Over-Lawyering: What Does it Mean to You?
You hire a lawyer to assist you in the purchase of a home, business or managing an estate. When you meet the lawyer, he or she goes over details that after awhile put you to sleep. You wonder how important these might actually be. Well, you might be on to something. You may be a victim of over-lawyering.
Over-lawyering: Activities that may waste time or money.(source)
Unfortunately, this practice happens. Sometimes, innocently enough, this happens as a result of personalities, and other times, more insidiously, it is actively encouraged.
This practice occurs most often, in more complex legal services like commercial transactions.
As reported by Alan Shanoff in the Toronto Sun, Justice Edward Belobaba found that over-lawyering was a “pervasive problem” in class-action lawsuits (Class-action suits occur in the public domain). The same activities occur between private parties represented by lawyers. It doesn’t become public because it occurs behind the closed doors of law firm board rooms).
For example, when I am initially retained to represent clients in the purchase or sale of a complex legal transaction like the purchase or sale of a business, I advise them that there are two levels of negotiation:
1. The first level is the one between the parties when they work out the major aspects, such as price, possession date, and financing structure (such as a take-back mortgage).
2. The second aspect is the negotiation between lawyers. This is done in the murky underworld of legal terms and conditions. The theory is that the contract must represent the intentions of the parties.
I’ll take a moment here to pause and explain the importance of the contract. Despite our most fond desire to dispense with this aspect, it remains critically important. The details are important because if one of the parties changes their mind, or, worse, complications occur after possession because something was undisclosed, the contract becomes critically important.
I like to compare it to an insurance policy:
- When the parties are cooperating, the contract is only needed to provide guidance on closing and the exchange of funds. However, just like when the insurance policy becomes important when your house burns down, the terms and conditions of the contract will normally spell out who is responsible for what when the deal breaks down.
- In a commercial transaction, the vendor makes a series of representations and warranties. These expose the vendor to responsibility, often surviving after the transaction closes. These are important for the buyer because it gives him or her assurances that the business they think they are buying is in fact, the business they are buying.
The vendor, on the other hand, wants to limit these so that he or she doesn’t have ongoing, never-ending responsibilities.
This is one of the areas where lawyers negotiate. This negotiation is important. Unfortunately, this is also the area where lawyers go off the rails. Some warranties and representations are more important than others and more applicable than others. However, in an attempt to either zealously represent their clients or to add billable time to their bills, some lawyers spend an inordinate amount of time negotiating.
This is by no means the only area rife for abuse. Other contentious provisions include non-competition clauses, indemnity agreements, and consultation agreements where the vendor stays on after the possession date.
Over-lawyering can occur quite innocently
In my office, I am surrounded by perfectionists. Perfectionists see everything as important, and they pay close attention to detail. As I run a law office, perfectionists are an asset. But perfectionism can be a two-edged sword, especially in complex transactions often with 100 pages or more of documents by the time a transaction closes.
I also believe, but I don’t have statistics to back this up, that the profession of law attracts perfectionists. I remember in law school seeing very diligent and tired students studying 10 to 12 hours a day out of a desire to succeed.
Perfectionists can very innocently spend an inordinate amount of time reviewing every aspect of a contract fuelled by their desire to obtain the “perfect” contract. While this may occur innocently, it is still a problem for the business owner who is paying the bills. Most times, in these cases, good enough should be the goal.
Over-lawyering out of design.
Over-lawyering includes both adding unnecessary time as well as added personnel. The practice seems to be more prevalent in the U.S., but, as Justice Edward Belobaba found (in the class action suit setting) over-lawyering is a problem in Canada as well.
In either case, whether it occurs innocently or by design, the business owner must be diligent in reviewing the lawyers’ time. You should be asking for progress reports along the way. Especially when the first draft of the offer is sent to the other party. It’s during the negotiations that time is expended and this can happen quickly as both lawyers are attempting to finalize a contract on a tight schedule.
I haven’t tried this yet, but I wonder what would happen if clients insisted, in the contract, that each party engage their best efforts to find a lawyer who will cap their fees at 1% of the transaction price.
The obligation would be on the party to find or negotiate the fee. Lawyers wouldn’t be legally bound by the contract, but they could be bound by a retainer agreement outlining the capped rate. The lawyer would, of course, have to agree to be bound.
If the capped rate is too low, you might be pricing very competent lawyers out of the process. You could end up with less experienced lawyers. However, lawyers have an ethical obligation to provide competent services. If a lawyer feels a certain transaction is too complex, he or she is bound to refuse to act.
If you are having trouble finding a lawyer at your proposed rates, then the parties can re-adjust the target. The point of this, however, is to remove the incentive to overwork a file. This would focus everyone’s efforts on the most contentious provisions, where you get your most value for your dollar.
The profession might not be ready for this, but in a day and age when legal fees have gone through the roof, we have an obligation to find solutions for business owners who have invested or are about to invest their life’s work.
Disclaimer – Legalese
I appreciate the irony of this disclaimer, but while I am critical of the rules, I must still play by them, so here it goes… This article is presented for informational purposes only. The content does not constitute legal advice or solicitation and does not create a solicitor client relationship (this means that I am not your lawyer until we both agree that I am). If you are seeking advice on specific matters, please contact us at firstname.lastname@example.org or 204.925.1900. We cannot consider any unsolicited information sent to the author as solicitor-client privileged (this means confidential).
Philippe Richer is President of TLR Law Group. TLR has been located in the St. Boniface neighbourhood, in Winnipeg, since 1996. The office serves the middle class and small business within the province. With a focus on estates, wills, real estate, and corporate law, he leads his team in providing accessible legal services. Philippe also authored the business law course for the Knowledge Bureau and instructed the français juridique class at the faculty of Law at the University of Manitoba.