Drafting and Negotiating Commercial Contracts Week 3 (With My Comments)

Drafting and Negotiating Commercial Contracts: Future Learn Course ( Week 2 )
Drafting and Negotiating Commercial

Contracts
College of Law
3.1 Welcome to Week 3
This week we will look at the process of negotiating a contract and of managing legal
risks.
Different negotiation techniques will be examined, and the central importance of effective
communication will be emphasised.
You will learn how negotiation:
 can be used to reach a favourable agreement

 can be conducted in different ways, and
 relies on clear communication and attentive listening.
Learning objectives
At the end of this part, you will be able to:
 understand how best to draft, structure and negotiate both pre-contractual

arrangements and commercial contracts
 analyse, assess and advise on the effect of both standard and more complex
contractual clauses, and
 draft clauses to leverage commercial objectives and manage and minimise risk
Please note
This course is not designed to be legal advice. If you have any significant concerns it’s better
that you do not to discuss those concerns with other learners and seek professional advice and
support.
My comment :
Noted and thanks.
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3.2 Introduction
After drafting, comes negotiation. This is the point in a commercial transaction when
value can be added to the transaction.
Therefore, effective negotiation skills are essential in commercial contracts. An effective

negotiation process has a strong impact on the end result achieved.. During a transaction, it is
common for disputes to arise on commercial points and contractual clauses. Utilising
effective negotiation skills results in achieving the desired outcome without resorting to
litigation and more importantly, it allows the transaction to progress and not be disbanded by
the parties.
The negotiation process is crucial to ensuring that risk is mitigated. It also ensures that the
commercial agreement reached between the parties and the commercial objectives of the
client are accurately documented in the contract.
My comment :
Noted. These information are very useful to me.
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3.3 What is negotiation?
Let’s take a look at what negotiation involves.
Simple definition of ‘Negotiation’:
“Negotiation is a method by which people settle differences. It is a process where

agreement is reached while avoiding argument and dispute.”
Simple definition of ‘Contract negotiation’:
“The process in which the parties iron out the details of the contract before committing
the terms to writing. Parties attempt to negotiate terms that are favorable to themselves.
When negotiating, each party assesses the risk or benefit of including a particular
term.”
My comment :
Contract negotiation is the process of coming to an agreement on a set of legally binding

terms.
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3.4 Simple negotiation exercise
Let’s take a look at your negotiation skills.
Porky Pies and Heavens Cakes
Porky Pies on its own can make $1. Heaven’s Cakes on its own can make $2. However
together they can make $9.
The problem between the parties is how that $9 should be apportioned between them. Both
parties want the biggest possible share of the revenue.
Your thoughts?
My comment :
I think the negotiation should be based on their contributing portion.
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3.5 Negotiation exercise - suggested answer
Please watch the following video for a suggested answer to the negotiation exercise:
https://www.youtube.com/watch?v=D_16Ifb4RZI
This is an additional video, hosted on YouTube.
Let’s discuss
Did you get the same answer? Discuss in the comments below.
My comment :
Yes. I get the same answer and this Youtube video explains my answer in a simple and easy
way to understand.
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3.6 Why negotiate?
Why is negotiation important?
Some facts:
 Negotiation skills are an important part of doing business.

 The ability to negotiate effectively is more highly valued than ever before.
 According to a study in the UK, it was estimated that UK businesses lose around £9
million per hour due to poor negotiating skills.
 It also concluded that UK businesses could increase their overall profitability by as
much as 7% annually if they had better negotiation skills.
Benefits of Negotiation:
 Helps to get what you want – reach an agreement

 Find a mutual benefit (win-win)
 Improve relationships (long term)
 Build respect
 Be more productive
 Save money
 Save time
 Reduce stress and frustration
Let’s discuss
Can you think of any other benefits of negotiation (in a business dealing)?
Help to avoid future problems and conflicts.
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3.7 How to negotiate
Let’s now take a look at how we can negotiate effectively.
The three basics methods to a successful negotiation involves:
 Pre-negotiation (preparation) – clear idea of what you want / what is important / what
you want to achieve.
 Communication - negotiation is a two way street (give and take). Successful
negotiations are conversations, not arguments.
 Keep control – lead the negotiation through confidence and influence.
A good negotiation:
 Is efficient
 Results in a wise agreement (that the parties can live with)
 Does not damage the parties’ relationship
Let’s discuss
What do you think is the most important skill to negotiate effectively?
My comment :
Good communication and social skills.
3.8 Competitive or Positional bargaining

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Being able to identify and apply the right negotiation techniques can be highly
beneficial when negotiating.
Two of the most common negotiation techniques are:
 competitive or positional, and

 co-operative or principled.
A competitive technique is used when a negotiator seeks to win and achieve the best possible
outcome for the client, especially in regard to financial issues.
The negotiator takes a strong stance on each issue, focusing on demands rather than
concessions. The technique can sometimes be seen as aggressiveness or hostility.
A negotiator using a competitive approach typically:
 starts by making strong statements about the client’s position, with little or no attempt
to engage constructively with the counterparty
 makes (often unrealistic) high opening demands
 demands large concessions from the counterparty
 gives limited information, and
 uses tactics such as threats or bluffs.
The main strengths of the technique are:
 it can be very successful in achieving a good outcome, in particular against a weak or

poorly-prepared counterparty
 a high starting position often leads to a better deal
 there is little chance of exploitation by the counterparty because few concessions are
made, and
 it is likely to be successful if the issue is money-based.
The main weaknesses are:
 it can make it difficult to close a deal

 it can be damaging in a case where there will be an ongoing relationship between the
parties
 the use of pressure increases tension and stress levels, which may make reaching an
agreement less likely, and
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 it is unlikely to work well if you hope to get a significant amount of information from
the counterparty.
With positional bargaining, the parties each adopt a fixed position and negotiate to achieve
that position. For example, on an asset sale, typically, the seller will have a minimum price
that it wants to sell for and the buyer will have a maximum price it wants to pay.
There is a general perception that there are two types of positional bargainer: the hard
positional bargainer and the soft positional bargainer.
The hard positional bargainer typically:
 is very competitive and wants to “win” the negotiation

 adopts an extreme position and appears committed to that position
 uses threats and arguments to get the other party to agree to his/her terms, and
 makes high initial demands and offers few concessions.
Hard bargainers will often adopt the following types of tactics at a negotiation:
 Elicit information: hard bargainers will try to gather as much information from the
other party as possible in order to assess what the other party’s bottom-line is, without
divulging their own position. They will usually do this at the start of the negotiation
by:
o asking lots of questions, seeking clarification on issues and requesting further information
o deflecting questions and only disclosing limited information, and
o manipulating information (such as inflating the potential costs or other consequences of an

event of default/termination, etc.)
 Disguise or exaggerate emotional responses: hard bargainers will conceal or

exaggerate their responses to issues (such as feigning anger over an insignificant point
which they would be willing to concede on) so that they do not reveal their key
drivers.
 Exert pressure: hard bargainers will try to apply pressure where possible, by making
threats or forming an allegiance with a third party who can put pressure on the other
party to settle.
The soft positional bargainer typically:
 wants to avoid conflict and reach a friendly agreement with the other party
 makes concessions willingly in order to resolve the issue quickly and preserve the
relationship between the parties
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 is more transparent about what his/her bottom-line is, and

 is more flexible and accommodating and will change his/her position in order to reach
a resolution.
Let’s discuss
Is positional technique commonly practiced during negotiations in your jurisdiction? Discuss
in the comments below.
My comment :
My company usually use the soft bargaining approach.
3.9 Co-operative or principled technique
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A co-operative technique focuses on reaching an agreement that is fair and acceptable

to both sides.
Concessions are expected on both sides, and information is shared. The negotiator strives to
be reasonable and open, to engender trust. This technique is particularly useful when
negotiating, for example, long-term supply contracts, franchise agreements or distributorship
agreements.
A co-operative approach relies on a “meeting of two minds”. A negotiator using this

approach typically:
 starts by stressing the importance of closing the deal, and is open and transparent to
build trust with the counterparty
 offers information that promotes reasonableness and fairness, and
 uses a conciliatory approach to seek concessions at a reasonable level.
The main strengths of a co-operative technique are:
 it may lead to securing a favourable deal

 making appropriate concessions is not deemed to be a weakness, and the negotiator is
seen as a rational person of principle
 it builds bonds and supports a long-term relationship between the parties, and
 it lowers the risks of negotiation breakdown.
The main weaknesses of a co-operative technique are:
 it could be undermined by a competitive counterparty, who may treat co-operation as

a weakness, and
 a co-operative negotiator may reveal information while getting little or nothing in
return, or give the counterparty the upper hand, which leaves limited room for
manoeuvre later on.
The co-operative/principled negotiation model may not always be appropriate as:
 it assumes that a win–win solution is always possible if the parties genuinely seek it
 it does not necessarily take into account the power imbalance between parties (that is,
if one party has significantly more power than the other, there may be no opportunity
to employ these techniques), and
 where there are limited resources (that is, a zero-sum game), a “win” by one party will
mean a “loss” for the other.
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However, the principled negotiation model is a useful negotiation technique and can help the
parties to reach creative solutions and preserve relationships.
Let’s discuss
Is co-operative technique commonly practiced during negotiations in your jurisdiction?
Discuss in the comments below.
My comment :
Yes
3.10 Negotiating strategy
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Below are some strategic pointers to prepare for a negotiation:
 Prior to any negotiation, equip yourself with background information on the

counterparty, the market they operate in and key data they are likely to rely on. This
will assist you in evaluating the counterparty’s interests as well as managing the
client’s aspirations.
 Identify potential issues. List them if it helps.
 Decide on a range of negotiation techniques. Do not stick blindly to one technique; be
creative in recognising whether the technique you chose works for you or the client.
 In some cases, you cannot plan. Instead, improvise – for instance, do not plan your
response while your counterparty is speaking. Simply accept with gratitude what they
have shared, then respond spontaneously.
A negotiator must be aware of the potential mix of negotiation styles and improvise
according to the circumstances.
My comment :
Will keep these in mind. Thanks
3.11 Sharing of information
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When negotiating a contract, it is very helpful to gather information to assess the

position of each party, to use information to persuade the counterparty, and to decide
what they will and will not reveal.
Methods relating to information sharing include:
 Questioning: questions can be used to probe the strengths and weaknesses of the
counterparty’s position. For example, “What is your bottom line on this?” or “What
are your instructions on this?”.
 Revealing information: it is important to make tactical decisions on how much
information to reveal in relation to matters such as the client’s objectives.
 Concealing information: there is no obligation to provide information. Remember the
duty of client confidentiality – information obtained from a client should only be
revealed with the client’s consent.
My comment :
Noted
3.12 Bargaining
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Achieving an outcome in a negotiation requires making and accepting offers, and, in

some cases, demands.
Methods relating to offers and demands include:
 Setting pre-conditions and parameters: it is possible to have some control over

potential offers by setting a pre-condition or parameter. For example, “I can offer you
XYZ if your client concedes to ABC, or on condition that your client will pay on the
1st week of the month”.
 Clarifying the authority to settle: a negotiator may make clear any limit on their
authority. For example, “I do not have authority to deal with that issue”.
 Issuing ultimatums: an ultimatum may be used to try to force a settlement. For
example, “Unless you accept $7,000 to settle this issue, I will have to withdraw that
offer”. An ultimatum should be distinguished from a threat – an ultimatum should be
justifiable.
 Proposing additional outcomes: if it is important that you accept a particular offer,
you might choose to tie in some further outcome to make it sufficiently attractive. For
example, “If you accept $7,000, I will propose to my client that he should pay the
costs to date”.
My comment :
Noted with thanks
3.13 Structure and Presentation
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Methods relating to structure include:
 Imposing structure: one negotiator may seek to impose their agenda, seeing an
advantage in choosing the order in which topics are addressed.
 “Parking” issues: if it is not possible to lead to agreement, you should park, or set
aside, the issue. There is little to be gained from repeating what you have said.
 Reopening issues: an issue that has been parked should be reopened at a strategic
point. It is often best to reopen a parked issue at a time when it may be tied to a
concession on another issue, to reach an agreement on both.
Presentation
Presentation is as important in negotiation as it is in advocacy. Methods relating to

presentation include:
 Taking the time to think: many negotiations proceed at a fast pace with relatively few
pauses. If you need time, ask for a minute to review the figures, or for a 5-minute
break.
 Preparing a draft: this can help you control the agenda.
 Bluffing: it may be tempting to bluff with regard to the strength of a deal, especially if
using a competitive technique. A bluff, however, should not amount to actively
misleading the counterparty with regard to facts or findings, which is likely to amount
to unprofessional conduct.
My comment :
Thanks for the information.
3.14 The process
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Negotiation is required by different people at different stages of a transaction.
The first stage of negotiation in a transaction often occurs before a lawyer is retained and is
between the respective parties to the transaction. This negotiation will typically involve the
commercial aspects of the transaction.
The lawyer’s negotiation skills are generally required most when the legal documentation is
being drafted and finalised. In this phase, the lawyer negotiates with the lawyer representing
the other party to the transaction.
The form that negotiation takes depends largely on the type and size of the transaction. Often,
for a standard residential conveyance or for a lease of a small premises, negotiation takes
place by way of letter and a few phone calls between the lawyers and possibly also between
the clients. This is not always the case – complicated issues requiring face-to-face meetings
and negotiations can arise in all legal matters. It can be the smaller residential matters, which
are personal to the parties involved, that require the most finely-tuned negotiation skills. In
such cases, the heightened emotions of the parties require management.
In a sale or lease of a commercial office building, negotiation often takes place in the
boardroom, with multiple parties being involved. In this type of transaction, clients often also
attend the meeting and both the commercial points and the legal concepts and clauses will be
discussed, argued, and ultimately negotiated and (hopefully) resolved.
Whether the transaction is a residential conveyance or the sale and purchase of a large private
company, an element of negotiation will be required. The same negotiation techniques and
theories apply to both types of transactions.
In modern legal practices, the negotiation process for a commercial transaction usually
involves:
 parties meeting to discuss the commercial and legal issues – the salient issues forming
the basis for the transaction should be outlined and agreed at this point
 one party drafting the initial legal documentation (usually the seller) and submitting
this to the other side (usually the buyer)
 the other side’s lawyer (buyer) reviewing the draft documentation
 the buyer and the buyer’s lawyer meeting to discuss the terms of the documentation -
the acceptable terms of the contract are distinguished from the unacceptable terms of
the contract
 the buyer’s lawyer progressing the transaction and the negotiation process by one of
the following:
 requesting a meeting with the seller’s lawyer to discuss the outstanding points, or
 amending the draft documentation (usually in a track change, mark-up). This method
is commonly used as it is an effective way of clearly highlighting the unresolved
clauses, or
 writing to the seller’s lawyer (by letter or email), detailing the clauses that require
further discussion or amendment.
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The size of the transaction and the extent to which the parties are not in agreement on key
points will dictate the method of negotiation suggested and employed by the parties to the
transaction. The number of points requiring negotiation will dictate the next step in the
negotiation process. The next step is usually a document or letter showing which of the
buyer’s suggested amendments have been agreed/not agreed. If there are too many
outstanding issues or if the outstanding issues are fundamental terms of the transaction, it is
usual for the parties to have a meeting in an attempt to resolve these issues.
Whatever form the negotiation process takes, the use of clear and effective communication at
all times is critical.
Let’s discuss
What is your experience in negotiating contracts? Did you follow a particular process?
My comment :
I haven't experienced negotiating a commercial contract before.
3.15 Negotiation by email
It is common for negotiations to take place via email. Sometimes, people are surprised
to discover that email negotiations can result in a binding contract (particularly if the
parties have not formally signed an agreement).
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To reduce the risk of the client inadvertently entering into a binding contract, they should
expressly state in any email negotiations that “the parties agree that no binding agreement
is formed unless and until a formal contract has been signed”.
If you are negotiating an agreement on behalf of the client, be careful to stipulate that “this
offer is subject to final instructions from our client”. When correspondence was by letter
from lawyer to lawyer, this was a phrase that was typically included at the end of a letter. It is
essential to remember these formalities when corresponding by email.
When a draft contract has been prepared, lawyers sometimes prefer to negotiate by marking
up the draft contract using the track changes function in Microsoft Word to communicate and
address issues. This can be a useful tool as the issues are written down in “black and white”,
and can be dealt with systematically. However, depending on the written skills of the parties,
sometimes the meaning or interpretation of words or phrases could be lost, especially if
language is a barrier. If so, the lawyers should verbalise the issues over the phone or in
person, if necessary.
Whatever form the negotiation process takes, the use of clear and effective communication at
all times is critical.
My comment :
Noted with thanks for the info.
3.16 Listening
Listening is an essential skill when negotiating – it helps to build relationships and is one
of the most important risk management skills.
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To put simply, if you (or your lawyer that is representing you) are not listening during a
negotiation, you will not be able to compile an appropriate argument to put forward.
To negotiate effectively, an ongoing exchange of information is required. This is a process

which takes time and patience. It is important that throughout the negotiation discussion you
constantly ask questions and listen carefully. The information you obtain can assist you in
finding real interests involved in the negotiations and create options, solutions and win-win
agreements.
Here are some useful listening skills to apply when negotiating (in a face-to-face meeting):
 Do not interrupt when the other party is speaking;

 Maintain good body language - eye contact, nod, smile, etc. (to show that you are
paying attention);
 Ask for clarification - ask questions to the other party (to show that you are paying
attention);
 Acknowledge the other party’s statement - does not mean that you agree but shows
that you respect and value their point.
 Paraphrase/sum up (to show that you understood the other party)
Let’s discuss
Can you think of any other listening skills that may be useful during negotiations? Is listening
an important negotiation skill in your business culture? Discuss in the comments below.
My comment :
3.17 Understanding cross-cultural communication
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Understanding cultural differences is important when you are negotiating contracts

that involve parties of different cultural backgrounds.
In today’s business world (especially if your work involves cross-border work), you will
often come across dealing with people of different cultural backgrounds. For example, you
might be negotiating a contract in an in-bound investment deal which would involve a party
from a different jurisdiction. In such circumstances, understanding basic cultural differences
may go a long way in helping you to effectively negotiate the contract.
Watch the following video to see what is considered to be acceptable in different cultures:
https://www.youtube.com/watch?v=UTE0G9amZNk
This is an additional video, hosted on YouTube.
Let’s discuss
Can you share some examples of important business etiquette in your culture (which may be
useful for foreigners during negotiations)? Discuss in the comments below.
3.18 Cultural barriers
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In the international sphere, you need to be familiar with the cultural differences that
can influence the behaviour of the other party.
Some examples of cross-cultural differences are set out below.
Japan
In Japan, requesting a favour from someone in the absence of an existing relationship is

considered inappropriate and may be ignored altogether. Once a relationship is established,
Japanese honour their obligations in an agreement.
The concept of hierarchy is vital in Japan’s business culture. A senior leader from the client
should attend the initial meeting, and the negotiating team should include a senior leader who
knows the company well.
If possible, schedule meetings at least 3 weeks in advance. It is good practice to provide

details on titles, positions and responsibilities of attendees ahead of time. The agenda is
usually strictly followed. Be punctual – if a delay is inevitable, call ahead and apologise.
When dealing with Japanese, avoid the element of surprise. It is better to share new
information with them prior to your next negotiation round. Also keep in mind that Japanese
are detail-oriented. If a negotiator makes exaggerated claims in an effort to impress the other
party or to obtain concessions, they will likely investigate your claims before responding.
Philippines
Building lasting and trusting personal relationships is very important to most Filipinos, who
often expect to establish strong bonds prior to closing any deals. Filipinos generally employ a
polychronic work style. They are used to pursuing multiple actions and goals in parallel.
When negotiating, they often take a holistic approach and may jump back and forth between
topics rather than addressing them in sequential order. Negotiators from strongly
monochronic cultures may find this confusing. In any case, remain positive and emphasise
areas where agreement already exists. When negotiating, having a list of issues can help.
In Philippines, you can expect negotiation to be slightly slower and protracted. Throughout
the negotiation, be patient, avoid imposing structure and accept that delays occur. If your
counterparts appear to be stalling the negotiation, assess carefully whether this indicates that
they are evaluating alternatives or that they are not interested in doing business with you.
Again, remain patient and persistent. Your Filipino counterparts will respect this attitude.
Malaysia and Singapore
In Malaysia and Singapore, business discussions are liberal, easy-going and often conducted
in a straightforward manner. Casual conversation is typical at the start and end of the meeting
and is part of “getting to know you”, where you may be asked non-work-related questions.
Further, as in many Asian cultures, “no” is a difficult word, and other ways of expressing
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disagreement should be sought. Vagueness and substitutions are often used to avoid
disagreement. It is therefore important that all statements are not taken literally.
Vietnam, Cambodia, Laos and Myanmar
Vietnam, Cambodia, Laos and Myanmar are seeing rapid growth in international transactions.
Business people from these four countries like establishing good relationships before
conducting business, especially when working with foreign counterparts.
Approaches to time and schedules in these countries are slightly more relaxed than the others.
Patience and sincerity are key factors when doing business and conducting negotiation in
these countries.
China
In China, although the primary negotiation style is competitive, Chinese nevertheless value
long-term relationships. Chinese negotiators may at times appear highly competitive or
outright adversarial, fiercely bargaining for seemingly small gains.
However, even when negotiating in a direct and aggressive fashion, they ultimately maintain
a long-term perspective and remain willing to compromise for the sake of the relationship.
Do not confuse competitive techniques with bad intentions.
Australia and New Zealand
In Australia and New Zealand, communication may be extremely direct. Without any bad
intentions, it may be frank to the point of bluntness. At the same time, Australians respect
people who have strong opinions, no matter whether they agree with them or not. However,
try to be equally clear in your own communication. Meetings usually start with some small
talk intended to establish personal rapport. People appreciate a sense of humour, but be
careful not to overdo it.
If negotiating with an Australian party, keep in mind that prices rarely move by more than
20–30% between the initial offer and final agreement. Company policy is usually strictly
followed, particularly in larger organisations, so be careful not to demand concessions that go
against it.
Let’s discuss
What are the cultural barriers in your jurisdiction? Discuss in the comments below.
3.19 Language barriers
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In the international sphere of negotiations, it is also important to consider the language

barriers.
Below are some examples:
Japan
English is not widely used in Japan. Written English is better understood than spoken
English, so it is a good idea to bring written proposals and confirm key points of oral
communications in writing in both English and Japanese for ease of reference by both parties.
During discussions, be mindful of the pace and make frequent pauses to allow time for
translation and understanding.
Malaysia and Singapore
Due to the diverse ethnic mix in Singapore and Malaysia, there are four languages that are
commonly used: English, Mandarin, Bahasa Melayu and Indian/Tamil. In Singapore, English
is widely used because of its apparent neutrality as well as its importance in the international
business arena.
Bahasa Melayu is the official language of Malaysia. Although most businesspeople speak
English, government officials often prefer to use Bahasa Melayu. When communicating in
English, speak in short, simple sentences and avoid using slang and jargon. Correspondence
with government officials is usually in Bahasa Melayu. Both verbal and nonverbal
communications play a vital role in business communication.
Vietnam, Cambodia, Lao and Myanmar
In Vietnam, Cambodia, Lao and Myanmar, many meetings are conducted in their own
language. To avoid potential cross-cultural communication issues, a translator is often
necessary.
Philippines
Most Filipinos speak at least some English and generally speak softly. Loud and boisterous
behaviour is perceived as a lack of self-control. Silence is rare and may signal a problem.
China
English is not widely used in China. It may be best to use an interpreter, in which case it is
often better to employ your own than to rely on an interpreter provided by the counterpart.
This will help you understand any subtleties communicated during the meeting.
Let’s discuss
What is the most common language used in business negotiations in your jurisdiction?
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3.20 What are the legal risks?
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The legal system of a country heavily influences the outcome of international

transactions.
Differences in legal systems can affect the attractiveness of a country as a market or

investment target. A country’s laws regulate business practices and define business policies,
rights and obligations involved in business transactions.
For example, the Chinese legal system enables the government to exert strict control on
industrial policy. Indian business laws are relatively friendly towards consumers and small
businesses.
In Malaysia, practical norms may not align perfectly with the laws or regulations. Guidelines
issued by the government do not have the force of law, but there are administrative
consequences for non-compliance. Furthermore, while there are both federal and state laws,
not all federal laws apply nationwide. In addition, Malaysia adopts the rule of privity of
contract whereby a third party cannot sue for damages on a contract to which they are not a
party. This rule has been criticised, particularly in cases where the contract is for the benefit
of the third party. Despite this, the rule persists in Malaysian law to prevent a third party from
enforcing contractual provisions made in their favour.
Local presence
Individuals or companies wanting to break into a foreign market need to adopt the
appropriate legal structure for their transaction requirements. Knowing local laws in setting
up a presence is equally important. Local laws can be complex, and the language barrier can
make the situation even more problematic. If you do not have sufficient experience in the
market, working with a local partner helps. As rules and regulations vary widely from one
country to the next, it is important that you research in advance the type of local co-operation
that will be most beneficial. Companies may decide to use an external representative such as
a distributor or agent. There is also wide range of other forms of commercial co-operation
such as franchises, licenses, etc.
Foreign equity participation restriction
Depending on the line of business, there may be a limitation on foreign ownership. For
instance, although liberalisation of certain industries in Malaysia has taken place, industries
such as healthcare, energy, oil and gas, and banking are still heavily regulated and require a
local majority or bumiputra (native) equity participation. For example, the Ministry of Health
of Malaysia has issued a policy on foreign equity participation in private healthcare facilities,
which, among other things, limits foreign equity in a haemodialysis centre to a minority of
49%.
Political risk
Developing countries or emerging markets may be prone to an unstable political environment

and risks of political expropriation. Political risk may be caused by the actions of legitimate
governments such as:
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 changes in policies and regulations,

 controls on prices, activities and currencies, and
 remittance restrictions.
Political risk may also result from events outside of government control such as war,
revolution, terrorism and labour strikes. Political risk can adversely affect all aspects of
international transactions from the right to export or import goods to the right to own or
operate a business.
Other foreign laws
When you are involved in negotiations in an international context, it is important that you
consider the relevant foreign laws, some examples include:
 intellectual property, labelling, marketing, and advertising laws

 income tax laws
 environmental laws
 product and consumer liability laws
 health and safety laws, and
 antitrust or competition laws.
Let’s discuss
Can you think of any other laws that you may consider when negotiating contracts in an
international context? Discuss in the comments below.
3.21 How can legal risks be managed?
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Risks are inevitable in business transactions, and risks are often greater when
negotiating and structuring contracts in an international commercial contexts.
Legal risk management
Legal risk management involves:
 identifying potential legal and regulatory issues as soon as possible, and quickly and
efficiently assessing them to develop a profile of the potential legal risks
 understanding the business model as a whole to determine the value-add from a legal
perspective. This will avoid pitfalls and assist in negotiations dealing with both legal
and commercial matters
 ensuring compliance with regulations and agreed contract terms – get local lawyers to
assist if necessary
 implementing systematic processes to regularly identify and assess relevant legal risks
associated with the current and proposed business activities of the company. Among
other things, lawyers should update, distribute, collect and carefully analyse risk
assessment questionnaires covering topics such as compliance, business operations,
product liability, litigation and business ethics
 avoiding and mitigating legal risks through proactive initiatives such as compliance
programs and dialogue with government officials responsible for promulgation and/or
enforcement of laws and regulations, and
 reviewing new and proposed laws and regulations, and regulatory actions involving
competitors and business partners, and assessment of trends in insurance coverage
available to firms engaged in comparable business activities.
3.22 The process of legal risk management
28
A successful legal risk culture provides a framework for legal risks to be identified,
assessed, managed and monitored consistently:
 Identification: the first stage is to identify the legal risks.

 Assessment: once legal risks are identified, the next stage is to assess those risks. In
order for the likelihood of risks and their impact to be assessed, assessors should have
appropriate training, not only to ensure knowledge of the relevant law, but to ensure
sufficient acquaintance with the business.
 Be business-minded: lawyers should be prepared to articulate issues quantitatively.
This will help demonstrate value and enrich engagement with the business –
something lawyers traditionally have not excelled at, or, indeed, may have avoided.
 Treatment: treat the risks. Accept and monitor low-priority risks. For higher-priority
risks, a management plan should be adopted, for example, to reduce the likelihood of
the occurrence or the consequences of the occurrence.
Practical tips
 It is important, especially in large transactions with a corporation or partnership, to

verify the other party’s authority to bind their company to a contract.
 International business insurance could be a valuable asset for a company as a risk
mitigation and risk transfer strategy.
 Learn not only how to think and work like a lawyer but also how the legal services
market is changing, and develop new skills that are relevant for the emerging market.
 Look at the ways lawyers practice across the world, and apply ideas and innovations
from other cultures.
3.23 Feedback from the educators
29
Thank you for joining us this week, we hope you enjoyed the third week of the course.
Follow James
If you haven’t already, follow your course mentor James Jung.
Please note, course mentors are predominantly focused in discussions for the current week,
rather than the whole course at any one time. So please try to keep your discussions to the
active week if you’re hoping to engage with James.
Check your progress
As you make your way through the course, you might like to check your progress. You can
do this by selecting the progress tab where you’ll see what percentage of the course steps
you’ve marked as complete.
Mark as complete
Remember that when you are finished on each step, select the Mark as complete button
before moving on to the next step. Continue to mark each step as complete as you make your
way through the course. Doing so, helps you keep track of your progress through the course
and counts towards your certificate.
30

Drafting and Negotiating Commercial Contracts Week 3 (With My Comments)

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Drafting and Negotiating Commercial Contracts: Future Learn Course ( Week 2 )

Drafting and Negotiating Commercial

You will learn how negotiation:

 can be used to reach a favourable agreement

At the end of this part, you will be able to:

 understand how best to draft, structure and negotiate both pre-contractual

Therefore, effective negotiation skills are essential in commercial contracts. An effective

3.3 What is negotiation?

Let’s take a look at what negotiation involves.

Simple definition of ‘Negotiation’:

“Negotiation is a method by which people settle differences. It is a process where

Simple definition of ‘Contract negotiation’:

Contract negotiation is the process of coming to an agreement on a set of legally binding

3.4 Simple negotiation exercise

Let’s take a look at your negotiation skills.

Porky Pies and Heavens Cakes

I think the negotiation should be based on their contributing portion.

3.5 Negotiation exercise - suggested answer

This is an additional video, hosted on YouTube.

3.6 Why negotiate?

Why is negotiation important?

 Negotiation skills are an important part of doing business.

 Helps to get what you want – reach an agreement

Help to avoid future problems and conflicts.

3.7 How to negotiate

Let’s now take a look at how we can negotiate effectively.

The three basics methods to a successful negotiation involves:

Good communication and social skills.

3.8 Competitive or Positional bargaining

Two of the most common negotiation techniques are:

 competitive or positional, and

A negotiator using a competitive approach typically:

The main strengths of the technique are:

 it can be very successful in achieving a good outcome, in particular against a weak or

The main weaknesses are:

 it can make it difficult to close a deal

The hard positional bargainer typically:

 is very competitive and wants to “win” the negotiation

o deflecting questions and only disclosing limited information, and

o manipulating information (such as inflating the potential costs or other consequences of an

 Disguise or exaggerate emotional responses: hard bargainers will conceal or

The soft positional bargainer typically:

 is more transparent about what his/her bottom-line is, and

3.9 Co-operative or principled technique

A co-operative technique focuses on reaching an agreement that is fair and acceptable

A co-operative approach relies on a “meeting of two minds”. A negotiator using this

The main strengths of a co-operative technique are:

 it may lead to securing a favourable deal

The main weaknesses of a co-operative technique are:

 it could be undermined by a competitive counterparty, who may treat co-operation as

The co-operative/principled negotiation model may not always be appropriate as:

3.10 Negotiating strategy

Below are some strategic pointers to prepare for a negotiation:

 Prior to any negotiation, equip yourself with background information on the

3.11 Sharing of information

When negotiating a contract, it is very helpful to gather information to assess the

Methods relating to information sharing include:

Achieving an outcome in a negotiation requires making and accepting offers, and, in

Methods relating to offers and demands include:

 Setting pre-conditions and parameters: it is possible to have some control over

3.13 Structure and Presentation

Methods relating to structure include:

Presentation is as important in negotiation as it is in advocacy. Methods relating to