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Is it commonplace for companies to instruct litigation lawyers to advise on commercial transactions?
It is not unusual for companies to seek advice from litigation lawyers when negotiating commercial transactions. A significant part of the commercial drafting process is aimed at “sealing off” a client from commercial risk. In reality, litigation counsels are often better placed to spot potential or developing legal risks than commercial lawyers. This is because litigation counsels spend more of their time examining the nuances and current developments of the law.
Instructing another lawyer will inevitably add to the cost of a transaction. How do you explain to clients that this is a worthwhile expense?
It’s always prudent for a law firm to let the client know in advance that they are intending to seek the advice of litigation counsel. It’s also important that the firm explains the risk of not doing so, and the potential costs you are trying to foreclose by doing so. The input of litigation counsel at the front end adds a strong measure of dispute prevention, and potential for significant cost savings. If the law firm thinks it’s appropriate to refer a matter to specialist litigation counsel, it should normally be the case that the client can’t afford not to do so.
In what circumstances should a client consider instructing litigation counsel on a commercial transaction?
It is commonplace to seek specialist litigation advice in large or complex deals, or where the deal may run for many years. The key criterion is that there is a greater potential for future friction or dispute between parties where the costs and risk of a dispute would be material.
Litigation counsel will often be asked to examine or draft arbitration or alternative dispute resolution (ADR) provisions. In ADR, parties develop their own private processes and rules, outside the regular court system. It’s helpful to consider whether or not what is being proposed appropriate for their client.
In joint venture agreements, the scope of the force majeure provisions are especially important – far more so than in sale and purchase agreements. What are the relative positions of the parties in the event of a government intervention, or some other external force, that prevents performance of the contract?
In a sale and purchase transaction, it’s a strong inclination of vendors to limit their post-closing exposure as much as they possibly can. To do this, they will try to limit the scope of representation and warranty claims that can be bought post-closing, and also set a time limit for such claims. A litigation counsel who has litigated such matters is well placed to advise the client on the structure, scope and enforceability of such provisions and possible alternatives.
Instructing litigation counsel has the potential to antagonise the other party to the transaction. How do you ensure that this does not take place?
In the first instance, the client’s commercial legal advisers will mark up the other side’s documents with their comments in the usual way. If that goes well, it is often not necessary for litigation lawyers to get directly involved in negotiations – that should only happen if the other side takes a completely different negotiation position. In this event, litigation counsels who are experienced in commercial negotiations can assist the commercial team in getting the best deal possible.
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