Litigationey
Litigationey
/ˌlɪtɪˈɡeɪʃᵊni/
(Also suish, squabblative (adj.)
Of a commercial issue, important, basically straightforward, but thanks to the intervention of professional advisers, accreted over the ages and rendered in language so opaque that no-one outside the inner cabal knows what is really going on. And that inner cabal sure ain’t talking.
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“Litigationey” often describes commercial undertakings predicated on some kind of “plausible deniability” — contractual arrangements which rather wish they were, or looked like, something else.
For example, it is important to those who sell credit default swaps that they should not be mistaken for insurance contracts. Those who deal in equity swaps don’t with them to be considered stampable investments in shares. Those who truck in collateral like to take things subject to pledge but at the same time give it away.
These fictions are loosely based on true stories — they are well-meant — but in their dramatic sweep they oblige practitioners to dissemble — to affect silly walks, use secret handshakes and invent elliptical ways of describing mundane things, all in the service of not uttering inconvenient realities. Of course, the same circumlocution that placates a taxman can bamboozle a judge.
These documents become squabblative because, while the practitioners who propagate them are well-drilled, fluent and strongly incentivised to maintain their theatre, those who come to regard them in the litigation department, at the bar and on the bench are not.
We have remarked before about the differing functions a contract has during its lifecycle, for sales, operations and trading departments. When a commercial accord reaches cataclysm, the parties find a different purpose again: to deny utterly the tacit accommodations they made each other in fair times when the goal of reaching compliant and tax efficient consensus was mutual.
This is the great disadvantage of hindsight: how we are goaded to forget. But litigation advisers don’t have even that much incentive, and none of the practical experience.
ISDAs come before the courts one at a time. They are exotic specimens, rather like those ghost orchids retrieved from the sweaty depths of a tropical swamp that are prone to cause hallucinations. Litigation about them is fraught: it is usually obvious that no-one conducting arguments has much of a sense of what they are or how they work; those adjudicating certainly don’t.[1]
And here ISDA’s crack drafting squad™’s vernacular plays into the hands of caprice and obstrepereity. That squaddish left-handedness cries out to be misunderstood. Just try asking a non-specialist parse a flawed asset clause,[2] an Event Determination Date, or even the Notices provisions of an ISDA Master Agreement.[3]
There are some cases where the confusion goes deeper: the JC contend that credit default swaps are an intrinsically ambiguous way to address a straightforward problem and, as such, are bound to create fear and loathing.
But this all adds to the JC’s mounting, great conspiracy theory that the whole the financial services industry, and perhaps even commerce itself, is really a perpetual motion machine devised by the various guilds of professional advisers for the sole purpose of extracting rent from it.
See also
References
- ↑ Marine Trade v Pioneer is a great example. The outcome — fortunately now overruled — is just patently absurd to anyone who has spend a week in the derivatives business.
- ↑ Metavante v Lehman
- ↑ Greenclose v National Westminster Bank plc