A Relationship Thrown to the Wind - When the relational is treated merely as a transaction

Introduction

Some contracts reveal themselves in their very title. The one that landed on my desk was called “Agreement for consulting services on wind energy projects and for the supply and installation of a meteorological mast, and other matters.” It looked like a technical contract, like so many others. But the heart of the deal was hidden in the “other matters,” that expression that usually holds whatever is left over.

My clients, a consulting firm, had been hired to provide consulting on wind energy and to supply and install a meteorological mast, a piece of equipment that measures the wind and indicates an area’s potential for generating energy.

But the project went beyond that. With the mast installed and the activity under way, the parties intended to increase the value of the contracting party’s land and, together, sell energy to third parties. Of the proceeds, 80% would go to the landowner and 20% to my clients. One party’s technical knowledge would add value to the other’s asset, and both would gain from it.

It was, therefore, a partnership. But the contract had been written as a simple transaction.

Not even the recitals, the opening section that exists precisely to set out the context of the relationship and what the parties intend, had been developed. There was not a single line about the shared project, about what each party expected from the other, or about the goal that brought them together. It was, purely and simply, a transactional contract.

What happened

During the negotiation, the parties began to disagree. The landowner started wanting to sell the area and its wind potential without sharing the 20% with my clients.

It is worth noting: the area only had a “potential” to be sold because someone had measured the wind and produced the technical knowledge about it. And that was precisely the party that would now be left out.

The conflict escalated and ended up in court. At that point, I stepped away from the negotiations and a colleague took over the litigation. All the evidence produced by my clients sought to show that the partnership existed and that it was the core of the deal. In the end, the court gave it secondary importance.

Let us remember where the partnership had been written: in the “other matters.”

The contract speaks for those who were not in the room

When the parties stop talking, the contract starts speaking on its own. And it speaks to people who took part in none of it.

The judge did not hear the early conversations, did not know the parties’ expectations or their enthusiasm. For the judge, there was only the text. And the text, from the title to the body, told the story of a consulting service and a piece of equipment. With no recitals, no shared goals and no principles, the partnership became a detail.

The law requires that the parties’ intention be given more weight than the literal wording of the contract. But proving that intention years later, in the middle of a lawsuit, is far harder than having written it down clearly when it existed.

A partnership thrown to the wind

By giving priority only to the transactional side, the parties quite literally threw the partnership to the wind.

The contract took care of what was simple: consulting and the mast, with a price and a deadline. And it left aside what was valuable: the shared project. No one defined, for example, what the “proceeds” on which the 20% applied actually were. Only the sale of energy? Or also the sale or lease of the land? Each party probably assumed a different answer. And it was in that space between what was said and what was assumed that the conflict was born.

Nor was there any agreed path for dealing with disagreements. When the first one arose, the only path available was the courtroom.

Two ways of looking at a contract

A traditional contract usually pushes risk onto each of the parties: each side tries to shift as much risk as possible onto the other. It is written with conflict in mind and stays in the drawer until things start to go wrong. It is only taken out when the relationship is already deteriorating.

A relational contract works differently. It allows the parties to manage risk together, collaboratively, seeking to stay aligned and to preserve their shared goals. It does not stay in the drawer: it is used day to day. It is preventive and, for that reason, requires a collaborative intention from the very beginning.

How it could have been

A Formal Relational Contract, in its purest form, is a flexible structure that allows the parties to adapt easily to changes in the business environment. It is grounded in moral norms chosen by the parties themselves, which serve as principles and as a beacon for decision-making. And in it, good faith is worked on in advance: discussed and written down before any conflict appears.

In this case, that would have made all the difference:

•         The partnership at the center: the contract would have been a partnership agreement for the development of a wind project, with the consulting services and the mast as one party’s contribution and the land as the other’s.

•         Real recitals: the context, the shared goal and each party’s expectations would have been written right at the start.

•         Clear contributions and limits: it would have been evident that the wind data and the technical knowledge were the consulting firm’s contributions, and that the increase in the land’s value was a result of the partnership.

•         A defined “proceeds”: the 20% would have covered every way of capturing the potential created together, including the sale or lease of the land.

•         Principles and good faith in writing: loyalty, reciprocity, integrity, honesty and fairness would have guided how the contract was read, including by a judge.

•         A path before the courtroom: periodic reviews, a Contract Neutral, and stages of dialogue and mediation before any lawsuit.

Perhaps the disagreement would have arisen all the same. But it would surely have met several containment walls and many paths for conversation before escalating all the way to a courtroom.

Conclusion

In this case, everyone lost. The consulting firm did not see recognized the partnership that gave meaning to its work. The landowner lost a partner who knew the potential of the land inside out. And both lost time, money and energy in a lawsuit that neither of them had imagined.

But the greatest loss does not appear on any balance sheet: the relational capital. The trust that brought the parties together at the start was never protected, because it was never named.

If the partnership is the core of the business, it needs to be at the core of the contract. Not in the “other matters.”

Everything that has a name exists. And everything that exists can be protected.

Ana Luiza Etchalus is a lawyer specializing in Formal Relational Contracts, a Standing Neutral and a mediator. Her upcoming book, Capital Relacional (Relational Capital), will soon be available in digital and print formats.