Legal opinion

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Legal opinion
/ˈliːɡəl əˈpɪnjən/ (n.)
1. A long and detailed disclaimer of its own liability which a law firm will charge you handsomely for preparing.

2. A document designed to achieve exactly the opposite effect to the one its addressee anticipates, in that it carries as little by way of meaningful existential content as possible, while being as comprehensive, categorical and absolute as it can be about what it is not saying. Which is, more or less, everything.

This is typical of the sum total of the positive statement of the law you find in a legal opinion:

(Subject always to the qualifications, assumptions and caveats set out on pages 4-85)[1], this agreement is enforceable in accordance with its terms.

Which is a lawyer’s way of saying “Brexit means Brexit”. Should the agreement your solicitor has prepared for you make no sense whatsoever; if it is plainly impossible for an ordinary Englishman to divine the merchants’ commercial consensus no matter how carefully one examines the text — hardly an inconceivable contingency when that agreement was drawn up by a lawyer — then your expensively wrangled opinion does no more than verify that sorry state of affairs.

From the Jolly Contrarian’s stock of old adages that might not mean very much: “A legal opinion is just an onion with pi in it.”

So what are legal opinions for?

There are certain matters that regulation, or some senior, uninformed person in credit risk management once wanted to be told in black and white, and around which a markedly formal practice has evolved: the “opinion” has long since evolved away from “legal advice” in the broad sense of — well, telling your clients what is and is not a prudent thing to do — to be a formal, limited, crafted statement that addresses a specific, purely legal, arcanity. The classics are the effectiveness of close-out netting — here Basel regulation mandates a lengthily reasoned legal opinion (in fact, several) — the effectiveness of security (security being one of those things beset with tripwires and magic words) and the effectiveness of paperwork constituting transferable securities (also something considered to have a high degree of muggle-ineffability).

They will not address matters of fact — so you will find counsel drawing petulant distinctions between whether a “derivative” is a qualifying investment for a given issuer, and whether the contract you have identified, which calls itself “a derivative”, is documented under ISDA and so forth, is in fact what it says it is — nor matters of foreign law, in which the legal eagle in question has no mandate to express any opinion.

Obligations binding representations

You may see assiduous types striking out a representation or warranty that its own contractual obligations are “legal, valid, binding and enforceable in accordance with their terms”.

The grounds for resisting such an obvious and evidently harmless statement will be the technical one that “the question of whether a contract is enforceable or not is one of law, not fact, and therefore is a fit subject for a legal opinion, not a factual representation. I, the client, on whom this contract will — or, who knows? will not — be binding, am not qualified to opine on that.

Phooey and nonsense.

When she deals, a merchant takes outright ownership of her business affairs. This includes their legal consequences. She takes legally significant actions all day, on every day. We all do. She may be advised by her lawyers, on especially tricky ones, when she does, but the statement that a merchant who stands ready to take the undeniable value presented to her a new contract, but is not prepared to swear on her mother’s favourite cotton jumper that the obligations she is promising to give in return for that benefit — you know, literally promising to give — will be enforceable to the full extent of the law, is patently absurd.

The now, and the future

It should be obvious, upon an instant’s reflection, that a legal opinion is a necessarily historical document. From the moment the ink is wet, it addresses the forensic configuration of the world as it found it, as it was in the days and weeks leading up to its execution. It is a snapshot. It cannot help you with what the law might be tomorrow.

And while our lecturers exhort us that a key feature of a functioning legal system is certainty, it cannot be denied that laws, precedents, conventions and customs of the market have the habit of changing. A legal opinion issued last week is no good to you should the law be changed today. An opinion gives bestows mental peace that all is well up until the point you ink your deal; once you leave and strike out into the blustery plazas of tomorrow, you are on your own.

The reason is obvious: legal eagles are deeply qualified, experienced, sober, sensible, analytical folk: they deal with what they know, what they can see and what has happened. They are not fortune-tellers. But lawmakers are often none of these things. Who knows what madness the estates of sovereign government will rain upon our heads tomorrow?

Not is this a fancy concern. The netting opinion — a regulatory staple that propels a hundred-million dollar industry — addresses the capital treatment of your swaps against a counterparty should it, in the future, fail based on the insolvency and resolution laws pertaining to it now. But not only are these laws prone to change in the meantime — obliging you to keep your opinion updated, hence the industry — but they are most likely to change at the exact moment a systemically important institution is changing. Congress enacted TARP. The Swiss confederation rewrote its insolvency laws over the weekend

See also


  1. And Schedule 3, and the four appendices to our letter of engagement for that matter.