THE ROLE OF THE LAWYER IN THE INTERNATIONAL DEBT OPERATIONS OF DEVELOPING COUNTRIES
by Professor Daniel D. Bradlow
(Article Reference: Document No.6, July 1999)

III. The Stages of a Debt Transaction and the Role of the Lawyer (continued)

E. Implementation
Once the conditions precedent to loan effectiveness have been satisfied, the loan is ready to be executed and the borrower can access the funds.

It is important to note that one of the conditions precedent will be the issuance of legal opinion letters. These letters, the terms of which will have been carefully negotiated by the borrower and the lenders, will usually require competent legal counsel, inter alia the borrower's counsel and the lender's local counsel, to opine that the loan agreement is a legally valid, binding and enforceable agreement. In giving this opinion, the borrower's legal counsel will need to determine that the agreement is consistent with the existing commitments of the borrower; that the borrower has the legal capacity to enter into the transaction; that it has complied with all the procedural requirements for it to enter into this binding agreement; and that there are no existing laws or rules that are inconsistent with the terms of the agreement or that may render the agreement unenforceable. In determining that he/she can issue this opinion, the lawyer will need to carefully research the borrower's existing agreements and the applicable law. Failure to do so will increase the risk of issuing a flawed opinion letter and may render the lawyer vulnerable to claims of malpractice or to serious damage to his/her professional reputation.

The consequence of the lender receiving an inaccurate opinion letter may be that the borrower will later be stopped from denying the validity and enforceability of the loan agreement. Consequently, it is in the borrower's interest that the lawyer exercise great care before issuing the opinion letter and that he/she refuses to issue any opinion letter which he/she cannot confidently state is accurate. This means that the borrower and its lawyer should pay great attention to the terms of the opinion letter during the negotiation of the loan agreement.

After the loan becomes effective, the lawyer plays a limed role during the implementation phase. If the implementation of the agreement proceeds as envisaged, the lawyer may only be called upon, from time to time, to interpret specific provisions of the loan contract.

If the implementation of the agreement does not proceed as planned, the lawyer's role may become more significant. In this case the lawyer may be called on to perform the traditional lawyering function of representing the borrower in a dispute. This may involve defending the borrower in a court action or helping it negotiate a settlement before the matter reaches the court.

In this regard it is useful to remember that a well drafted agreement should cover as many of the possible issues that can arise over the course of the agreement as possible and should determine how these issues are to be resolved. In this limited sense, any issue that results in a dispute that could lead to litigation can be seen as a failure of the drafting process.


IV. Conclusion

A lawyer who is well versed in financial law and who has a good understanding of financial transactions can play a constructive role at each stage of the loan transaction. Borrowers who allow lawyers to function as fully fledged members of their negotiating teams will find that the value the lawyer can add to the debt team will exceed the cost, both in money terms and in terms of the difficult issues that the lawyer might raise in the course of the structuring and negotiating of the transaction. Any borrower who doubts this should take note of the fact that its creditors almost always come to the negotiating table with their own lawyers. If there is no lawyer on the borrower's side, the borrower will be forced to defer to the lender's lawyer on all legal issues that may arise in the course of the negotiating and drafting of their loan agreement. - End of Chapter 2

>> Previous Page | Back to Summary | Go to: Chapter 1 | Communique