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Beware the Legal Precedent

Any legal tech company or firm that tries to systematize legal agreements have faced the challenge of finding that perfect agreement as the precedent for automation. That perfect agreement, be it shareholder agreement, employment agreements, or a master service agreement that all lawyers can agree on, that will be the perfect epitome of that agreement. Without such a thing, firms and legal technology companies alike are left with little hope of standardizing and automating a key legal task: the drafting of legal agreements.

There are many reasons law firms and legal tech companies would want to identify a model agreement: such an agreement will help produce consistent deliverables by lawyers; it would also ensure the incorporation of legal changes into all agreements without worries about a lawyer forgetting to integrate a new legislative change or legal decision into their agreement.

A model agreement can cross-reference to ensure that deletions to paragraphs will then automatically re-number paragraphs instead of lawyers spending high value time drafting and correcting the agreement. It can also ensure that client-specific references are clean, and that meta data is removed to avoid inadvertent mistakes. In other words, model agreements can mitigate errors – and liability – for the firm or lawyers.

However, one would be naïve to think that law firms have masses of lawyers working together to leverage technologies that will allow them to achieve such amazing results. In reality, the law firm precedent can be a costly expense that, at the end of the day, is not utilized. Indeed, senior lawyers will thwart the efforts of firms to standardize and systemize agreements, and advise young lawyers to avoid using these systems, I have experienced this. In other cases, technologies purchased by firms end up shelved to collect dust.

Many cynics I have heard say that lawyers do not want to adopt and use these technologies because they can bill more if they don’t use them. I have also heard that increasingly, clients are not agreeing to pay large amounts of money for bespoke agreements that are readily available via a Google search that they feel could be easily modified for their own purposes. Eventually one of these voices will prevail.

If lawyers cannot even come to consensus over process and precedents within the firm, then what do you think happens between lawyers? Without agreement on what the agreement should contain generally, it becomes an opportunity for two lawyers to go into a tailspin over what terms should or should not be included. Lawyer showboating can often ensue just to show to their client that they have more acumen and valuable knowledge than their opponent. In the end, the person who suffers is the client, none of whom feel they have received much value in this back-and-forth battle of legal wits.

Now let’s consider a precedent generated through software. Imagine you are a lawyer who uses said precedent from a technology company, and the lawyer on the other side says this precedent is wrong or deficient. How do you know if it is true or just a lawyer attempting to show you up? Undoubtedly, younger lawyers will feel concerned in their dealings with senior lawyers generally, and if the senior lawyer shows shade on their precedent then doubly so, especially if the senior lawyer is from a large firm. As a result, the young lawyer may cease to use the software, even if the senior lawyer is just showboating.

In an attempt to automate or systematize the drafting of legal agreements, even the best software will run into the problem of finding that elusive legal tech precedent. I wonder how many legal technology companies have thrown up their hands in frustration and given up trying to do so? If tech companies decide to sell directly to the public, then it is just an opportunity for lawyers to poo-poo the software precedent provided by their client, and the software company often times has little chance to defend itself.

The only times I have seen a precedent agreement work is when it is taken out of the hands of lawyers. For example, the Ontario Real Estate Association (OREA) precedent agreement of purchase and sale (I wonder how much easier real estate transactions became when the industry settled on a particular agreement?), or the Canadian Construction Documents Committee (CCDC)’s consensus-based construction industry documents. In the future, maybe this problem will cease to exist with the proliferation of blockchain smart contract applications. In the interim, I weep for the many legal tech companies and knowledge management groups who face the challenges and the bane of the law tech precedent agreement.

Comments

  1. Very interesting, Monica. Certainly industry-adopted standard models are enormously helpful. In the not-too-distant past, legal stationers like Dye & Durham and Newsome & Gilbert provided precedents for a number of documents, notably including real estate transfers, and they worked pretty well. I knew a senior practitioner who vastly preferred those printed forms to the typed-up law firm versions, especially since he could see the amendments proposed to the printed form and could deal with them without having to read the rest of the document, which he knew well. With a firm’s own document, he would have to read every line to make sure he was comfortable with the content.

    I am not sure why the blockchain would make a difference to the problem you mention, however. The blockchain can provide a trustworthy record of transactions, and it can suport self-execution of certain provisions once events have occurred (either actions of a party or third-party activity) that justify the execution.

    But the content of the provisions that are self-executing must still be agreed between the parties first. It is the contents that vary from firm to firm, and the blockchain does not get invoked until there is agreement on what it should do and when.

    My Smart Contracts column here did not address the blockchain in any detail, but its operation (if it can be usefully referred to as a singular) could raise some of the concerns expressed there about what might go wrong in a contract that technology alone could not address.

    Can the blockchain advocates in this forum (including Monica, of course) show me what I may be missing that Monica has recognized?

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