-employed, that is, they are linked to the distribution platforms through a labour relationship.
This ruling took place on the occasion of the dispute between the company « Glovo » and one of its “riders”, who filed an appeal before the Supreme Court after obtaining a dismissal ruling from the Superior Court of Justice of Madrid.
The High Court bases its decision, particularly, on the concurrence of dependency and alienation of the “riders”, characteristic notes of the existence of an employment relationship. This is deduced from the existence of the following indications:
- “Glovo” geolocates the “riders” by GPS while they carry out their activity, recording the kilometres they travel, which implies business control over the performance of the service provided.
- « Glovo » establishes the conditions under which the service must be provided and gives instructions to the “riders”, who limit themselves to receiving orders.
- “Glovo” provides the “riders” with a credit card to buy the products of the final consumer, and provides them, if they need it, with a payment in advance of part of their remuneration, for them to be able to start their activity.
- “Glovo” exclusively makes all commercial decisions: it sets the price of the services provided, the form of payment and the remuneration of the “riders”.
- Furthermore, it is “Glovo”, and not the final clients of the platform, who pay the “riders”, and the company is also in charge of preparing each of the invoices.
- Although the “riders” use their own mobile phone and motorcycle, the truth is that the essential means of production of the activity are not the mobile phone and the motorcycle, but the digital platform of « Glovo », which reflects that the “riders” are not the owners of the essential means of production.
- “Glovo” has the power to sanction its “riders” for different behaviours, which constitutes a manifestation of the managerial power of the employer.
Thus, the Supreme Court concludes that « Glovo » is not limited to being a mere intermediary between “riders” (distributors) and businesses, but that it is a true company that provides delivery services, which sets the « riders » the essential conditions for the provision of the service, so that these remain incardinated in the organizational sphere of the employer, without having an autonomous business organization.
It should be borne in mind that this new pronouncement has important consequences, since the existence of a relationship of an employment nature between the “riders” and the digital distribution platforms such as “Glovo”, “Deliveroo” or “Just Eat”, obliges these companies to pay the contributions to the Social Security of the « riders », corresponding to the last 4 years, plus a 20% surcharge and the corresponding financial penalty.
This criterion of the Supreme Court will undoubtedly affect other equivalent economic activities.
The arbitration procedure in Spain is characterized, and constitutes one of its great advantages, by the difficulty of judicially annulling or revoking the award; the parties know that the award that is issued is in most cases firm and final and ends the conflict.
The art. 41 of the Spanish Arbitration Law only allows the annulment of the award for formal reasons (nonexistence or invalidity of the arbitration agreement, failure to notify any of the parties of the appointment of the arbitrator or of the arbitration proceedings, improper appointment of the arbitrators or that the arbitrators have ruled on matters that were not or could not be arbitrated by rule of law). And additionally the award is also voidable when it is contrary to « public order« .
That « public order » is such as to give rise, in case of violation, to the annulment of the award, is a matter that has always been controversial and debated; already in the 1958 New York Convention, “public order” is alluded to as a cause of refusal to recognize foreign awards. As the Constitutional Court (“CC”) recalls in the judgment that we commented, citing its own jurisprudence, “the material public order is the set of public and private, political, moral and economic legal principles that are absolutely obligatory for the preservation of society in a town and in a certain time and the procedural public order is configured as the set of formalities and necessary principles of our procedural legal order and only arbitration that contradicts any or some of such principles may be considered null and void for violation of public order”.
As an example, during 2018, 38 requests for annulment of awards were filed before the Superior Courts of Justice (“SCJ”), of which 31 were based on violation of public order; 8 of the lawsuits (21%) were estimated, 5 for violation of public order, and 3 for invalidity of the arbitration agreement.
The Madrid SCJ has been maintaining in recent times a very « expansive » interpretation of public order, which has generated doubts and fears in the institutions and Arbitration Courts, due to the dissuasive effect that this position could have when choosing Madrid as the seat of arbitrations, national or international.
And in the interpretative line to which we refer, the Madrid SCJ has maintained the following and surprising criterion: once an award was made and a request for annulment was filed by one of the parties, the litigants reached an out-of-court agreement and jointly requested the filing of the cancellation request; that is to say, both gave the award as good and final; the SCJ rejected the petition and continued to issue a judgment annulling the award, arguing that since the application for annulment was based on the violation of public order, then the matter was no longer available to the parties and was not, in the opinion of the Court, subject to transaction or resignation.
This was not the first time that the SCJ of Madrid had adopted this position: impeded the annulment of an award as being contrary to « public order », the parties no longer had the possibility to compromise and renounce the demand for annulment.
For the first time the matter has reached the Constitutional Court (CC): in a recent ruling on June 15, 2020, the CC has been clear and resounding; recalls in its ruling that the civil process is based on the principle of « the parties’ willingness to regulate their private interests, that is, to initiate jurisdictional activity, determine the purpose of the process and end it when they deem appropriate ». It is what we call « justice begged for »; and this principle applies not only to civil proceedings before ordinary courts but also to arbitration proceedings. The judgment also affirms that arbitration is configured by law as a heteronomous mechanism for conflict resolution, to which the minimal intervention of the judicial bodies in favor of the autonomy of the will is essential.
And it concludes by stating that the annulment action must be understood as a process of external control over the award that does not allow a decision on the merits of the arbitrators’ decision, since the causes are assessed, which justifies that “the control of the awards are limited and annulment of the award can only be obtained in exceptional cases”.
Summarizing, the CC understands and proclaims that it is contrary to the right to effective judicial protection protected by art. 24 of the Constitution, the Court’s refusal to recognize the validity of an agreement reached between the litigants based on the parties’ power to act without a prohibitive norm authorizing it, and imposing a decision that subverts the « justice » principle that inspires the civil process; reason why it grants the requested protection and orders to roll back the proceedings to the moment before the order that denied validity to the joint request for file, so that the SJC dictates another resolution accompanied by the CC’s criteria.
Therefore, the SCJ will no longer be able to prevent litigants from settling and ending a claim for annulment of the arbitration award (as it usually occurs peacefully and with appeals or cassation remedies) and it must also take into consideration the restrictive interpretation of the concept of public order that the CC has established in this important judgment. Indeed, Spanish arbitration is greatly reinforced by this judgment of the CC.
It is usually said that “conflict is not necessarily bad, abnormal, or dysfunctional; it is a fact of life[1]” I would perhaps add that quite often conflict is a suitable opportunity to evolve and to solve problems[2]. It is, in fact, a useful part of life[3] and particularly, should I add, of businesses. And conflicts not only arise at the end of the business relationship or to terminate it, but also during it and the parties remain willing to continue it.
The 2008 EU Directive on certain aspects of mediation in civil and commercial matters states that «agreements resulting from mediation are more likely to be complied with voluntarily and are more likely to preserve an amicable and sustainable relationship between the parties.»
Can, therefore, mediation be used not only as an alternative to court or arbitration when terminating distribution agreements, but also to re-organize them or to change contract conditions? Would it be useful to solve these conflicts? What could be the advantages?
In distribution/agency/franchise agreements, particularly for those lasting several years, parties can have neglected their obligations (for instance minimum sales targets not attained).
Sometimes they could have tolerated the situation although they remain not very happy with the other party’s performance because they are still doing acceptable business.
It could also happen that one of the parties wishes to restructure the entire distribution network (Can we change the distribution structure to an agency one?), but does not want to face a complete termination because there are other benefits in the relationship.
There may be just some changes to be introduced, or changes in the legal structures (A mere reseller transformed in distributor?), legal frameworks, legal conditions (Which one is the applicable law?), limitation of the scope of contract, territory…
And now, we face the Covid-19 crisis where everything is still more uncertain.
In some cases, it could happen that there is no written contract and the parties wish to draft it; in other cases, agreements could have been defectively drafted with incomplete, contradictory or no regulation at all (Was it an exclusive agreement?).
The contracts could be perfect for the situation imagined when signed several years ago but not anymore (What happen with online sales?) or circumstances, markets, services, products have changed and need to be reconsidered (mergers, change of directors…).
Sometimes, even more powerful parties have not the elements to oblige the weaker party to respect new terms, or they simply prefer not to impose their conditions, but to build up a more collaborative relationship for the future.
In all these cases, negotiation is the usual strategy parties follow: each one is focused in obtaining its own benefits with a clear idea of, for instance, which clause(s) should be modified or drafted.
Nevertheless, mediation could add some neutrality, and some space to a more efficient, structured and useful approach to the modification of the commercial relationship, particularly in distribution agreements where the collaboration (in the past, but also in the future if the parties wish so) is of paramount importance.
In most of these situations, personal emotional aspects could also be involved and make more difficult a neutral negotiation: a distributor that has been seen by the manufacturer as not performing very well and feels hurt, an agent that could consider a retirement, parties from different cultures that need to understand different ways of performing, franchisees that have been treated differently in the network and feel discriminated, etc.
In these circumstances and in other similar ones, where all persons involved, assisted by their respective lawyers, wish to continue the relationship although maybe in a different way, a sort of facilitative mediation can be a great help.
These are, in my opinion, the main reasons:
- Mediation is a legal and organized procedure that could help the parties to increase their awareness of the necessity to redraft the agreement (or drafting for the first time if it was not already done).
- Parties can be heard more easily, negotiation is eased in the interest of both of them, encourages them to act more reasonably vis-à-vis the other side, restores relationship if necessary, deadlock can be easily broken and, if the circumstances advice so, parties can be engaged separately with the help of the mediator.
- Mediation can consider other elements different to the mere commercial or legal ones: emotions linked to performance, personal situations (retirement, succession, illness) or even differences in cultural approaches.
- It helps to find the real (possibly new or not shown) interests in the commercial relationship of the parties, focusing in developments, strategies, new proposals… The mere negotiation between the parties and they attorneys could not make appear these new interests and therefore be limited only to the discussion on the change of concrete obligations, clauses or situations. Mediation helps to go beyond.
- Mediation techniques can also help the parties to face their current situation, to take responsibility of their performance without focusing on blame or incompetence but on a constructive and future collaboration in new specific terms.[4]
- It can also avoid the increasing of the conflict into a more severe one (breaching) and in case mediation does not end with a new/redrafted agreement, the basis for a mediated termination can be established, if the parties wish so, instead of litigation.
- Mediation can conclude into a new agreement where the parties are more reassured, more comfortable with, and more willing to respect because they were involved in their construction with the assistance of their respective lawyers, and because all their interests (not only new drafted clauses) were considered.
- And, in any case, mediation does not affect the party’s collaborative position and does not reduce their possibility to use other alternatives, including litigation or arbitration to terminate the agreement or to oblige the other party to respect its legal obligations.
The use of mediation does not need the parties to have foreseen it in the agreement (although it could be easier if they did so) but they can use it freely at any time.
This said, a lawyer proposing mediation as a contractual clause or, in case it was not included in the agreement, as a procedure to face this sort of conflicts in distribution agreements, will be certainly seen by his/her client as problem-solving attorney looking for the client’s interests rather than a litigator pushing them to a more uncertain situation, with unknown costs and unforeseeable timeframe.
Parties in distribution agreements should have this possibility in mind and lawyers have the opportunity to actively participate in mediation from the first steps by recommending it in the initial agreement, during the process helping the clients to express their concerns and interests, and in the drafting of the final (new) agreement, representing the clients’ and as co-author of their success.
If you would like to hear more on the topic of mediation and distribution agreements you can check out the recording of our webinar on Mediation in International Conflicts
[1] Moore, Christopher W. The Mediation Process: Practical Strategies for Resolving Conflict. Jossey-Bass. Wiley, 2014.
[2] Mnookin, Robert H. Beyond Winning. Negotiating to create value in deals and disputes (p. 53). Harvard University Press, 2000.
[3] Fisher, R; Ury, W. Getting to Yes: Negotiating an agreement without giving in. Random House.
[4] «Talking about blame distracts us from exploring why things went wrong and how we might correct them going forward. Focusing instead on understanding the contribution system allows us to learn about the real causes of the problem, and to work on correcting them.» [Stone, Douglas. “Difficult Conversations: How to Discuss What Matters Most”. Penguin Publishing Group]
This is a summary of the approved measures, which unfortunately for both tenants and landlords do not include any public aid or tax relief and just refer to a postponement in the payment of the rent.
Premises to which they are applied
Leased premises dedicated to activities different than residential: commercial, professional, industrial, cultural, teaching, amusement, healthcare, etc. They also apply to the lease of a whole industry (i.e. hotels, restaurants, bars, etc., which are the most usual type of businesses object of this deal).
Types of tenants
- Individual entrepreneurs or self-employed persons who were registered before Social Security before the declaration of the state of alarm on March 14th, 2020
- Small and medium companies, as defined by article 257.1 of the Capital Companies Act: those who fulfil during two consecutive fiscal years these figures: assets under € 4 million, turnover under € 8 million and average staff under 50 people
Types of landlords
In order to benefit from these measures, the landlord should be a housing public entity or company or a big owner, considering as such the individuals or companies who own more than 10 urban properties (excluding parking places and storage rooms) or a built surface over 1.500 sqm.
Measures approved
The payment of the rent is postponed without interest meanwhile the state of alarm is in force, but in any case, for a maximum period of four months. Once the state of alarm is overcome, and in any case in a maximum term of four months, the postponed rents should be paid along a maximum period of two years, or the duration of the lease agreement, should it be less than two years.
For landlords different to those mentioned above
The tenant could apply before the landlord for the postponement in the payment of the rent (but the landlord is not obliged to accept it), and the parties can use the guarantee that the tenant should mandatorily have provided at the beginning of any lease agreement (usually equal to two month’s rent, but could be more if agreed by the parties), in full or in part, in order to use it to pay the rent. The tenant will have to provide again the guarantee within one year’s term, or less should the lease agreement have a shorter duration.
Activities to which it is applied
Activities which have been suspended according to the Royal Decree that declared the state of alarm, dated march, 14ht, 2020, or according to the orders issued by the authorities delegated by such Royal Decree. This should be proved through a certificated issued by the tax authorities.
If the activity has not been directly suspended by the Royal Decree, the turnover during the month prior to the postponement should be less than 75% of the average monthly turnover during the same quarter last year. This should be proved through a responsible declaration by the tenant, and the landlord is authorised check the bookkeeping records.
Term to apply and procedure
The tenant should apply for these measures before the landlord within one month’s term from the publication of the Royal Decree-law, that is, from April 22nd, 2020, and the landlord (in case belongs to the groups mentioned in point c) is obliged to accept the tenant’s request, except if both parties have already agreed something different. The postponement would be applied to the following month.
As the state of alarm was declared more than one month ago (March 14th), landlords and tenants have already been reaching some agreements, for example 50% rent reduction during the state of alarm, and 50% rent postponement during the following 6 months. Tenants who do not reach an agreement with the landlord could face an eviction procedure, however court procedures are suspended during the state of alarm. We have also seen some abusive non-payment of rent by tenants.
When is becomes impossible to reach an agreement with the landlord, tenants have the legal remedy of claiming in Court for the application of the “rebus sic stantibus” principle, which was highly demanded during the 2008 financial crisis but very seldom applied by the Courts. This principle is aimed to re-balance the parties’ obligations when their situation had deeply changed because of unforeseen circumstances beyond their control. This principle is not included in the Spanish Civil Code, but the Supreme Court has accepted its application, in a very restricted way, in some occasions.
Summary – What can we learn in the time of Covid-19 that can be used in mediation? And what can we learn from mediation to be used in this crisis?
As you know, mediation is a way to solve conflicts in which the parties keep in their hands the possible solution. They do not need to come to a third party (judge or arbitrator) to impose the answer to them. Parties can imagine more freely what they need, and how to solve their differences.
Some of the elements and techniques mediators use in a mediation can also be used in and learnt from the current Time of Covid-19. And the current crisis also helps us to understand why they are so important in mediation.
Cooperation to get the solution is better than unilateral and imposed decisions
We usually tend to think that cooperation is a sign of weakness and that we recur to it only if we cannot impose or view or win our case. However, as in the time of Covid-19 where countries, scientists and people should fight together, when facing a conflict cooperation and going beyond your positions brings you the possibility to explore solutions that otherwise remain hidden.
« Now it is increasingly recognized that there are cooperative ways of negotiating our differences and that even if a “win-win” solution cannot be found, a wise agreement can still often be reached that is better for both sides than the alternative. […]
Three points about shared interests are worth remembering. First, shared interests lie latent in every negotiation. They may not be immediately obvious. Second, shared interests are opportunities, not godsends. Third, stressing your shared interests can make the negotiation smoother and more amicable. » [Fisher, Richard; Ury, William. “Getting to Yes: Negotiating an agreement without giving in”].
Listening is highly effective
In the time of Covid-19 we tend to accept better information that confirms our beliefs and we accept better indications that are in accordance with our preferences and beliefs. Nevertheless, also in this time, listening is of essential importance to understand the causes and solutions.
A mediator will always listen to the parties and will help them to do the same. Listening the other’s side arguments, its explanation of the facts, interests and needs, the reasons for its decisions… is also of utmost importance to find a joint solution.
«Whether you are a neutral third party (professional facilitator, friend, or manager) or one of the participants, as you listen to all the stories, you begin to sense the best solution. » [Levine, Stewart. “Getting to Resolution: Turning Conflict Into Collaboration.”]
A solution for me can also be a solution for you
In the time of Covid-19 it seems clear to all of us that a common solution is the only possible one. A vaccine will save the entire world. In mediation, the main benefit is to understand that, unlike a court judgement or arbitral award, a joint (not imposed) solution is possible and a benefit for me does not imply a damage or a lost for my opponent.
«A mediator works to understand each disputant’s perspective and to look for the value in it. In this role, you refrain from judging whose side is right or wrong. Instead, you try to see the merit in each side’s perspective. » [Shapiro, Daniel. “Building Agreement”].
We master the solution and we create the agreement in a safe environment
The solution to the current crisis does not only depend on the authorities and on the health professionals. A great part of the solution relies on everybody’s participation, washing our hands, respecting the social distance, staying safe at home avoiding contagion and the collapse of hospitals.
In court we leave the decision of the conflict in the hands of a third party –the judge, the arbitrator–. In a mediation, on the contrary, the solution remains in our hands. We know what our interests are, we create our agreement. Our imagination is our ally in finding the solution together with the counterparty and the assistance and experience of the mediator who does not impose it but helps the parties to find it. Quite often, what parties could get in mediation goes far beyond what a judge would’ve been able to grant. And this in a confidential environment.
«The Sage is self-effacing and scanty of words. When his task is accomplished and things have been completed, all the people say, “We ourselves have achieved it!” » [Lao Tzu]
Emotions do matter
Good and bad emotions are inevitable. Particularly in periods of uncertainty, crisis and loose of control, we all face strong emotions. This is true in situations like this Covid-19 and in all conflicts, and not only in personal ones. Egos, envies, fears, anxieties… are also part of our day-to-day life, work and business, but they are rarely considered in courts when solving your conflicts. A mediator helps you to take them into account in a safe environment and as a part of the conflict itself.
«Solving problems seems easier than talking about emotions. The problem is that when feelings are at the heart of what’s going on, they are the business at hand and ignoring them is nearly impossible. » [Stone, Douglas. “Difficult Conversations: How to Discuss What Matters Most”].