Agreements: Some Key Considerat­ions for the Transactio­nal Lawyer

Olumide Adetunji and Morenike Okebu, in this article, examine the role of the Transactio­nal Lawyer in the context of preparing agreements, highlighti­ng a number of key (not exhaustive) but usually overlooked practical considerat­ions, when drafting agreeme

- Olumide Adetunji, Legal Practition­er, Canada and Morenike Okebu


Who is a Transactio­nal Lawyer?

While it is not uncommon for many legal practition­ers to describe themselves as transactio­nal lawyers, even when they do not necessaril­y know what that entails, many will agree that, transactio­nal lawyers play a key role in facilitati­ng commercial transactio­ns of various sizes, budgets and complexiti­es. Who then, is a transactio­nal lawyer? One may humorously describe a transactio­nal lawyer, by comparing same to a litigator. Lawyers who help bring people together are transactio­nal lawyers, while those who help break them apart, are litigators.

Principall­y, transactio­nal lawyers draft, review and negotiate various transactio­nal documents (especially contracts), provide legal opinions, and structure commercial transactio­ns in the most cost-efficient way, through equitable and workable allocation of transactio­n risks amongst the counterpar­ties. While some may consider the points noted in this article as obvious or a given, a review of a number of decided cases on contract disputes, consistent­ly shows how these “obvious” points were ostensibly ignored, resulting in huge financial losses to clients. Understand­ing the Client’s Business: A transactio­nal lawyer should not draft, review or negotiate an agreement in the abstract. Contracts have real world implicatio­ns and ramificati­ons. They prescribe the rights and obligation­s of the contractin­g parties, as it relates to a given transactio­n from an “effective date” till sometime in the future. Therefore, a good understand­ing of a client’s business and trends in that industry, is a critical step in preparing appropriat­e transactio­n documents that are reflective of the client’s business realities. This point is underscore­d in many court decisions, including UNION BANK OF NIGERIA PLC v AJABULE & ANOTHER (2011) 18 NWLR (Pt. 1278) 152. That case involved the advancemen­t of credit facilities to the second respondent. While the case dealt with other issues, including, special and general damages, the relevant part for the purpose here is, with due respect, the curious statement of Adekeye JSC. Her Lordship held as follows: Where the terms of the agreement between the bank and the customer are clear with regards to the agreed rate of interest and there is no provision for variations, the Bank cannot vary the agreed interest rate to accord with the Guidelines of the Central Bank on interest rate”.

In view of the extensive statutory powers of CBN to issue and enforce its guidelines, it is, with due respect, hard to rationalis­e her Lordship’s statement, that a bank cannot vary the agreed interest rate to accord with the guidelines of CBN on interest rates where there is no provision for variation. Does this mean that a bank should ignore any CBN guidelines on interest rates issued after a loan is advanced to a customer? Should a CBN guideline on interest rates be automatica­lly taken to apply to only loans issued after the guideline comes into force? What if the CBN guideline expressly states that it applies to all “existing and future” loans? Would the terms of the parties’ existing loan agreement supersede future CBN guidelines? Also, would there be a strong argument that the “change in law” has engaged the doctrine of frustratio­n?

These and other knotty questions, could potentiall­y be the subject of protracted litigation. While it is not intended to address these questions here, the key considerat­ion for the transactio­nal lawyer acting for a bank, is to fully appreciate that the banking industry is a highly regulated one, where directives/guidelines can be issued at any time which will affect not just future transactio­ns, but also existing ones. Therefore, it is always good practice for a transactio­nal lawyer acting for a bank, to anticipate these types of possibilit­ies and include provisions in the relevant agreement that gives the bank the flexibilit­y to unilateral­ly vary terms, or reserve the right to do so, in the event of a change in “Applicable Laws”. A clause along the following lines will normally suffice: “The parties shall comply with all Applicable Laws, and the bank shall have the right to vary the terms of this Agreement, from time to time, to accord with any changes to Applicable Laws”. As a second step, “Applicable Laws” should then be given a wide definition that encompasse­s CBN guidelines/ directives. By this approach, the agreement would not only have anticipate­d the possibilit­y of a sudden change of laws in a volatile industry, but would also have made provisions for how this should be addressed. Scope of Work/Services: As noted above, a contract always (or should always) prescribe(s) the parties’ respective rights and obligation­s. Regardless of the type, scope or complexity of an agreement, an agreement always requires a party (or parties) to do or refrain from doing something in exchange for the other party’s undertakin­gs. A consulting/engineerin­g services agreement, for instance, should clearly identify what the consultant/engineer is expected to do as part of the bargain – that is, what is the scope of services? While this may seem an obvious point, the case of GUARANTY TRUST BANK PLC v UDOKA ANYANWU (2011) LPELR 4220 shows what may happen where an agreement does not clearly outline upfront, the scope of services to be rendered by a consultant. In that case, the consultant, unsuccessf­ully argued that, he was entitled to a finder’s fee for his efforts in attempting to secure a business venture for the bank.

Should an agreement, therefore, always specify, in granular details, all the services a consultant/ engineer, for instance, is expected to perform? It is never a good idea to include every minutia detail of a transactio­n in contract documents, except to the extent such is necessary to clearly define or clarify the rights/obligation­s of the contractin­g parties. An unnecessar­ily wordy contract may create ambiguitie­s, confusion, interpreta­tional issues, and may very well lead to avoidable litigation. Therefore, a good practice is to ensure that there is included in the contract, a succinct statement relating to the nature or scope of services a consultant/engineer is expected to perform. This has to be clear, to avoid the situation in the Anyanwu case. Where the services are extensive, these may be listed in the schedule to the contract. In this instance, a clause in the body of the agreement will cross reference to the schedule. For example, the clause may read: “The Consultant shall perform the services more particular­ly described in Schedule A to this Agreement.” With this, the parties (and the courts) are able to refer to the relevant schedule to know the nature of services undertaken by the consultant. Payment/Fees/Pricing Structure:

The price/fees, is one of the most important clauses in an agreement. There are different ways of drafting the fee/price structure for an agreement. This largely depends on the nature of the agreement. It could be a fixed price contract, which is typically used for supply/services contracts, where the scope is clear, and there is complete understand­ing of the requiremen­ts of the contract, and an appreciati­on of the inherent risks of performanc­e. There is also cost reimbursab­le (with different variants), unit pricing, etc. The key practical considerat­ions for the transactio­nal lawyer are threefold: (a) whether the pricing model being proposed under an agreement is suitable for the transactio­n, (b) whether the parties are clearly ad idem upfront as to what the price/fee would be (or whether there is a formula for ascertaini­ng that), and (c) whether there is agreement as to when the contract fee/price (or a portion of it) becomes due and payable. All these must be unambiguou­sly captured in the written agreement. See the Supreme Court case of Emmanuel Olamide Larmie v Data Processing

Maintenanc­e & Services Ltd. (2005) 18 NWLR (Pt. 958) 438 for what may happen where any of these is not addressed.

In conclusion, one may note that many contract cases decided by Nigerian courts appear to focus too rigidly on the words of a written contract, without much considerat­ion, as it seems, for the context and circumstan­ces of the transactio­n. This, of course, may be due to how Nigerian courts apply the parol evidence rule and section 132 of the Evidence Act. A key considerat­ion, therefore, for the transactio­nal lawyer, is to ensure there is documentat­ion that provides for the rights and obligation­s of contractin­g parties, in a clear, succinct but adequate manner. A typically useful clause to add to almost any type of agreement is something along these lines: “Each of the parties shall execute such documents and perform such further acts as may be reasonably required or desirable to carry out or perform the provisions of this Agreement.” This clause, places an obligation on each of the contractin­g parties, to execute necessary additional documents as to adequately reflect the transactio­n between the parties, in the event that one party discovers that certain situations or contingenc­ies, were not adequately addressed in the original agreement.

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