The Legal Opinion Committee of the Business Law Section of the American Bar Association (“ABA”) and the Legal Opinions Subcommittee of the Banking Law Committee of the International Bar Association (“IBA”) have formed a joint task force on cross-border opinion practice (the “Task Force”). The Task Force seeks to (a) build upon work done under the auspices of the ABA, the IBA, the Union International des Avocats, and the City of London Law Society and (b) to collaborate with a number of other bar groups in various countries to improve the practices of lawyers throughout the world relating to the giving of, and advising recipients of, closing opinions in cross-border transactions. The ABA and the IBA have undertaken these efforts to help the legal profession remain a constructive contributor to global finance and commerce and hopefully to aid the flow of capital across borders, particularly to emerging economies. This document seeks to establish foundational principles on closing opinions in cross-border finance transactions.
I. The evolution of cross-border transactional practice has drawn on customs and practice from various countries over many decades. Today standard closing procedures often include the delivery of opinion letters by lawyers (“opining counsel”) covering selected legal issues under the law that each particular closing opinion identifies as being covered (the “covered law”). Those opinion letters may be addressed to opining counsel’s client and thus be part of the legal advice that counsel provides its client in the transaction, or they may be addressed to another party at the request of opining counsel’s client (a “third-party opinion”), usually to satisfy a condition precedent to closing a financial transaction. Whether a closing opinion is given to a client or to a party who is not opining counsel’s client depends principally on the customs and practice of the country whose law is covered by the closing opinion but, to some extent, may be influenced by the practice of the jurisdiction where the transaction has its primary connections. For example, in some countries it is customary for a lender to receive a third-party opinion from borrower’s counsel, whereas in other countries opinions from the lender’s own counsel are the norm.
This document uses the term “closing opinion” to refer to an opinion letter delivered by counsel at the closing of a transaction whether delivered to opining counsel’s own client or to a party opining counsel does not represent. A closing opinion usually states opining counsel’s conclusions on specific legal matters, typically broken into separate numbered paragraphs that are referred to in this document as specific “opinions” and, together with a preamble and typically a set of assumptions, qualifications, exceptions and/or limitations, both of a general nature and with respect to specific opinions, comprise the closing opinion as delivered. This document (including its footnotes) focuses exclusively on closing opinions in cross-border transactions because they present issues that differ from closing opinions in domestic transactions.
When a closing opinion is delivered to opining counsel’s own client, the terms of the overall engagement and the rules of professional conduct applicable to the attorney/client relationship will govern the opinion process and opining counsel’s responsibilities as well as other aspects of such relationship. When a closing opinion is delivered to a recipient whom opining counsel is not representing in the transaction, opining counsel has no responsibility to explain to the recipient the scope and meaning of the opinions that are being rendered. Rather, the burden is on the opinion recipient to seek such advice from its own counsel. That advice may include the effect of the customs and practice of the country whose law is covered by the closing opinion.
Local customs and practice, which may be more or less developed or formalized in any particular country, will dictate whether an opinion request is appropriate and, if so, whether the opinion should be requested from the recipient’s own counsel. Local customs and practice and the circumstances of the specific transaction also will dictate the extent to which (i) opinions can be varied by express statements mutually agreed upon between opining counsel and the recipient or its counsel, (ii) opining counsel is bound by arrangements existing outside the closing opinion, (iii) opinions are qualified by implied understandings not set forth in the closing opinion itself, and (iv) opining counsel may use assumptions or exceptions and, if so, whether they are implied or should be expressly stated. An important consideration with respect to the customs and practice that govern opining counsel’s conduct is whether the form of government in the country of the covered law is a “federal” system, where constituent states or political subdivisions have their own laws and regulations alongside those of federal authorities, as is the case, for example, in the United States and Canada.
Although there are important differences between closing opinions addressed to one’s own client and third-party opinions, the fundamental principles discussed in this document are intended to assist both opining counsel and opinion recipients, whether or not the recipient is represented by opining counsel in the transaction. The principles are based on the following premises:
- (a) Cross-border opinion practice can benefit from the application of common principles by providing a basis for mutually respectful interaction between lawyers in different countries because the typical coverage of closing opinions in cross-border transactions is substantially similar across most jurisdictions.
- (b) The giving of a closing opinion is an exercise in professional judgment and should not be treated as a business negotiation in which the recipient seeks to obtain as much as possible and opining counsel seeks to give as little as possible.
- (c) Opining counsel and the recipient, and/or recipient’s counsel, should work together in good faith to achieve a balance in which the benefits to the recipient of receiving a specific opinion warrant the difficulty, time and expense required for opining counsel to give it.
- (d) Unlike transaction documents resulting from business negotiations, closing opinions are not a tool to allocate risk or to bridge gaps when the law governing a particular issue is uncertain or unsettled. Early in the development of U.S. Customary Practice, the concept of a “Golden Rule” was developed to guide both givers and recipients of third-party closing opinions in U.S. domestic practice by establishing the principles that (i) opining counsel should not be expected to give an opinion that counsel for the opinion recipient would not give in similar circumstances if that counsel were opining counsel and had the requisite competence to give the opinion and (ii) before declining to give an opinion that it is competent to give, opining counsel should consider whether another lawyer in similar circumstances would ordinarily give the requested opinion. The Golden Rule must be adapted for cross-border opinion practice because: (A) in some countries closing opinions delivered to one’s own client are common, whereas third-party opinions are not, (B) in domestic practice lawyers generally share common customs and practices, whereas that is not the case among lawyers from different countries, and (C) the original Golden Rule was based on the fact that opining counsel and counsel advising the opinion recipient could well find themselves in similar but opposite positions in other transactions, whereas that often does not hold true in the cross-border context. Nevertheless, the Golden Rule as a guiding principle can be a valuable tool in cross-border opinion practice to help all participants in the process balance the needs of opinion recipients and opinion givers.
- (e) In a cross-border closing opinion the covered law often is not the law of the opinion recipient’s country. A concept under the covered law may not have an analogous concept in the law of the recipient’s country and seemingly analogous concepts may not be analogous because of subtle differences in law or practice. Moreover, legal analysis and conclusions expressed in a language (often English) different from the language of the covered law may have substantively different meanings or translation may not accurately reflect concepts under the covered law. In addition, English may not be the native language of either opining counsel or the opinion recipient. These issues do not exist in opinion practice within the same country. A recipient should not expect a closing opinion in a cross-border transaction to explain the intricacies of legal terminology or differences in the way the covered law and the law with which the recipient is familiar deal with an issue. Even when opining counsel represents the recipient in the transaction, responsibility for such advice may require specialized expertise beyond the expertise in the covered law necessary to give specific opinions.
II. The following principles should apply when requesting and preparing or reviewing a closing opinion in a cross-border transaction:
- (a) A closing opinion addresses only the law it states it covers. Even within that law, the law covered by specific opinions may be limited to particular statutes, rules, and regulations (which may or may not include decisional law interpreting them) that lawyers with expertise in the covered law, exercising customary diligence, would reasonably be expected to recognize as being applicable under the circumstances to the transaction to which the closing opinion relates. The opinion does not cover any law other than the covered law even when the transaction itself or specific legal obligations are governed by the law of a jurisdiction that the closing opinion does not cover.
- (b) A closing opinion covers only those matters that it specifically addresses and not matters that might be thought to be implicit but are not expressly stated.
- (c) Opinion requests should be limited to specific and determinable matters of law that (i) involve the exercise of professional judgment under the covered law and (ii) relate to the transaction on which, or the party as to whom, opinions are being given as well as legal obligations imposed on such party by the transaction documents.
- (d) A closing opinion only expresses opining counsel’s professional judgment under the covered law, it is not a guarantee that a court applying such law to a specific case will reach the conclusion expressed in the opinion.
- (e) Opining counsel should not be asked to (i) confirm matters of fact, even if the confirmation is limited by broadly worded disclaimers, including a limitation to the knowledge of such counsel, or (ii) state that it is not aware of any inaccuracy in representations and warranties contained in an agreement, because neither involves the exercise of professional judgment on matters of law. With rare exceptions, therefore, factual confirmations are not a proper subject for a closing opinion. When an opinion depends on factual matters, such as, for example, the existence or authenticity of a document, opining counsel ordinarily is allowed to make assumptions with regard to such matters or to rely on information provided by, or documentation received from, an appropriate source or on representations and warranties contained in the documents on which opinions are being given. Depending on the customs and practice of opining counsel’s country, opining counsel may be permitted to base an opinion on unstated assumptions.
- (f ) A closing opinion should be prepared in accordance with, and can only be understood by reference to, (i) the customs and practice of the country whose law is covered by the closing opinion, including those based on applicable professional rules, market conventions, and guidance published by bar associations, law societies, and recognized opinion authorities, and (ii) any applicable statutes and regulations of the country whose law is covered by the opinion, together with judicial decisions interpreting them.
- (g) As a general rule, opining counsel should not be expected to give an opinion in a cross-border transaction that lawyers practicing in the country whose law is covered by the closing opinion would not be expected to give in a transaction that is limited to that country. The fact that the opinion recipient would normally expect counsel in its own country to give a particular opinion does not necessarily mean that opining counsel in a different country should be expected to give it.
- (h) The fact that an opinion recipient has received a particular opinion in the past in a similar cross-border transaction does not mean that opining counsel should be expected to give it again.
- (i) Opining counsel should not give an opinion that, although technically correct, opining counsel recognizes would be misleading to the opinion recipient with regard to the subject matter of the opinion. Whether an opinion would be misleading is to be determined under the customs and practice of the country whose law is covered by the opinion and opining counsel may assume, without so stating, that such customs and practice are known to the opinion recipient.
- ( j) If opining counsel declines to give a requested opinion, the opinion recipient may ask whether such decision is due to (i) uncertainty regarding the covered law, (ii) the structure or documentation of the transaction, or (iii) the fact that the requested opinion ordinarily is not given in opining counsel’s country. However, if opining counsel is giving a third-party closing opinion, applicable rules of professional conduct may require that opining counsel obtain instructions from, or the consent of, its client before providing an answer that could have adverse consequences for the client. If opining counsel declines to provide an answer, the opinion recipient should seek advice from its own counsel.
- (k) The covered law, customs, and practice in opining counsel’s country and agreement between opining counsel and the recipient will determine which assumptions, qualifications, exceptions and/or limitations in a closing opinion are appropriate and the extent to which they need to be expressed or can be implied.
III. Opining counsel is subject to the law and rules governing the professional conduct of lawyers in its country (or state or other political sub-division, in a federal system like the United States). Those laws and rules, as well as local customs and practice, often will determine the following matters:
- (a) Whether a specific issue is the proper subject of a closing opinion and, if so, whether the issue should be covered in an opinion from the recipient’s own counsel or in a third-party opinion.
- (b) The duties of opining counsel, including how it is expected to act in advising the recipient if the closing opinion is delivered to a recipient that is not its client and whether it can give an opinion to a non-client that may be detrimental to its client’s interests.
- (c) The standard of care that must be exercised by opining counsel (including the scope of back-up work that opining counsel needs to perform to render a specific opinion) and the liability of opining counsel if an opinion proves to be incorrect.
- (d) Whether, and the extent to which, opining counsel and the opinion recipient can agree on terms and conditions for resolving future disputes relating to matters covered by a closing opinion, including choice of law, forum selection, arbitration, and limitations on opining counsel’s liability.
IV. The parties should recognize that the cost/benefit analysis with respect to opinions requested in a particular transaction may vary depending on the circumstances, even if the transaction is similar to other transactions with which the parties have dealt before. Relevant circumstances include:
- (a) The size of the transaction.
- (b) The number of countries involved and their relative significance to the transaction.
- (c) Special regulatory regimes applicable to the parties or the transaction.
- (d) The complexity of a particular issue, which may require special expertise or which may not lend itself to an unqualified opinion (for example, issues under tax laws, employee benefits laws, environmental laws, competition laws, economic sanctions, anti-terrorism, anti-money laundering and anti-corruption laws, or laws restricting foreign control of sensitive enterprises).
- (e) The degree to which the law being covered is or is not well developed as it relates to the issue addressed by the opinion.