Contractual relationships are more than law

Posted on Thursday, March 13, 2014, by Noric Dilanchian

Many areas of business law are bottomless but useful pits of knowledge. Included are contract law, intellectual property law, tax law and corporations law. For each there are related conventions, practices and international law or trade agreements.

You cannot "know it all" or even most of it in any of the areas, even after career-long learning. They are vast, ever-expanding, at times messy, convoluted and not easily simplified. To illustrate:

Yet these areas of business law are very useful. They provide domestic and global infrastructure for public and private ventures and arrangements.

What makes them useful is not just law. Take contracts as an example. The fact that contractual relationships work is not due to law alone. A business contract when drafted well is created, shaped or even made binding by more than just law. In many business contracts law binds like cement, but what it is binding are legal as well as economic, financial, ethical and other structural relationships.

Historically those non-legal structural relationships are foreign to the training, practice and culture of law and lawyers.

The challenged economics and reality of legal practice is causing many, even lawyers, to rethink and remodel offerings to become more relevant and useful.

As a background to how we got here, the work of lawyers has historically been confined to strictly legal advice due to four factors:

  • educational (ie law school),
  • institutional (eg law society self-regulation),
  • affordability of insurance (ie professional indemnity insurance that covers only “legal advice”), and
  • regulatory requirements (ie statues which govern the work of lawyers).

It is not news that business law on its own does not provide enough value for money today for many clients. In IT and the legal marketplace there has been change; on the horizon there may be change too from law schools, institutions, insurers and in regulation governing the work of lawyers.

Yesterday an article from The Law Society of New South Wales acknowledged the need for change. The topic of that paywalled article was Core competence: 6 new skills now required of lawyers, a 2008 article by a Canadian consultant to law firms, Jordan Furlong.

Furlong is among the most insightful commentators on changes in legal practice in the Common Law world. In the linked article he writes on the need for lawyers to add to their traditional skills the follow six skills which for lawyers might be “new skills”:

To this short list of new skills we would add the following three areas of knowledge for competent business contract drafting (there are more, but three will do to illustrate):

  • understanding business models and their relationships to contracts and transactions;
  • understanding the operations of companies, organisations and businesses, their business functions* and organisational arrangements; and
  • understanding production processes, workflows and documentation useful for management of the lifecycle for goods and services and related transactions.

* At the end of this article there's a list of typical business functions.

Thus, after decades of denial or non-recognition, we are thus seeing evidence that finally and officially it is being acknowledged that being a lawyer in business (central to which is drafting and interpreting contracts) involves applying skills and knowledge from more than just law.

Expanding the skills and knowledge of contract drafters requires two things.

  1. Removal or reduction of the constraints or obstacles that are educational, institutional, insurance-related or regulatory. This will take time and won’t come easily.
  2. Law graduates, private practice lawyers, in-house counsel and people in business who draft contracts need online tools and places to go to for on-going: (a) learning of skills and knowledge; (b) training in their practical application; and (c) learning in an environment with peers and with materials that include engaging case studies.

Annexium is a forum for that second point. Annexium’s courseware and other educational materials provide guidance on the practical application of contract law and integration of that with non-legal skills and knowledge to produce better contracts, faster.

Annexium's ambition is not to replace what lawyers can learn in a contract law course in a university law school or in a typical legal seminar by lawyers for lawyers focused on contract law technicalities.

Good integration is essential. The contract drafter's traditional and contemporary task remains: to reflect the intentions of clients or parties. For this, it is often the case that a good opening question is to ask clients or parties: “How do you intend to make money or add value in this project, matter or transaction?

To improve skills and knowledge for contemporary markets we must maintain and keep up-to-date on what is meant there by "make" and "add".

Without that we are left with otherwise threadbare contract recitals and the usual contract drafters’ suspects such as warranties, disclaimers, indemnities, termination and boilerplate clauses.

This is inadequate. What the market demands are contracts that work in the legal arena as well as in non-law theory and in practice. In short, the market wants commercial, practical advice and documentation.

The market wants contracts that are intelligible for many readers, most of whom are usually non-lawyers.

If those who implement a contract’s plan don’t “get it”, they’ll stray from their practical world and wander into the world of court-dwelling contract law and disputation cognoscenti. This parallel universe is increasingly recognised as being unsustainable. Litigation is framed around or dominated by legal issues. Yet what takes parties toward litigation is invariably not purely legal issues but rather some practical matter or oversight, something not addressed or understood when a contract was planned, written and accepted.

Markets, technologies and ways of working are changing rapidly. To keep up contract drafters need to share and learn with peers. Annexium is designed for collaborative sharing and learning, integrating legal and non-legal skills and knowledge.

Business Functions List

Below is a typical list of business functions for a goods or services business. Each business and industry needs to customise to its specific situation.

People and Administration
Human resources management
Human resources training
IT and telecommunications infrastructure
Operations manual maintenance
Document and records management and retention
Tangible assets management
Intellectual property management
Licences and permits

Strategy and Innovation
Market research
Knowledge management
Product development
Business model review and change management
Strategic, business and operational planning

Finance and Compliance
Budgeting and management accounting
Finance and leasing
Banking relations
Bookeeping, debtors, creditors and cash flow
Tax accounting
Legal compliance and administration

Production and Operations
Supply chain management and purchasing
Production and quality control
Plant and equipment management
Inventory control

Marketing and Sales
Brand development and management
Marketing, advertising and promotion
Stakeholder engagement, social media etc
Proposals and estimating
Contract negotiation and management
Logistics, shipping
Transaction processing
Sales administration and risk and project management
Customer relationship management
Customer support

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