[Updated 16 August 2020]
I saw in a discussion on the LinkedIn “Contract and Commercial Management” group a reference to “leaving the law bit to the lawyers.” That got me wondering what, when it comes to deciding the terms of a deal and expressing it in a contract, “the law bit” might consist of.
By my reckoning, the law bit consists of two components:
The Legal Framework
The first component is the framework derived from caselaw and statutory law:
- The default rules that apply if your contract is silent on a given matter (for example, what law governs the contract or when a notice is deemed received).
- What you have to include in your contract for your transaction to work as planned (for example, the investor representations that are necessary if a securities offering is to qualify under a certain exemption from registration).
- What you should include in your contract to protect yourself against the consequences of future violations of statutory law (for example, unlawful disclosure of personally identifiable information).
- What won’t work in a contract because it’s against public policy (for example, an overbroad noncompetition provision or a usurious interest rate).
If this component falls within the ambit of lawyers, it’s because lawyers are presumed to be in the best position to know what the law is (if it’s clear) or figure out what it is (if it’s murky).
Optimal Management of Disputes
The second component is optimal management of disputes. This relates to how you handle governing law provisions, forum selection provisions, arbitration provisions, and other provisions that touch on how any dispute between the parties is to be handled. For example, should disputes under a given contract be handled by litigation or arbitration?
If this component falls within the ambit of lawyers, it’s because lawyers handle litigation and so are assumed to be in the best position to know how to draft a contract so as to handle optimally any dispute that materializes.
The first component might overlap with the second component. For example, under caselaw or statutory law, courts of only a few states might have jurisdiction to adjudicate a dispute between the parties. The parties could supplement that by agreeing on which of those states should actually adjudicate any dispute.
Who Makes the Decisions
Leaving aside the effect of unauthorized-practice-of-law statutes, decisions regarding the law bit could, to a greater or lesser extent, be handled by people other than lawyers. (That could mean some combination of contract-management personnel, project managers, and businesspeople.) To the extent the first component—the legal framework—is clear, it would be reasonable to expect that nonlawyers could determine how it should be addressed in a contract. It would be odd to hold people to the notion that ignorance of the law is no excuse, while at the same time insisting that the law is too complicated for them to expect to make decisions for themselves.
As regards the second component—optimal management of disputes—it’s been my experience that many deal lawyers have no special expertise relevant to assisting clients in making these decisions and generally aren’t inclined to agonize over these these decisions. In fact, the glitches in the dispute-resolution part of contracts suggest that few lawyers have a clear grasp of what’s going on. (For example, see these three posts about governing-law provisions and this post about consent-to-jurisdiction provisions.) So as compared to deal lawyers, having nonlawyers taking the lead on these matters might not be problematic, depending how knowledgeable they are.
What about the stuff that falls outside the law bit? That’s the purely business component—I’ll call it “the deal.” It’s standard for a business person to take the lead in negotiating the deal.
Who Does the Drafting
Regardless of who makes the decisions expressed in a contract, it’s standard for lawyers to do the drafting. That reflects the lawyer’s longtime role as scrivener, but there’s no reason why that should immutably be the case. There’s nothing inherently legal about expressing a transaction.
Yes, it’s often challenging making sense of the implications of contracts terminology, but that’s largely because lawyers have managed to add layers of unnecessary complexity. Clearer alternatives, as outlined in MSCD, are a lot simpler.
The result is that there’s no reason why those with a law degree should be better equipped to handle drafting. I’ve encountered nonlawyers with semantic acuity and deal smarts that would put many lawyers to shame.
The Upshot
So, to summarize: As regards who makes the decisions, the deal is often handled by lawyers, but doesn’t have to be, as there’s nothing legal about it. One component of the law bit—the legal framework—is usually handled by lawyers, but the more straightforward aspects could readily be handled by nonlawyers. And as regards the other component of the law bit—optimal management of disputes—it’s not clear that nonlawyers would do a worse job than lawyers.
As regards the drafting, we should let those with the relevant skills do the drafting, regardless of what hat they happen to wear.
I do a lot of IT contracts as an in-house attorney with a large privately-held retailer. Most come with Statements of Work. SOWs are key documents in my experience. Problem is, unless a lawyer with good writing and analysis skills is involved in reviewing SOWs and matching them up with the content of the master agreement, inconsistencies and ambiguities can exist that can cause problems down the road. I’ve said it before and I’ll say it again: most of my business clients lack the will or ability to think through many business points and know how to express these points in a clear, concise way. That’s where I come in, adding value both as a lawyer drafting or revising the legal provisions and a careful drafter of contract language touching the business side of the deal. In the perfect world, I wouldn’t have to play on the business side, but such is not the case with my practice.
I generaly agree with Mr. Busk, especially his observation that “business clients lack the will or ability to think through many business points and know how to express these points in a clear, concise way.”
Business people generally don’t think through all of the cases. One common blind spot is the fallacy of the excluded middle, in a deal context. I can’t count the number of times where a business person has told me something like, “Either it will all work out and we’ll all be retired milllionaires or the company will be bankrupt and we’ll be working someplace else.” So far, neither of those have ever happened. Instead, it has alway sbeen something in the middle. And when you fail to address the middle cases, you just have to muddle through.
Another common blind spot is looking multiple moves ahead in a strategic relationship. Often a business person will look at the next move: if they do this, we do that. They rarely look beyond that to the point at which the parties come to an equilibrium, where neither makes any further moves. Far too often, if you go through the logic, you end up with someone’s final move being termination or lawsuit, neither of which is the desired outcome.
A final blind spot arises from compartmentalization. A sales person, for example, might not know of impending plans in product management. An in-house lawyer is often well placed to bring the necessary knowledge to bear.
The people who I have found think the most like laywers in this regard is good business analysts — the people who write the descriptions of business processes for software developers to automate. They best ones think in flowchart form. The best deal lawyers unconsciously do the same. I find this very consonant with Ken’s notion that contracts are like software.
Even if the business people are well informed and good thinkers, they still may not have the skills to express a deal clearly. The most usual fault I see is that they make assumptions about what will happen if the agreement is silent. They assume that justice will somehow step in and fix it. Taking that down to granular examples, I see lots of passive-voice sentences where the writer could actually have meant either party to the agreement (or in some cases, both parties acting in concert). I see agreements in which there is a price list, but no literal obligation to pay, no time within which pay must be made, etc.
The place where the lawyer is probably least comfortable in exerting influence over a commercial agreement is the description of the good or service to be delivered. Law-firm lawyers often leave this to the business people to attach as a business document. The problem with that is that the business people know how to market, so their description will often talk about the benefits of using the service, not what the service is. (If I was a plaintiff’s lawyer, I would say each of those statements was a promise or a warranty.) And even if they describe the service correctly, they often leave out important conditions or exceptions. This is why I always tell newbie commercial lawyers that the most important thing they can do is learn the products to the point that the lawyer is at least as much of an expert as the business people are. I think this is the reason that so much contract drafting is done in-house; you simply can’t afford to pay a firm lawyer to develop that kind of expertise.
So, to my mind, the key “law bit” is writing the expression of the business people’s agreement. Every word of it.
Chris
As a non-lawyer dealing with lawyers in reviewing contracts, your article addressed a question staff continues to be asked by our internal clients(I’m in higher education). Our internal clients always want to know why involve the lawyers if at the end of the day our lawyers tend to advise that the end decision is the internal clients alone, it’s a “business decision.” So as non-lawyers we have been forced to become very well-informed on statutory law, to some degree on case law, and the overall legal framework of a contract. Doing so has many of us non-lawyers concerned our approach may be nearing practicing law.
Ken
These are helpful thoughts.
I think another reason thinsg get confused is because ‘the business bit’ can easily undermine ‘the legal bit’ – and vice-versa. For example, unclear requirements or poorly drafted obligations in a statement of work can cut straight across all those carefully drated legal protections and cause doubt or contradictions. But on the other side, an overly-cautious or rigid approach to the legal principles can make your company appear very inflexible and undermine all the ‘business value’ that you are trying to sell.
I think the real point is that a contract reflects a company culture. If it seems fragmented or inconsistent, it is most likely because that is how the company works and behaves. Good contracts are developed by a representative stakeholder group that appreciates the need for a consistent and collaborative approach to sinning business or managing relationships.
From and statyutory law country I believe lawyers are critical even when no “legal content” is involved or need it, and strategic way of thinkingnof when to say it when to not say it, when to say no and yes at the same time (vagueness) it is something than lawyers are trained to do so. Probably, case law is black and white, but statutory law always provide a gray framework,where lawyers are best trained people to perform
I agree with Alejandro. As a general proposition, not without exceptions, lawyers are inherently more inclined to apply critical thinking and can better parse out the meaning and significance of words in a contract as compared to non-lawyers. To paraphrase Prof. Kingsfield in The Paper Chase, “When you come in here, your minds are full of mush, and when you leave, you will be thinking like lawyers.” I’m sure there are non-lawyer senior executives who don’t fit this paradigm, but I have yet to meet any.
“The deal” part is the nail on the head. Do you want someone on your team who has seen thousands of contracts and been involved in thousands of “deals” who has seen and experienced over time transactions of all kinds from the mundane to very complex and , intertwined relationships with co-mingled and separately moving parts? Put another way, if your tooth needs to come out, do you want Sally with a string and a doorknob, or a certified dentist with 20 years’ experience?
Another area where the lawyers tend to lead is risk allocation provisions, including warranties, limitations of liability and indemnities. Business colleagues will often regard these provisions as “legal” rather than commercial, though their reasons for doing this may be:
(a) the clauses are thought of as dealing with remote or theoretical issues, rather than immediate deal points;
(b) drafting them effectively (ie to win in court) requires an understanding of the underlying law in a way that drafting a payment clause doesn’t (or at least not to the same extent);
(c) the wording is often legalistic and difficult to understand;
Item (b) shouldn’t lead to item (c) but often does.
Agreed. Lawyers have made a right dog’s dinner of some of this stuff, notably limitation-of-liability provisions and warranties generally.