Litigationey
Litigationey
/ˌlɪtɪˈɡeɪʃᵊni/
(Also suish, squabblative (adj.)
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Of a commercial issue, important, basically straightforward but, thanks to the sedimentary interventions of generations of professional advisers, rendered in language so opaque that no-one outside an inner cabal of specialists knows what is really going on. And that inner cabal sure ain’t talking.
“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. Dealers in equity swaps wish them to be not considered stampable investments in shares. Those who truck in collateral like to take it subject to pledge but, at the same time, be free to 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 foxes the taxman can bamboozle a judge.
Thus over time, workaday documents become squabblative because, while the practitioners who propagate them are well-drilled, fluent in these arcane language games and strongly incentivised to maintain the theatre, those who come to them cold — who often hail from the foreign climes of litigation department, bar or bench — are not.
We have remarked before about the differing functions a contract has during its life. Sales, operations, legal and trading — each has its own priorities and private agendas. In peacetime all is well, each has her nibble on the biscuit, passes it on, and eventually the contract winds up signed, filed in a database somewhere and gratefully disregarded. No-one will need to look at it again, short of disaster.
When such a disaster arrives — heaven forfend — the document is exhumed, dusted off and passed to a new constituency who have never seen it before and have little grasp of the etiquette which is meant to accompany its construction: litigators. These agents have yet another purpose and agenda: to wreak havoc. If given half a chance, they will deny utterly the tacit accommodations their commercial cousins made to each other short days ago when the aim of compliant, tax efficient consensus was mutual.
Why anyone would commend her commercial soul to the hands of those who sit upon, or stand before, the King’s Bench is a question best not pondered.
ISDAs come before the courts one at a time. They are exotic specimens, rather like those ghost orchids: retrieved at personal cost from the depths of a sweaty tropical swamp and prone to cause hallucinations among people not ready for them.
Litigation about them is therefore fraught: Rarely do those who argue these cases have any practical sense of what they are or how they work; those adjudicating them 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. To ask a non-specialist parse a flawed asset clause,[2] an Event Determination Date, or even the Notices provisions of an ISDA Master Agreement[3] is to pave the road to confounded disappointment.
There are some cases where the confusion goes deeper: the JC contends that credit default swaps are an intrinsically ambiguous way to address a straightforward problem, as such, are bound to create fear and loathing, and have routinely done this over the thirty years we have known them.
It 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 spent a week in the derivatives business.
- ↑ Metavante v Lehman
- ↑ Greenclose v National Westminster Bank plc