April 21st, 2021
by Jeremy Young

As an IT professional, I know that the best code I can develop for the company will be as obvious and simple as possible, so that other developers can understand and maintain it with ease. And having started my working career in a heavily sales-oriented organisation, I also understand the pressure that back-office staff can be under to assist the front-office to achieve their sales targets.

But the LIKEZERO contract digitisation process lays bare the many different ways that lawyers find to say the same thing on the one hand, and, on the other, where they have jumped through hoops to placate the front-office with little consideration for whether the resultant contract will ever be capable of being represented in a computer system.

Schools have had the facility for many years to produce reports for their pupils which have texts sourced from a “comment bank”. Occasionally things go awry and Fred’s parents get the excellent news of how well Johnny is doing! But at least the Head Teacher can be reasonably sure that the message is approved and written in faultless English! There are only so many things that you can say in a school report: it is not necessary for each teacher to write their own version.

The same is true, for example, in investment banking. The content of a standard, transactional contract such as a Credit Support Annex cannot have any more options/variations than are permitted by the back-office systems which record the agreement and which the company relies on to process transactions, respond to external events and manage cashflow and risk.

Why on earth would you want any creative input into that process? If I want to be creative, I put my computer away and go weld my car! (It’s an Alfa Romeo, so lots of scope there!) When I did my law degree in the 1980s, we still had lecturers who extolled the virtue of writing contracts without punctuation, so that it was unclear what the precise meaning was, leaving wiggle-room to argue about in court. Of course we have moved on from there too!

The answer will be Smart Contracts where the text of a term is bound up with the data which it represents. The “blue-sky” vision is of the ability for companies to exchange standardised electronic messages that can be lodged in a smart repository which in turn responds to external events and automatically emits margin calls or other transactional items.

That’s a way off! It would be a good first step if the body of content that a company approves for use in its contracts were sourced from a repository. It would avoid the situation we recently witnessed on a LIKEZERO project where the same Governing Law term was expressed in more than 700 different ways! It would also mean that the text would be precise and clear, and that the data points that need to find their way into computer systems would be assured.

The path through the contract – which customer/product combinations permit which terms, and which terms are permissible based on decisions about earlier terms – is nothing more than a “decision-tree on steroids”. If the complexity of that logic is such that it is not easy to define, then you are in danger of failing the requirement that I stated in my opening sentence…keep it simple!

Often clients come to us, rather than the lawyer, when they realise that they need help to understand what is in their contracts. A ‘Smart Lawyer’ should be thinking now about what they do when they put a contract together, and how that process could be standardised and automated.

In this day and age, lawyers should not be writing these contracts. They should be configuring systems – with beautifully crafted text where appropriate – and defining feedback and control points. If the currently available systems do not permit this – and I believe they don’t come close: not in usability, nor connectivity nor functionality – then lawyers have the right to be demanding better!

Maybe they also worry that setting up the initial corpus of terms and combinations would be too difficult. Of course, constructing that from an existing body of contracts is a good place to start.