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The Business Lawyer

Spring 2024 | Volume 79, Issue 2

Obtaining International Consensus on Key Opinion Principles: An Introduction to the Good Practice Principles for Cross-Border Closing Opinions

J Truman Bidwell Jr and Ettore A Santucci

Obtaining International Consensus on Key Opinion Principles: An Introduction to the Good Practice Principles for Cross-Border Closing Opinions© Shannon Fagan

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The article discusses the Good Practice Principles for Cross-Border Closing Opinions recently published by a joint task force of the American Bar Association and International Bar Association, which seek to assist lawyers globally in giving closing opinions in cross-border transactions.

In 2018 the Legal Opinion Committee of the Business Law Section of the American Bar Association (“ABA LOC”) and the Legal Opinions Subcommittee of the Banking & Financial Law Committee of the International Bar Association (“IBA B&FLC”) formed a joint task force on cross-border opinion practice (the “Task Force”). The Task Force seeks to build upon work done under the auspices of the ABA, the IBA, the Union International des Avocats, the City of London Law Society, and a number of other bar groups in several 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.

In an increasing number of countries, businesses are seeking to procure capital from the international equity and debt markets to fund their growth in the new global economy. As a result, lawyers in many different countries are being called upon to give legal opinions, the receipt of which is usually a condition to a capital provider’s willingness to close a transaction (“closing opinions”). Closing opinions may be given to a lawyer’s own client or, at the request of the opinion giver’s client, to another party.

The development of a consensus on appropriate opinion practices will be particularly important in countries in which foreign investment has not, to date, been significant but would greatly assist economic development. Reaching consensus will require the collaboration of lawyers in many countries. The Task Force seeks to assist in that effort by promoting greater understanding of the issues involved in the closing opinion process, while at the same time respecting the legitimate concerns and expectations of the opinion giver and the opinion recipient in their respective countries.

The Task Force recognizes that cross-border finance involves many different types of parties, including global financial institutions, private/public agencies supporting international trade, sovereign investment funds, banks, private equity and debt funds, and international institutional investors. These various parties have to complete transactions involving the laws and documentation practices of many different jurisdictions. Moreover, although the parties may have disparate interests, they also share a common interest—i.e., reducing the time and cost of giving and receiving closing opinions in cross-border transactions. Furthermore, a clear understanding of the legitimate expectations of capital providers will improve the efficiency of settling closing opinions and reduce the friction that can develop in negotiating them. While areas of disagreement will always remain, the objective of the Task Force is to make the closing opinion process more efficient by developing approaches that reconcile the interests of all parties to the maximum extent possible.

The first project of the Task Force was the development of “Good Practice Principles for Cross-Border Closing Opinions,” which follow this introduction (the “Cross-Border Principles”) and have been approved by both the ABA LOC and the IBA B&FLC. This project was based on the following considerations:

  • over the past few decades, international commerce has changed dramatically. For many years, large financial institutions and their major customers have been doing business worldwide, but until fairly recently the majority of businesses (and almost all small and mid-sized ones) have been domestically focused. Today, companies large and small routinely do business outside their home country or are strongly affected by commerce and business practices, including particularly those of financing sources, from other countries;
  • the legal profession has followed in the footsteps of its clients. In the past cross-border legal opinion practice, if it existed, focused largely on the London and New York financial markets. Today, however, law firms of all sizes and in many centers of commerce (some large, some less so) around the world represent clients in cross-border transactions;
  • collaboration among bar groups in different countries will promote convergence of closing opinion practice, while respecting differences in law and market practices; and
  • development of cross-jurisdictional opinion guidance will help lower transaction costs and increase the likelihood that the reasonable expectations of all parties will be met.

Our hope is that the Cross-Border Principles will serve as the foundation for more focused initiatives by the Task Force, which may include:

  • identification of (a) recurring legal issues that are customarily addressed by closing opinions in various types of cross-border commercial transactions and (b) the roles of lawyers who most appropriately should address those issues in a particular transaction (e.g., a party’s own counsel, counsel for a counterparty, or, in some cases, with the consent of all parties, special counsel retained for the purpose);
  • consideration of the role of local counsel in cross-border transactions and the responsibilities of principal counsel with regard to closing opinions given by local counsel;
  • development of a better understanding of the role of country-specific rules of professional conduct and market practices around the world;
  • dissemination of information on closing opinion practices in various countries; and
  • collection of examples of opinion language with a view to (a) identifying appropriate and inappropriate opinion requests and (b) developing a baseline to make the closing opinion process smoother and reduce the risk of miscommunication between lawyers from different countries.

The Task Force plans to reach out to international bar groups for their help to accomplish the objectives set out above. The overarching objective is that, as international markets continue to evolve, lawyers throughout the world will work together toward the common goal of ensuring that the legal profession remains a constructive contributor to cross-border trade, commerce, and finance.