M&As: Contractual Artistry or Shonky Improv?

A fascinating recent paper from Robert Anderson and Jeffrey Manns on M&A drafting is up in draft on SSRN, The Inefficient Evolution of Merger Agreements. It performs textual analysis on 12,000 or so public merger contracts in the US. The authors map the family trees of these deal documents, showing where the precedents for each deal came from and how similar they are in terms of the words used.  The overall claim is that the process of precedent selection and development for M&A agreements is a rather improvised process based on haphazard choices made in the rush to get going on a deal, rather than from a basis of thoughtful calculation about ideal deal structures and contract drafting.

They suggest that:

• It is predominantly prior firm connection, rather than similarity of the deals, that drives precedent selection in M&A deals.
• Lawyers’ tend to use precedents that they are more familiar with or that relate to the particular client they are dealing with, rather than those that may be more readily adapted to the transaction at hand.
• Lawyers add significant amounts of extraneous information to each deal and inadvertently retain deal-specific information from prior deals. [They call this random drift]

Quite a lot of the article appears to be (very interesting) speculation based on evidence that M&A agreements tend not to be based not on a limited number of common precedents or ancestors. A precedent is adapted, that adaptation might get used or it may be ignored, and another precedent used instead, which in turn may get adapted or discarded in the future. From the outside, it looks ad hoc: any M&A deal might be based on any one of a number of prior examples in the firm, and very few deals match closely with their precedent, suggesting no standard or core approaches. Similarly, the main factor which influenced precedent choice was whether the client had previously been party to a deal. A factor which might be thought to have some influence (the client’s industry) did not have much impact save in banking.  

The second element of the evidential case I would boil down to:

in the typical drafting process approximately 22,000 words are deleted or inserted in documents that are typically about 27,000 words in length. This fact suggests a remarkable level of editorial churning takes place throughout the drafting process and underscores the lack of standardization even within a given firm.

Whether this seemingly rather pragmatic approach to precedent choice, and the ensuing level of re-drafting, indicates a level of necessary artistry or a much more random, inefficient, even risky process of evolution is the central question the authors pose. The author’s make some space for alternative explanations for the data, and whilst I think there is some way to go to button down the explanations sufficiently with evidence, they make a good argument for their interpretations. The central claims have been well received by thoughtful practitioners critical of contractual practice (See Ken Adams here, and Mark Anderson here). I leave Anderson and Mann to summarise:

We use this innovative approach to explore whether transactional drafting is driven by a rational process that minimizes the cost of deal documentation and risk to clients or by an ad hoc process that increases billable hours and risk. We show that a high level of “editorial churning,” ad hoc edits that appear to be cosmetic rather than substantive, takes place in legal drafting. Over half of the text of merger agreements is routinely rewritten during the drafting process even though the substantive provisions of merger agreements have similar features. Significant variation exists among merger agreements even involving the same firm as there is no evidence of firm-specific templates or industry-specific templates in most cases. Lawyers appear to choose earlier merger agreements as deal templates based on familiarity with past deals rather than based on the economic needs of clients or cost mitigation. Our empirical findings provide strong evidence of significant (structural) inefficiency in the drafting process which raises costs and risk to clients.

Principles, Rules, and Touting

There’s an interesting piece in the Gazette, about touting for criminal clients by Robin Murray.  It suggests all sorts of devious, corrupt and illegal practices are engaged in by some firms when seeking to gain clients (particularly at the expense of other firms). An attempt to blame this on policies whereby, “expensively trained lawyers are replaced by those without a professional background.” Training has been replaced, it is suggested, by largesse with trainers (of the just do it kind) and sometimes threats of violence. I’m not convinced. Not least because all of the behaviour, shocking as it is, was going on when I trained as a solicitor rather too many years ago. I would not be surprised though if the problems have got worse, particularly as legal aid margins have receded and competition has become more cutthroat.  I certainly read the article (and the one it links to by the same author) as suggesting problems have got worse: even being blamed for the closure of significant firms.

I found myself wondering how often this behaviour is reported to the SRA. Some of the comments in the stories suggest it is sometimes reported and that the SRA does not respond.  For the SRA not to respond to such issues would be very concerning indeed. This requires further exposure from those making the complaints and a response from the SRA I think also the SRA should be able to explain how many of its complaints concern this issue and what they have done about them.  I also wonder if individual members of the profession need to look at themselves and ask if it is reporting what is manifestly serious misconduct every time they come across evidence of it.  There is sometimes a professional reticence about complaining and this is abetted by a scepticism about SRA inaction. Even if evidence is inconclusive, the SRA can build up intelligence on the sources of the problem and think about how to tackle it.

The second issue of some interest if the debate about the proposed revised SRA Code of Conduct.  The debate is essentially over whether a shorter, more principle based Code is in the public interest.  Do we need all the rules in the Code to keep lawyers on the straight and narrow?This is the quote from Robin Murray’s piece:

More shocking (and I use the word shocking in a very real and personal sense) is a proposal by the SRA to water down the only present anti-touting code provision. It proposes to replace Outcome 8.3: ‘You do not make unsolicited approaches in person or by telephone to members of the public in order to publicise your firm or in-house practice or another business’ with the broken-backed phrase ‘You do not abuse your position by taking unfair advantage of clients or others’.

Now to my mind all of the examples that Mr. Murray mentions are quite plainly breached by the taking unfair advantage principle (and other elements in the Code) without the unsolicited approaches rule (although I suspect a better case can be made for the rule where corruption is less obvious). Some lawyers need to get out of the ‘where does it tell me in the rules specifically that I cannot do that’ mindset. What is probably more important than the rules in this circumstance is the action taken. Both the SRA and the SDT have to be willing to act on, investigate, prosecute and discipline lawyers where a pattern of complaints suggests it is a significant problem.  This is why my point about how many firms have been complaining is important.  But, let assume Mr. Murray’s concerns are well founded (he prays in aid a Law Society survey which I have not seen).  This willingness to act is especially acute in markets such as criminal defence, where public interest and client vulnerability is clearly to the fore and risk is high.

An interesting broader question for the movement to fewer rules is whether the SDT (and ultimately the High Court) will support enforcement where standards might, to lawyers eyes, seem vaguer than bright line rules, but I would need to be persuaded that it is the rules that are the problem here.  It is evidence and action which is needed.

Lawfest #2 Law as a human flourishing

Law is a human business, made of human politics, and – a more neglected point – a place of sometimes great human flourishing.  The talking, the listening, the writing, the thinking all have the social and (sometimes) the creative at its heart. I cannot capture in words how incomparably excellent Lawfest was last time.  I’ve never left any conference quite so fizzing with ideas and energy and hope. Those of you who know me will be surprised: the sometimes dyspeptic, angry, critical tone of the blog is not a pose and gushing is not my style, but if a cynic such as me can come away refreshed and invigorated, then anyone can, and most will.

Last time practising lawyers from the bar, in-house and solicitors, their partners, and legal academics all attended. It really does work for everyone.

You can book here. It’s cheap enough for most pockets and all training budgets. The profits go to charity.

Unambiguous opinions in lawfare land

I have written previously on lawfare: the process by which barrister’s opinions are published to support one side or other in a dispute, especially one involving politics and law. The rules on barristers opining in public, including on litigation they may be instructed in, have been liberalised. Barristers may now give opinions publicly as long as they do not compromise their other professional obligations: including, it being in the best interests of the client; and, the barrister not bringing the profession into disrepute, acting with independence and integrity, and not knowingly or recklessly misleading anyone.  It seems to me almost inevitable that such opinions blur advocacy and opinion giving in discomforting ways.

The barrister, Gordon Exall, has a very interesting post on Advising on risk in litigation about the giving of advice on the merits and the construction of documents. He points out that, when advising on the merits of a case, and in particular on the construction of documents, the courts have opined that as well as lawyers giving their view of the correct construction they ought also to give their view on the possibility and risk of their construction being wrong.  In Hermann v Withers LLP [2012] PNLR 28, advice on a “somewhat arcane point of property law”, which included the construction of a document, held the solicitors, “should have advised, that the correct legal answer was open to significant argument. They should not have advised in unequivocal terms but should have warned of the existence of the contrary arguments.” And in, Levicom International Holdings BV v Linklaters [2010] PNLR 29 Burnton LJ held that, “the solicitors could not sensibly have advised that the meaning of the document was “clear” and they ought to have given a balanced view of the rival arguments particularly in the context of potential arbitration proceedings.”

With that in mind, I re-read Michael Mansfield QCs opinion (the Huffington post claims this is the full opinion) on the Labour Party election with added interest. It begins with these words:

1.We are instructed by the General Secretary of Unite the Union to advise on whether the incumbent leader of the Labour Party should be automatically on the ballot paper in the event that there is a challenge to his leadership resulting in an election

It ends with these words :

The rules by which the Labour Party is governed are unambiguous; the leader does not require any signatures to be nominated in a leadership election where there is a potential challenger to the leadership.

There is some consideration of alternative constructions of the rules in the body of the opinion itself, albeit rather quickly dismissed.  By way of contrast, for a longer more thoughtful take on the arguments for alternative constructions, see this post by Carl Gardner.  Interestingly, Carl also argues how the rules can lawfully be varied to keep Mr Corbyn off the ballot. Variation is not an argument contemplated in the Mansfield advice. Perhaps this is because the question was narrower, “should” Mr Corbyn be kept of the ballot, not “could” he lawfully be kept of the ballot; perhaps Mr Mansfield did not think of the argument or thought it so fanciful it did not merit consideration; or perhaps it is because any legal position is usually more ambiguous than lawfare suggests it is.

 

What motivates the zealous lawyer?

Acting in the best interest of the client is a key professional principle.  It is also a principle that is sometimes in tension with other principles: the obligation to protect the rule of law and the administration of justice, and acting with integrity, in particular.  This tension leaves open the question, how much emphasis should be given to the client’s interest? How zealous should lawyers be for their client?  Whilst both solicitor and Bar codes emphasise the preeminence of the rule of law and administration of justice where there is a conflict between principles, I often hear lawyers state, incorrectly, that the client’s interest are paramount or – in the words of Lord Hunt – that ‘client first was bred into me’.  The Bar’s own emphasis on fearlessness adds its own gloss.  The idea of the zealous advocate, and in turn, the zealous lawyer, has a strong historical and philosophical pedigree.

One of the assumptions of zeal is that it is an act of selflessness on the part of the lawyers. That it is an indicator that lawyers put their clients first: zeal is motivated by benevolence to the client; they are their ‘friend’. Critics suggest this is a convenient fiction: that zeal reflects an alignment  between lawyers and clients. Where lawyers zealously take an action, not clearly forbidden by law or professional codes, but which is nevertheless questionable – think, say, of creating aggressive tax avoidance schemes or a questionable but arguable justification for war: the idea that the lawyer is professional bound to zealously exploit (even create) questionable arguments for their clients is both commercially convenient and relieves them of moral responsibility for their own actions. Under this reading, zeal is founded on a false prospectus.

There is an increasingly rich psychological literature on this issue.  In particular, it shows that lawyers (and other professionals) are naturally prone to identify with clients and shade their judgments about (say) reasonableness too much towards the client’s self -interest. I have had an article published today, with Rachel Cahill-O’Callaghan (Cardiff University) which looks at this.  It suggests that those lawyers that are more zealous in their outlook, i.e. more inclined to advocate a risky or aggressive strategy, are more motivated by self-interest than are less zealous lawyers.  Those with stronger risk-appetites appear less motivated by benevolence for the client.  If zeal is self-interested, the risk that lawyers miscalculate the client’s interests is magnified.  For me the results suggest the need to restrain zeal and to think carefully and objectively about the client’s interests and the lawyer’s broader obligations. Wise heads may see a better balance between a client’s medium and long term aims and these broader obligations, and reject short term, risky opportunism – even where it may help them earn more money or gain that promotion if it comes off.

The article is available here, although it is pay-walled for those who do not subscribe to Legal Ethics.

Independence play – Chilcot on the legal process

This is a long post. You may want to make yourself a cup of tea if you are inclined to read it all.

Chapter 5 of the  Chilcot Report provides an important case study in the multitude of ways in which the independence of a lawyer might be compromised.  It is, of course, particularly pertinent to Government Legal Service Lawyers but I suspect it contains lessons for all lawyers.  Certainly, I will be asking my own students to study it.

At over 70,000 words, out of a report of 2.6 million, it is an incredibly detailed account of how Lord Goldsmith, as Attorney General, came to give the “green light” to military action against Iraq. Judging by the way the Report was reported yesterday it is a central plank of Chilcot’s finding. As he put in his statement:

the Inquiry has not expressed a view on whether military action was legal. That could, of course, only be resolved by a properly constituted and internationally recognised Court. We have, however, concluded that the circumstances in which it was decided that there was a legal basis for UK military action were far from satisfactory.

It is not clear that, had things been done differently, Britain’s participation in the Iraq War would have been avoided altogether. However, it is not fanciful to suggest that our role might have been significantly curtailed had Lord Goldsmith not, in his words, “given the green light” that military action was lawful.  This may not have helped the people of Iraq, but it may have led to fewer British deaths, and a less tarnished reputation in the World for the United Kingdom.

In giving that green light, Lord Goldsmith was aware, in formal terms, of the need to give, independent and impartial advice. It is well known that, in giving advice, Goldsmith changed his mind about the legality of military action without a second UN resolution at the point of critical decision.  I do not want to allege that such a change of heart was not genuine.  What I want to do is examine the ways that the situation, the management of the situation by others, and the Attorney- General’s approach to the situation, all contributed to a process littered with significant flaws.  In discussing what those significant flaws might be, I do so based only on my reading of Section 5 of the Chilcot Report.

The Attorney General did not know who his client was?

The starting point for many lawyers, when thinking about their professional obligations, is what is in the best interest of their client? To think in such terms, one has to be clear who the client is.  The way Chilcot presents it, Lord Goldsmith got it wrong:

Lord Goldsmith told the Inquiry that he viewed Mr Blair as “ultimately” the client for his advice.

Whereas:

Lord Turnbull [the Cabinet Secretary] told the Inquiry that he, Admiral Sir Michael Boyce, Chief of the Defence Staff (CDS), the diplomatic service and others were all clients for Lord Goldsmith’s advice. The characterisation of Mr Blair as the client was not “a very good description of the importance of this advice”.

Knowing who the client is critically effects how one calculates the interests at stake and who one communicates with.  There is particular criticism from Chilcot of Lord Goldsmith’s failures to communicate with Cabinet ministers for whom is advice was particularly pertinent.  This is in contrast with Lord Goldsmith’s sometime frustration, if I read the report correctly, with his inability to speak directly to the Prime Minister as often as he would have liked.

Not knowing who one’s client is, of course, particularly significant at times of conflict within the client.  The UK Cabinet was not of one mind on intervention in Iraq. An Attorney General keen to be both independent minded and seen as independent minded would need to hold all of the key constituencies in mind and be communicating consistently with that understanding.

The timing of the advice was deliberately delayed

One of the curiosities of the situation was that Lord Goldsmith was told he would be instructed to provide advice but he was then told he was not to give his advice immediately.  One explanation for this approach was it would allow all the facts of the situation on the ground to become clearer. Another explanation is that it ensures that the advice is delivered at a time when it is less likely to influence the client’s overall strategy. Another, is that it leaves the lawyer to provide their advice at a time of maximum pressure.   And a fourth is that the lawyer’s role is to provide a rubber stamp, not to provide genuine advice.

Tony Blair explained the delaying of the advice in these terms:

 “I think it was more that we knew obviously when we came to the point of decision we were going to need formal advice.

A critical question is whether Goldsmith was right to accede to the instruction to delay his advice?  His legal counsellor advised him to think about giving his advice in spite of the injunction to hold off.  In terms of his professional obligations: he is professionally responsible for the manner in which his advice is given, but can the client determine the timing of his instructions? Clients cannot instruct on tactics in litigation, by way of comparison. To accede to the request was to lead to a significant weakening, structurally, if not in his mind, of his independence. He opened himself up to significant pressures. There is a strong argument to say he should not have done so.  I’ll leave the last word on this to Elizabeth Wilmshurst, a Deputy FCO Legal Adviser, who resigned at the culmination of this saga because of her concerns about the AG’s eventual advice:

“…For the Attorney to have advised that the conflict would have been unlawful without a second resolution would have been very difficult at that stage [the eve of War] without handing Saddam Hussein a massive public relations advantage. It was extraordinary, frankly, to leave the request to him so late in the day.”

Coping with the risk your advice will be misrepresented

Lord Goldsmith was clearly sensitive to the problem that his view on the legality of military intervention in Iraq would be, and probably was being, misrepresented. That misrepresentation was a risk internally (within government itself), bilaterally (discussion with the US in particular) and publicly (in statements to Parliament and the press).  It’s a risk all lawyers are familiar with.

As an example, Lord Goldsmith told the Inquiry:

“There is … I see this quite a lot in government … also the problem that sometimes the qualifications to what you have said don’t seem to be heard as clearly as you intended them to be. I have heard the expression about the ‘yes, but’ and the ‘but’ is forgotten, in another context … [S]ometimes, therefore, you have to shout the ‘but’ rather harder than you would normally, to make sure it is not forgotten.”

It was clear that Lord Goldsmith was right to be worried.  Having already told the Foreign Secretary, Jack Straw, of his doubts that war would be legal without a second resolution, “Mr Straw told Cabinet on 14 November that, while the Security Council would need to be reconvened to discuss any breach…  the key aspect of resolution 1441 was that military action could be taken without a further resolution.” At a number of points in the report, Goldsmith becomes aware of reports that his legal advice will say what Straw says, when Goldsmith’s then view is that it will say something less helpful to the government line.

At times, Goldsmith took steps to try and counter the problem. He wrote three times to the Prime Minister to express his provisional views on the question of legality.

It is possible (although Chilcot does not speculate on this) that this is not selective deafness, but a more concerted attempt to raise expectations across the civil service and political constituencies that the advice will say what the government wants it to say. In this way, informal pressure might be applied to Goldsmith to come up with the right answer.  Similar pressure was applied, wittingly or unwittingly, by encouraging or inviting Goldsmith to speak with protagonists seeking justification for military action. This included, at Goldsmith’s request, the UK’s Ambassador to the UN, and a large group of US officials and lawyers keen to impress upon him their view that military action would be lawful without a second resolution.  There were reasons for wanting to speak to some of these individuals, in particular, their ability to explain what had led to the most recent UN resolution. As I understand it, that was of dubious benefit evidentially, but it could help Goldsmith see the arguments as to how to construct the words of the resolution. The more general point, though is that almost all the direct, person to person influence on his thinking (at least as portrayed by Chilcot, and with the exception of quite a robust line from the FCO) was coming from one side of the argument.

What is the lawyer’s role when giving advice?

When a lawyer is giving an opinion which they know is a necessary step in taking an action they are acting as a gatekeeper for legality. That they are a gatekeeper is underlined in circumstances where that opinion is unlikely to be tested by, for example, litigation.  In this sense, the lawyer acts a bit like a judge, but a judge with complications.  Ms Adams (the AG’s legal counsellor) set out for the Attorney General how important how he see’s his role was to how he should advise:

“What advice you give … may therefore depend on the view you take as to your role in advising on use of force issues. For example, you might give a different answer to the question: what is the better interpretation of resolution 1441? than to the question: can it reasonably be argued that resolution 1441 is capable of authorising the use of force without a further Council decision?

“You have previously indicated that you are not entirely comfortable with advising that ‘there is a respectable argument’ that the use of force is lawful, given your quasi-judicial role in this area. Previous Law Officers have of course advised in these terms …

“For my own part, I think that the first view is the better interpretation, but that the arguments in favour of the second view are probably as strong as the legal case for relying on the revival argument in December 1998 when the UK participated in Operation Desert Fox.”

Goldsmith’s initial approach is to advise, in draft initially, in both ways: he says the better interpretation of international law is that a second resolution is needed, but that there is a reasonable argument (one that could be argued in court with some prospects of success). The reasonable argument test might, I understand, include arguments which are weak but arguable.

It’s not a ‘have your cake and eat it’ argument, it is a: here’s the answer I think it is, but I can’t rule out the other answer argument. Or it’s, a) here is the low risk option legally, and b) here is the high(er) risk option.  Or, a) here is the answer I would give if I were acting judicially (or perhaps more pertinently, totally independently) and b) here is the answer that I could give a paying client if I were their advocate and they really wanted me to fight it.  Crucially for Goldsmith, he does not clarify in his own mind whether he should be giving the quasi-judicial or advocate’s answer until late in the day.

Whether the Attorney-General applied the right test or did give an opinion based on a weak but arguable claim is something which others may have explored, but this case provides ample basis for a fresh look, by all lawyers, at the tests they apply when giving such gate-keeping opinions.  Their obligations to promote the rule of law and administration of justice require them, in my view, to temper any inclination to tell the client what they want to hear with more genuine independence and that means thinking carefully about the process and outcome of the formulation of their advice.

There is a further limb to this bit of the analysis.  Jack Straw was also being advised by the senior FCO lawyer (Mr Wood) that military action without a UN decision was illegal.  Jack Straw was not impressed:

Mr Straw wrote to Mr Wood the following day: “I note your advice, but I do not accept it.”

Quoting his experiences as Home Secretary, Mr Straw stated that, “even on apparently open and shut issues”, he had been advised: “there could be a different view, honestly and reasonably held. And so it turned out to be time and again.”

Mr Straw concluded:

“I am as committed as anyone to international law and its obligations, but it is an uncertain field. There is no international court for resolving such questions in the manner of a domestic court. Moreover, in this case, the issue is an arguable one … I hope (for political reasons) we can get a second resolution. But there is a strong case to be made that UNSCR 678, and everything which has happened since (assuming Iraq continues not to comply), provides a sufficient basis in international law to justify military action.”

Mr Straw sent copies of his letter to Lord Goldsmith and to Sir David Manning as well as to senior officials in the FCO.

…Lord Goldsmith wrote back:

“It is important for the Government that its lawyers give advice which they honestly consider to be correct … they should give the advice they believe in, not the advice which they think others want to hear. To do otherwise would undermine their function … in giving independent objective and impartial advice. This is not to say … that lawyers should not be positive and constructive in helping the Government achieve its policy objectives through lawful means and be open-minded in considering other points of view.

“But if a Government legal adviser genuinely believes that a course of action would be unlawful, then it is his or her right and duty to say so. I support this right regardless of whether I agree with the substance of the advice which has been given. Where a Minister challenges the legal advice he or she has received, there are established mechanisms to deal with this. The principal such mechanism is to seek an opinion from the Law Officers.”

In this way, the Attorney General is acknowledging his role, in the absence of litigation, as the final arbiter of questions of legality. Is he underlining the quasi-judicial nature of his task?  Chilcot goes on to note, Sir Franklin Berman, Sir Michael Wood’s predecessor as the FCO Legal Adviser, wrote:

“I have to confess (once again) to some astonishment at seeing a former Foreign Secretary implying in recent evidence to the Inquiry that he was not bound by legal advice given to him at the highest level, but was entitled to weigh it off against other legal views as the basis for policy formulation. If Ministers begin to think that they can shop around until they discover the most convenient legal view, without regard to its authority, that is a recipe for chaos.”

Mr Straw also wrote:

“Once the Attorney General had uttered on this question, that would have been the end of the matter; as on any other similar legal question. It would be wholly improper of any Minister to challenge, or not accept, such an Attorney General decision, whatever it was. But we were not at that stage.”

Interestingly though, in spite of writing to rebuke Straw, Lord Goldsmith had not sent him his draft advice, which we come on to discuss now.

Drafty drafts through which influence blows

Sophisticated clients seeking ‘independent’ opinions, and lawyers instructed by clients to provide such opinions take varying views on the extent to which clients should be able to comment on draft advice. There can be a need to establish that errors are not made, and there are other benefits, but the risks are also plain.  Lord Goldsmith opened himself up to influence when he provided his draft advice to the Prime Minister, for discussion with the Prime Minister, and not – on the evidence – even to the Foreign Secretary and Defence Secretary. Here the problem with not knowing the client becomes particularly acute. The winds of influence on this draft advice were all blowing in one direction, from the Prime Minister’s Office.

The Uni-directional influence can be sensed also in the way Goldsmith had the draft advice sent to Sir Jeremy Greenstock (UK representative at the UN). His office wrote this:

“The Attorney would welcome your comments on the view he has reached.

“In particular, he would be interested to know if you feel that there are any significant arguments which he has overlooked which would point to a different conclusion. The note has been passed by the Attorney to No.10, but has not been circulated more widely. I have been asked to stress that the note should not be copied further.”

Crucial in the changing of Goldsmith’s mind about his draft advice was a meeting he had with senior US officials and lawyers, including those who negotiated the first UN resolution.  Goldsmith was much impressed by the sincerity and consistency with which they all argued that their preferred meaning of the UN resolution was understood by the key members of the Security Council (the French and the Russians – understood, it was said, that they had ‘lost’ and that the resolution effectively permitted military action without a further resolution in certain circumstances).  He firmed up his draft advice and gave an opinion in writing that indicated a second resolution was preferable but that he was “prepared to accept” that there was a reasonable argument that proceeding without a second resolution was possible.  Again the issue of who the client was becomes important. As Chilcot notes:

Mr Straw, Mr Hoon, Dr John Reid, Minister without Portfolio, and the Chiefs of Staff had all seen Lord Goldsmith’s advice of 7 March before the No.10 meeting on 11 March, but it is not clear how and when it reached them.

Other Ministers whose responsibilities were directly engaged, including Mr Gordon Brown, the Chancellor of the Exchequer, and Ms Short, the International Development Secretary, and their senior officials, did not see the advice.

It was Lord Goldsmith’s professional obligation to ensure that the client was properly communicated to. As he thought the client was de facto the Prime Minister he would have thought he had discharged that obligation.

Dealing with powerful bosses

The AG had a meeting with the Prime Minister before a meeting with Cabinet was due to take place to receive his advice.  Alistair Campbell’s diaries discuss it:

“[Peter Goldsmith]… had done a long legal opinion and said he did not want TB to present it too positively. He wanted to make it clear he felt there was a reasonable case for war under 1441. There was also a case to be made the other way and a lot would depend on what actually happened. TB also made clear that he did not particularly want Goldsmith to launch a detailed discussion at Cabinet, though it would have to happen at some time, and Ministers would want to cross-examine. With the mood as it was, and with Robin [Cook] and Clare [Short] operating as they were, he knew that if there was any nuance at all, they would be straight out saying the advice was that it was not legal, that the AG was casting doubt on the legal basis for war. Peter Goldsmith was clear that though a lot depended on what happened, he was casting doubt in some circumstances and if Cabinet had to approve the policy of going to war, he had to be able to put the reality to them. Sally [Morgan] said it was for TB to speak to Cabinet, and act on the AG’s advice. He would simply say the advice said there was a reasonable case. The detailed discussion would follow.

This description outlines the way in which Lord Goldsmith is being managed out of the communications with Cabinet and, it seems reasonable to surmise, Goldsmith could see that and was attempting to avoid it. As he changes his position at the end, however, he appears to become more pliant.

The pressure of the situation, how risk and mandate change

Once the military and civil service indicated they needed a clear view as to the legality of proceeding, Lord Goldsmith changed his mind about his preferred view of legality. In the background, negotiations for a second resolution were not going well, although it is not clear from Chilcot that Goldsmith knew they were going to fail.

Lord Goldsmith informed his officials on 13 March that, after further reflection, he had concluded earlier that week that on balance the “better view” was that there was a legal basis for the use of force without a further resolution.

Lord Goldsmith reached this view after he had been asked by both Admiral Boyce and Ms Juliet Wheldon, the Treasury Solicitor, to give a clear-cut answer on whether the “reasonable case” was lawful rather than unlawful.

This view was the basis on which military action was taken.

Mr Martin Hemming had written to Mr Brummell on 12 March stating:

“It is clear that legal controversy will undoubtedly surround the announcement of any decision by the Government to proceed to military action in the absence of the adoption of a further resolution by the UN Security Council. The CDS is naturally concerned to be assured that his order to commit UK Armed Forces to the conflict in such circumstances would be a lawful order by him. I have informed the CDS that if the Attorney General has advised that he is satisfied that the proposed military action by the UK would be in accordance with national and international law, he [CDS] can properly give his order committing UK forces.

…In a minute approved by Lord Goldsmith, Mr Brummell wrote that Lord Goldsmith had told him that:

“… he had been giving further careful consideration to his view of the legal basis for the use of force against Iraq … It was clear … that there was a sound basis for the revival argument in principle …

“The question was whether the conditions for the operation of the revival doctrine applied in this case. The Attorney confirmed that, after further reflection, he had come to the clear view that on balance the better view was that the conditions for the operation of the revival argument were met in this case, i.e. there was a lawful basis for the use of force without a further resolution beyond resolution 1441.”

…Lord Goldsmith told the Inquiry that he had reached his “better view” after he had received a letter from the Ministry of Defence stating that Adm Boyce needed “a yes or no answer” on whether military action would be lawful and, as requested by Sir Andrew Turnbull, a visit from Ms Wheldon asking the same question on behalf of the Civil Service.

Here we see Lord Goldsmith’s position is one of acute difficulty. The Civil Service need to know, they say, that war is legal if they are to lawfully prosecute that war. The only person who can give them that comfort is the Attorney General. He experiences a very human desire to protect them. And his view of the law changes at the same time.  The situation has brought a terrible pressure to bear, and their is no escaping it’s influence.

Lord Goldsmith told the Inquiry that he:

“… very quickly saw that actually this wasn’t satisfactory from their point of view. They deserved more … than my saying there was a reasonable case.

“So, therefore it was important for me to come down clearly on one side of the argument or the other, which is what I proceeded to do.

“… until the Civil Service and the … Services said they wanted this clear view, I was working … I take full responsibility for this, but it was with the approval of my office on the basis that saying there was a reasonable case was a green light. It was sufficient for the Government, and if the Cabinet and, as it turns out, the House of Commons, took the view that it was the right thing to do, then we had done enough to explain what the legal basis was and to justify it.

“But when they came with their request, I then saw that actually that wasn’t fair on them.”

The reluctance to say, “No”

A critical issue is whether this desire for a clear yes or no, and the implications on individual members of the civil service and armed forces, is a relevant factor which should influence his legal opinion. In one sense, the more substantial meaningful sense, the quality of the protection provided by his opinion, the quality of the rule of law, depends upon the Attorney General getting the answer right and putting the consequences of his decision to one side.  He could have said it is the better view that proceeding without a resolution is not legal and that is his No. Another interpretation is that he is being asked to provide comfort, he is the lawyer as an insurance policy. If he says military action is legal then that insures the civil service and the army against criticism (perhaps legal action) for carrying out unlawful orders.  This is why the question of what his mandate is- the specific question he is answering -is, and what his role is, is so important.  Is he an advocate for the view of his client or is he an independent adviser deciding something in a judge-like fashion: the gatekeeper? The problem is picked up by Chilcot in this way:

Asked how the case had suddenly become stronger [for sayng intervention was legal], Lord Goldsmith replied:

“It is the decision you make about it. You make a judgment. You say ‘I’m asked to advise whether there is a reasonable case’, and you examine all the evidence and you say, ‘Yes there is a reasonable case’. You don’t need to go any further, and in that respect, I can see with hindsight, that I was being overly cautious.

“Then somebody says to you, ‘Actually, I don’t want to know whether you say there is a reasonable case, I want to know whether or not you consider that it will be lawful.’

“Well, I regard that as a different question and you then have to answer it.”

At this point, the mandate has changed, the question has narrowed, and with it Goldsmith’s answer has narrowed.  There are plausible reasons for this, in particular, that previous AG’s had given advice based on the reasonable case test. However, having embarked on a more expansive approach to his role, consistent with his prior beliefs; shifting to that narrower approach weakens the independence of the process significantly. An interesting question is whether the way he has engaged in the process and shifted his mandate is sufficiently problematic to mean he should at this point have stepped aside. The political impact of that would have been seismic, and one can well imagine why he would not have done it, but even so – it merits consideration.  Another approach would have been for him to engage fresh eyes and wise counsel – was his view a proper one. There is no sign he did that, but he might have done.  Instead, his previous anxieties about succumbing to the narrow approach are placed to one side. Interestingly, also, at this point he switches more fully into advocacy mode:

Lord Goldsmith was reported to have said that “having decided to come down on one side (1441 is sufficient), he had also decided that in public he needed to explain his case as strongly and unambiguously as possible”.

Is that a fact? The adviser-client, fact-law distinctions that do not hold

We can see in the very human response of Lord Goldsmith to the predicament of the civil servants and the armed forces, that he is well aware of his own agency in deciding the legality of war.  When one talks of ethics with lawyers, an argument that is commonly made is that ethical dilemmas are for clients; a lawyer’s role is simpler. I advise, the lawyer says, and the client decides.  That simplification is rarely as true as it is appealing. A second problem that is raised by the final stages of Lord Goldsmith’s actions is what I am calling the fact-law dichotomy. Here the idea is that the lawyer takes the clients facts as given (unless clearly contradicted) . The lawyer does not adjudicate on the truth of the client’s instructions (the facts they tell the lawyer), they make the client’s case based on the facts they are told.

This idea derives from the adversarial trial, and even there it does not always hold up well, but in the context of a lawyer providing a legal opinion it can be positively dangerous. In a situation where a lawyer knows that his opinion is going to be held up as authorising a controversial act such as war, what obligations are there on lawyers to be sure their facts are good ones?  The position is, I would suggest, somewhat higher than under no obligation whatsoever; and somewhat less than being their sole responsibility.

In perhaps the most jaw-dropping passage of this section of the Chilcot report we learn how Goldsmith dealt with the very important fact of whether Iraq was in material breach. It will be recalled that part of Lord Goldsmith’s view that military action could be legal without a further resolution but that there needed to be significant, compelling evidence of material breach. In his opinion of March 7th he wrote the proposition that law would be lawful would:

“… only be sustainable if there are strong factual grounds for concluding that Iraq has failed to take the final opportunity. In other words, we would need to be able to demonstrate hard evidence of non-compliance and non-co-operation. Given the structure of the resolution as a whole, the views of UNMOVIC and the IAEA will be highly significant in this respect. In the light of the latest reporting by UNMOVIC, you will need to consider extremely carefully whether the evidence … is sufficiently compelling to justify the conclusion that Iraq has failed to take the final opportunity.”

Against such a test, it seems open to the Attorney General to ask for the evidence to be provided and for him to assess it or at least review it. It is, after all, an – no, the – critical step to be taken to assure the legality of military intervention is even arguable. Instead, Lord Goldsmith asked for confirmation of Mr Blair’s view that Iraq had “committed further material breaches as specified in [operative] paragraph 4 of resolution 1441”.  Two civil servants dealt with it.  A Mr Brummell wrote to a Mr Rycroft on 14 March:

“It is an essential part of the legal basis for military action without a further resolution of the Security Council that there is strong evidence that Iraq has failed to comply with and co-operate fully in the implementation of resolution 1441 and has thus failed to take the final opportunity offered by the Security Council in that resolution. The Attorney General understands that it is unequivocally the Prime Minister’s view that Iraq has committed further material breaches as specified in [operative] paragraph 4 of resolution 1441, but as this is a judgement for the Prime Minister, the Attorney would be grateful for confirmation that this is the case.”

In his response on 15 March, Mr Rycroft recorded that it was Mr Blair’s “unequivocal view that Iraq is in further material breach of its obligations, as in OP4 of UNSCR 1441”.

Mr Rycroft replied to Mr Brummell on 15 March:

“This is to confirm that it is indeed the Prime Minister’s unequivocal view that Iraq is in further material breach of its obligations, as in OP4 of UNSCR 1441, because of ‘false statements or omissions in the declarations submitted by Iraq pursuant  to this resolution and failure to comply with, and co-operate fully in the implementation of, this resolution’.”³¹⁰

Lord Goldsmith also described to the Inquiry a briefing from Mr John Scarlett focused on the question of Iraqi compliance:

“… the clear intelligence, the clear advice I was being given by him was that Saddam Hussein in Iraq had not complied with the resolution, not just that there were specific elements of … serious non-co-operation, including, for example, intimidation of potential interviewees …”

Asked what his opinion was on the weight of the intelligence, Lord Goldsmith replied:

“At the end of the day … like any lawyer who is dependent upon the facts from his client – I was dependent upon the assessment by the Government which had all the resources it had … and that was why I particularly wanted to be sure … the week before the events, that the Prime Minister, who did have access to all that information, was of the view that there had been a failure.”

This is the answer of a barrister at the door of the court, with no time to check the facts before he goes into bat for his client. Is it sufficient for the role of Attorney General in circumstances such as these, where the factual issue is absolutely central to his advice?  I do not think so.

Insurance policy and advocate

By the end of the affair, we see the Attorney-General’s culmination of his shift into advocate’s mode.  In presenting his advice to Cabinet and the nation he does not provide his advice, instead, he indicates the legal basis on which he has reached a view that military action is lawful. This is the final, unhappy finessing of his role.  His, then, legal counsellor told the Inquiry:

“He was essentially asserting the Government’s view of the legal position, which was based on his advice … I think that [using the Attorney General to make the public statement on the legal position] may have been a mistake.”

Another witness opined:

“The general practice on other legal issues is that the Attorney does not present the Government’s legal position: that is left to the Minister with policy responsibility for the issue under discussion. That is what was done in relation to Kosovo or Iraq in 1998.”

 

In disclosing his conclusion but not his reasoning and his doubts, there is a risk that he misled Cabinet, or Parliament.  Clare Short, a Cabinet Minister who was sceptical of the War, complained that she had been misled by advice she thought was unequivocal in nature.

Asked for his view on the proposition that there was never a full discussion in Cabinet about his opinion which was “caveated and was finely balanced”, Lord Goldsmith replied that his advice was:

“… caveated in one respect … It takes the central issue of the interpretation of 1441 and identifies that there are two points of view, and then I have come down in favour of one of them.

“The Cabinet, I’m sure knew that there were two points of view because that had been well-travelled in the press. The caveat was you need to be satisfied that there really has been a failure to take the final opportunity. That, of course, was something which was right in the forefront of Cabinet’s mind, I have no doubt, and I’m sure was mentioned by the Prime Minister and the Foreign Secretary and others in the course of the debate. I would expect so.”

In relation to the handling of the Cabinet meeting on the 17 March, Chilcot offers Lord Goldsmith some comfort:

Cabinet was not misled on 17 March and the exchange of letters between the Attorney General’s office and No.10 on 14 and 15 March did not constitute, as suggested to the Inquiry by Ms Short, a “side deal”.

Cabinet was, however, being asked to confirm the decision that the diplomatic process was at an end and that the House of Commons should be asked to endorse the use of military action to enforce Iraq’s compliance. Given the gravity of this decision, Cabinet should have been made aware of the legal uncertainties.

Lord Goldsmith should have been asked to provide written advice which fully reflected the position on 17 March, explained the legal basis on which the UK could take military action and set out the risks of legal challenge.

Some comfort, but the rest is far from satisfactory.

Do GCs on senior management teams make business riskier?

There is a current fondness for arguing that GCs should claim their place at the top table of the World’s corporations.  There are a variety of plausible reasons for making the claim -it may solidify the importance of good governance, it’s a sign of the (in-house) profession’s ascendancy, and/or, it’s a simple necessity for large organisations to have legal brains influencing the major decisions.  There is also one central doubt. That doubt is that a place on the Board may negate the willingness of GCs to do the job they were appointed to do. We could define that job in a number of ways but today let’s keep it to this: they are their to better manage the company’s legal risk.

It is of course really difficult to test out what it really means when a GC get’s promoted to the top table: for them, for their company and for their legal risk culture.  So it was with great interest that I read, The association between corporate general counsel and firm credit risk. It’s a study based on analysis of 9,878 businesses between 1994 and 2013. The essential question asked is whether credit risk ratings and credit default swap spreads (prices) change when GCs are appointed to senior management positions.  Put another way, do credit risk analysts (as ‘experts’) think the appointment of a lawyer to the senior management team reduces or increases credit risk?

This is what they conclude:

Using changes analyses for a sample of firms during the 1994–2013 period, we find that credit rating agencies and CDS investors perceive an increase in GC firms’ credit risk relative to non-GC firms upon appointment of a GC to senior management. We also show that bond market participants respond to appointments in the one- and two-year periods immediately following a GC appointment, suggesting that these participants do not perceive GC firms’ credit risk as increasing slowly over time, but rather relatively quickly.

Their analysis controls for various matters: things like size of firm; leverage; tangible property; changers in income; book value; expected litigation risk; and the like. This is important because, they find that:

GC firm industries exhibit higher credit risk via credit ratings but not CDS spreads. In addition, GC firm industries are composed of firms that are larger, have more leverage and tangible assets, higher profitability, higher stock return and cash flow volatility, a greater (lower) propensity for reporting losses (year-over year increases in income), and a higher entrenchment index. We also include the average annual cumulative abnormal stock return in our industry sample and conclude that GC firm industries exhibit more positive abnormal stock returns compared to non-GC firm industries. Collectively, this descriptive evidence suggests that GC firm industries are comprised of firms with somewhat lower financial stability, but greater stock return potential.

So part of the reasons that GC’s might get appointed to boards is the more volatile nature of the businesses that they are promoted  within, but this – on the data – does not appear to be the only explanation because they control for this kind of industry variation in their analysis. The question is why do those assessing credit risk downgrade credit risk on appointment of a lawyer to the senior management team and why do credit default spreads increase afterwards? The claim of the authors is that the lawyer’s presence at the business’ top table may reduce their appetite for risk control in  favour of business facilitation:

…GCs have begun to assume advisory and entrepreneurial responsibilities within the firm. Recent survey evidence suggests a keen understanding of business management, project management, sales, and marketing are necessary attributes of contemporary GCs (Association for Corporate Counsel, 2015). Ganguin and Bilardello (2005) expand upon this notion by highlighting that firms’ credit risk can be impacted by a reliance on GCs who excessively focus on capital raising, firm restructuring, and firm strategy, as well as GCs who allow the firm to become overly aggressive in dealings with suppliers, customers, and other stakeholders. As the GC takes on these new  responsibilities, he/she is likely to place less of an emphasis on the gatekeeping functions and more of an emphasis on the facilitating functions, thereby potentially reducing the effectiveness of the GC’s internal monitoring.

I confess to being a bit sceptical (in, I should add, a totally uninformed way) of the idea that credit risk raters and buyers of credit default swaps might be sensitive to the appointment of lawyers to senior management. But,the authors of the study cite, “the rating agencies [that] caution that an over reliance on lobbyists or lawyers can create a corporate culture that is overly aggressive.”  They also point to other studies suggesting in-house lawyers can be incentivised towards poorer practice by promotion and the like. I’d be interested in hearing views.

It is worth emphasising also though the authors acknowledged limitations of their study:

we employ an admittedly crude proxy to capture the changing role of GCs within firms, [and so] our measure could suffer from considerable noise. Second, our results may be capturing selection effects rather than treatment effects because the decision to appoint a GC to senior management is a firm choice.

 

So the results are consistent with the weakening of gatekeeping in favour of risky business facilitation, but other things may be going on.  Those other explanations may be alternatives or additional. It is possible, for instance, that a GC promotion is not the moment s/he turns native. Rather it may be a signal (or is read as a signal by credit risk analysts) that there is trouble coming down the pipe or that the business is expanding into choppier waters.