Current Opinion Issues and Trends: Cross-Border Transactions (including The New Revised City of London Law Society Guide to Legal Opinions) Introduction Ettore Santucci, Goodwin Procter Elizabeth A. Leckie, Allen & Overy Elizabeth van Schilfgaarde, NautaDutilh Lenders, borrowers and guarantors are increasingly mixed and matched across jurisdictions. This creates a need for counsel on all sides of the transaction to come to terms with multi-jurisdictional issues around closing opinions. Bar groups in the various jurisdictions have issued guidance on their opinion practice: - Cross-Border Closing Opinions of U.S. Counsel, a report of the Legal Opinions Committee of the ABA Business Law Section (71 Bus. Law. 139 (Winter 2015-2016) (available with other reports and materials useful in opinion practice through the Legal Opinion Resource Center maintained by the ABA Business Law Section Legal Opinions Committee (https://www.americanbar.org/groups/business_law/migrated/tribar.html) - A Guide to the questions to be addressed when providing opinion letters on English law in financial transactions, a report of the Financial Law Committee of the City of London Law Society (http://www.citysolicitors.org.uk/attachments/article/121/clls%20- %20Issues%20to%20consider%20when%20providing%20opinion%20letters%20- %20update%20-%2019%2009%202017.pdf ) - Third Party Opinions On Foreign Law Documents: TOROG Recommended Language, a report by the Toronto Opinions Group (http://www.slaw.ca/torogmemos/) - On Opinions A Concise Guide to Drafting and Evaluating Dutch Law Legal Opinions by Jan Marten van Dijk. and yet opinion discussions are still unnecessarily acrimonious and outcomes too often lack consistency. The Golden Rule and cross-border practice the ABA Report s guidance The Golden Rule does not translate easily to cross-border opinion giving where opinion givers and recipients counsel practice in different legal systems with different rules of professional conduct and opinion practices. Suggestion: engage with local counsel and map coverage of cross-jurisdictional issues (need not be through third-party opinions) before drilling down on opinion language.
Suggestions for adapting the Golden Rule to the cross-border context: - customary practice in the jurisdiction of the opinion giver must control no exceptions. - the cost of preparing each opinion requested must be justified by its benefit to the recipient in the specific transaction. - a non-u.s. recipient should not insist on receiving an opinion from U.S. counsel simply because U.S. lawyers give it in domestic U.S. transactions if it is not regularly requested or given in the foreign jurisdiction (e.g., English banks and no breach/default opinion). - a closing opinion is not a bargaining chip in an economic exchange (gaps happen). - U.S. counsel can and will rely on commonly-used language for which U.S. customary practice supplies a well-understood meaning ( customary usage ). - an opinion is a lawyer s professional judgment on specific legal issues and the recipient should not expect confirmations of factual, rather than legal, matters or statements about knowledge of acts or events. Amended City of London Law Society s Guide s discussion of the Golden Rule The Golden Rule may appear difficult to apply in cross-border transactions where, for instance, a U.S. law firm may ask an English law firm to give an opinion letter in wider terms than is normal under English practice because the U.S. law firm would be willing to provide an opinion if the roles were reversed. There is a significant difference of practice between the U.S. and England: - in a U.S. financial transaction (whether domestic or cross-border) borrower s counsel is expected to provide an enforceability opinion - this is contrary to the English practice where the opinion is normally given by the lender s own legal advisers. The opinion letter should be given by reference to the practice generally applicable in the jurisdiction whose law is the subject of the opinion. Where the transaction involves documents governed by two or more jurisdictions, it does not follow that the same approach must necessarily apply to all legal opinions: - if a transaction includes a loan agreement governed by New York law and a guarantee governed by English law, the New York legal opinion would follow the normal practice applicable in New York and the English legal opinion would follow the normal practice applicable in England - the terms of the English law opinion should be complete and self-reliant, since we are not aware of any reported English case law on the question whether it is possible to rely on customary practice being implied into an English opinion letter. 2
English law opinions practice is based on the expectation that, under the normal solicitorclient relationship, a law firm acting for one party will not be requested to provide an opinion letter to the other party to the transaction where that party is being separately advised third-party opinions are warranted only in limited circumstances. Exceptions to this general expectation: - if one party requires an opinion letter only on the capacity and authority of the other party to enter into the transaction documents, it may in certain cases be most cost efficient for the law firm acting for the other party (or its in-house lawyer) to provide it - it may sometimes be appropriate for the law firm that drafted certain types of documents to opine on their validity in order to avoid disproportionate costs otherwise involved if another law firm had to do so Enforceability opinions: English rule or U.S. rule? In the cross-border context the old practice was for U.S. and English lenders to ask borrower s counsel to give some form of enforceability opinion on foreign law documents - an example of such request may be as follows: Each of the Documents to which a foreign obligor is a party constitutes a valid, legally binding and enforceable obligation of such obligor in accordance with its terms and would be so treated in the courts of [local jurisdiction] and each of the Documents is in proper form for its enforcement in such courts. The 1987 IBA report (see International Bar Association Project on Legal Opinions in International Business Transactions by M. Gruson and S. Hutter (http://scholarship.law.upenn.edu/cgi/viewcontent.cgi?article=1613&context=jil)) created a great deal of confusion on enforceability opinions on documents governed by a law different from the law covered by the opinion. The ABA report takes a strong position against requesting and giving as if remedies opinions in cross-border transactions. Practice in Continental Europe has steadily moved away from giving these opinions. Opinions on domestic taxation of and regulatory requirements for foreign lenders Which opinion requests are appropriate? Which ones are overbroad and should be covered by advice from the lender s own counsel? Sample English lender s requests of non-english counsel: Taxes: All payments due from the [local law] Obligor under the Documents may be made free and clear of and without deduction or withholding for or on account of any Tax in [jurisdiction]. 3
Registration: [Except for [please specify]], it is not necessary or advisable to file, register, record in any public place or elsewhere in [jurisdiction] or notarise any of the Documents. Stamp duties: No stamp, registration or similar tax or charge is payable in [jurisdiction] in respect of any Document. No adverse consequences: (i) it is not necessary under the laws of [jurisdiction] in order to enable any Finance Party to enforce its rights under the Documents or by reason of its entry into the Documents or the performance by it of its obligations under the Documents, that any Finance Party should be licensed, qualified or otherwise entitled to carry on business in [jurisdiction]; and (ii) no Finance Party is or will be deemed to be resident, domiciled or carrying on business in [jurisdiction] by reason only of its entry into, performance and/or enforcement of any Document. Sample New York lender s requests of non-u.s. counsel: Taxes: All amounts payable under the Documents may be made free and clear of and without deduction for or on account of any taxes imposed, assessed or levied by [local jurisdiction] or any authority thereof or therein[ except for [insert applicable taxes]]. Stamp duties: No stamp or registration duty or similar taxes or charges are payable in [local jurisdiction] in respect of the Documents [except for [insert applicable taxes or charges]]. No adverse consequences: Under the laws of [local jurisdiction], none of the Collateral Agent or the Secured Creditors will be deemed to be resident, domiciled or carrying on any commercial activity in [local jurisdiction] or subject to any [local jurisdiction] tax as a result of its entry into the Documents or the performance of any of the transactions contemplated thereby. Qualification to do business: It is not necessary for the Collateral Agent or the Secured Parties to be authorized or qualified to carry on business in [local jurisdiction] or to establish a place of business in [local jurisdiction] for their entry into or performance of the Documents Sample language from ABA Report: Lender is not required to qualify to do business as a foreign corporation in [STATE] solely by reason of its execution and delivery of the Documents and consummation on the date of this letter of the transactions contemplated by the Documents. 4
Choice of law, forum selection and enforcement of foreign judgments Choice of law, forum selection and recognition/enforcement of foreign judgements are foundational opinions in cross-border practice. If they can be given, doing so makes as if enforceability opinions irrelevant, thus removing a powerful irritant in cross-jurisdictional discussions. Sample English lender s requests of non-english counsel: Governing law: The Obligor's irrevocable submission under the Documents to the jurisdiction of the courts of England [and [jurisdiction]] and agreement that each English Law Document is governed by English law is legal, valid, binding and enforceable under the laws of [jurisdiction]; Enforcement: Any judgment obtained in England will be recognised and be enforceable by the courts of [jurisdiction] without retrial or further review on its merits and each of the Documents is in proper form for its enforcement in the courts of [jurisdiction]. Sample New York lender s requests of non-u.s. counsel: The choice of [local jurisdiction] law as the governing law of the Documents would be upheld as a valid choice of law by the courts of [local jurisdiction] and will be accepted and applied by such courts in proceedings relating to the Documents. The submission to jurisdiction by the foreign obligor contained in the Documents is valid and binding on such party and not subject to revocation. A judgment obtained against the foreign obligor in the courts of [New York] in respect of the Documents would be enforced by the courts of [local jurisdiction] without re-examination of the merits of the case. Some challenges for U.S. lawyers: e.g., New York law vs. the Restatement approach with respect to outbound choice of law. Sample language from ABA Report (assumes the covered law state is a Restatement State): Under the law of [COVERED LAW STATE], the choice of the law of [FOREIGN COUNTRY] in the Agreement is valid except to the extent that giving effect to the law of [FOREIGN COUNTRY] would violate a fundamental policy of (i) the jurisdiction whose law is covered by this opinion letter or (ii) any other jurisdiction having a materially greater interest than [FOREIGN COUNTRY] in the determination of the issue, if the law of that jurisdiction would 5
apply to the Agreement or any of its provisions in the absence of a governing law clause. The Company s agreement in Section of the Agreement [to submit to the non-exclusive jurisdiction of the courts of [FOREIGN LAW COUNTRY]] OR [that the courts of [FOREIGN COUNTRY] shall have exclusive jurisdiction] is valid and enforceable under the law of [COVERED LAW STATE] for actions relating to contract claims arising under the Agreement [if exclusive forum selection: except to the extent that a court may decline to give effect to the forum selection clause because enforcement would be unreasonable or unjust under the principles enunciated in the decision of the U.S. Supreme Court in M/S Bremen & Unterweser Reederel, GmbH v. Zapata Off-Shore Co., 402 U.S. 1 (1972) and in related cases, including that it would contravene a strong public policy of [COVERED LAW STATE]. To the extent that it relates to contract claims arising under the Agreement, a final and conclusive judgment granting or denying recovery of a sum of money, other than a judgment for taxes, a fine or other penalty, rendered by a court of [FOREIGN COUNTRY] against the Company that is enforceable in [FOREIGN COUNTRY] will be recognized as valid and enforced under the law of [COVERED LAW STATE] by the courts of [COVERED LAW STATE] or by United States federal courts having jurisdiction and applying the law of [COVERED LAW STATE], without a re-examination of the substantive issues underlying the judgment, subject to (i) grounds for non-recognition and exceptions to enforcement set forth in the Uniform Foreign Money-Judgments Recognition Act as adopted in [COVERED LAW STATE] (the Act )[which include, but are not limited to, ] and (ii) the court s power to stay proceedings to enforce a foreign judgment pending determination of any appeal or until the expiration of time sufficient to enable the defendant to prosecute an appeal. [This opinion is based on the assumption that the law of [FOREIGN COUNTRY] requires a court of competent jurisdiction in [FOREIGN COUNTRY], in a reciprocal manner, to recognize and enforce a final and conclusive judgment of a court of [COVERED LAW STATE] without reconsideration of the merits.] Due diligence confirmations In house bank counsel in many jurisdictions (not just for the arranger/agent, but also for the syndicate members) have their own mandatory opinion checklists BUT - when you are given a list of requested opinions, it may come from a jurisdiction where it is customary for lawyers to give opinions to their own client, not to counterparties - sometimes items on the list are understood to be in the nature of due diligence requests and can be satisfied other than with a third-party legal opinion 6
- don t be afraid to probe, because practice in Canada, England and Continental Europe differs in important ways when requested opinions cross over into due diligence territory (for example no default, no insolvency proceedings, no litigation, etc): o o o official government records may certify significantly more about corporate entities than in the U.S., so explain what can/cannot be done under U.S. law notaries may be responsible for checking the box on many legal matters that in the U.S. are ( or are not ) covered by third-party closing opinions the federal/state law dichotomy may not exist, making the coverage limitations of U.S. opinions mystifying to the recipient - non-u.s. recipients may not understand that in the U.S. opinion givers rely on customary practice (both customary diligence and customary usage), which is understood to apply to all third-party closing opinions (whether or not expressly stated) -- remind them. Sample diligence-like English lender s requests of non-english counsel that should not be included in a U.S. counsel opinion: Insolvency matters: So far as we are aware after due enquiry, no step has been or is being taken to [appoint a receiver/administrator/liquidator/similar insolvency representative in respect of] [the/any] [local law] Obligor or any of its assets]; Title to assets: [insert any opinion which can be given as to the ownership of the assets of the obligor being charged e.g. where a public register or other documentation can be searched to confirm title to land or other assets]. Pari passu ranking: The obligations of the [local law] Obligor under the Documents, to the extent unsecured, rank and will rank at least pari passu with all its other unsecured obligations. Sample diligence-like New York lender s requests of non-u.s. counsel: No suits, actions or proceedings are pending or threatened in any [local jurisdiction] court or governmental body with respect to any Document or the foreign obligor that are reasonably likely to have a Material Adverse Effect. The foreign obligor has valid legal title to the property, assets and rights over which the Foreign Security Documents create a security interest. 7
Sovereign immunity Sample English lender s requests of non-english counsel: (i) The entry into and performance by the Obligor of each Document to which it is a party constitutes its private and commercial acts for private and commercial purposes; and (ii) the Obligor will not be entitled to claim immunity from suit, execution, attachment or other legal process in any proceedings taken in [jurisdiction] in relation to the Documents. Sample language from ABA Report: Neither [U.S. PARTY] nor its assets are immune on grounds of sovereign immunity from (i) suit in connection with the Agreement in the courts in [COVERED LAW STATE] [or United States federal courts] or (ii) related legal process, including service of process, attachment of assets, or enforcement by those courts of a judgment against the Company related to the Agreement. EU Bail-in exception Sample language using defined terms from the LSTA Variant of the Contractual Recognition Provisions with respect to the EU Bail-In Rules (see clause (d)(iii) of the definition of Defaulting Lender, as modified, in the LSTA Variant; see also LMA Guidelines: Alternative formulation We express no opinion with respect to Section [reference Bail-In contractual recognition provision] of the Credit Agreement. Without limiting the preceding sentence, we express no opinion with respect to the enforceability of the Loan Parties obligations under the Credit and Security Documents owed to, or for the benefit of, a Lender that becomes the subject of a [Bail-In Action]. We express no opinion as to, or as to the effect on the opinions contained in this opinion letter of any provision that consents to, or acknowledges or waives the effect of any bail-in action relating to any European Economic Area financial institution. Hague Securities Convention Prevailing practice seems to be to exclude coverage of the Hague Convention, except in situations where intermediated securities are central to the transaction. If the Hague Convention is covered, the opinion is ordinarily limited by a number of significant assumptions relating to the securities intermediary, the securities account over which a security interest is to be perfected, and the transaction as a whole. 8