Tuesday, October 13, 2009

The "Retainer Agreement" - Say It Like It Is

My poor little office is becoming more and more like a museum with each passing hour. One can almost hear the dust collecting. After a dearth of activity in the past week (in which I diluted my income tax payable only by enlarging upon my tax deductible expenses - a replacement cheque writer), I had hoped that an improving Thanksgiving Dinner would have spurred my existing clientele to action; but, alas, I have done little more this morning than rearrange my collection of historical agenda (I have saved every one of them for the past thirty-three years except 2006 for some strange reason). Oh, and I also changed a light bulb and called a roofing contractor to see about repairing some eaves trough ruined by vandals on the weekend. My bank account (which I regularly check, about as often as I do my email) resonates with the same inactivity as my own business. Even sizeable trust cheques which I have written and sent to deserving Beneficiaries of the Deceased have not being cashed (or, at the very least, the bank employees are not posting the activity). One more reason to assuage my paranoia and accept that the current famine is universal.

At the tail end of last week my business sense was once again put to the test; that is, my instincts were challenged. On the face of it, the proposed retainer was the sale of a business. Turns out, however, that the immediate thrust of the transaction was the bridge financing of an unrelated project, to be secured by the proceeds from the business sale. When I pointed out to the banker that I was missing the salient element of the business sale - namely, the Agreement of Purchase and Sale - the proposal seemed to collapse, at least temporarily I thought. Not wishing to assume the fate of the messenger bearing bad news, I declined the invitation from the banker, who after all was behind the bridge financing plan. That was the last I heard of it (except the Client’s departing words after our first unscheduled meeting that he didn’t want a lot of paper). Two days later I received a call from the Solicitor for the purchaser. Several important features arose from that telephone conversation. First (and perhaps most telling), the banker’s direction for repayment of the loan from the sale proceeds of the business had been rerouted to the purchaser’s Solicitor, an odd and cavalier circumstance when you examine it. I let it ride for the time being. Second, the other Solicitor had undertaken further investigation of the business transaction with the vendor’s Accountant, and it transpires that what is involved is a Section 85 Rollover (whereby the assets of the existing business are transferred to a new corporation - to be incorporated - in exchange for preference shares) and then the common shares of the new corporation are to be transferred to the purchaser. This not only significantly enlarged upon the scope of the retainer (which the vendor had originally characterized as a simple deal, already "written up" by the Parties), but also importantly raised other tax issues such as Land Transfer Tax and Goods and Services Tax (not to mention the obvious capital gains tax) payable upon the value of the assets being transferred from the vendor to the corporation. Third, when I later talked to my Client about these matters, the matter of the closing date arose. I had already mentioned to my Client at our initial peremptory meeting that I would be absent from the jurisdiction for the first two weeks of January, when my Client proposed to close the deal. After some further discussion of the matter (which precipitated another slur from my Client about the abundance of paper which lawyers employ only to protect themselves - which he personified by reference to our collective posterior), and when in answer to his pointed question I confirmed that I could not assure him that there would be no snags in the deal if I were absent during the closing (even if all the preparatory work had been done), I decided the time had come to withdraw from the transaction. This succinctly soured the debate. Naturally, my next call was to the other Solicitor to inform him that there was not, as we had previously proposed, any need for us to revisit the transaction on the following Tuesday after Thanksgiving. Not entirely unexpectedly (for I have been here before), my Client later called me back. He requested that I at least handle the incorporation of the new company, though of course I declined in the interest of avoiding a multiplicity of lawyers and unnecessary layers of education for the lawyer who might subsequently handle the conveyancing from the corporation to the purchaser. Most importantly, however, I was prompted in my disinclination by an unresolved visceral reaction to the entire proceedings to date, though I knew enough to accept the inborn response without question. I was disturbed by a number of indicia, the details of which I would prefer not to dilate upon as they bring me perilously close to insult, as candid and correct as I believe they are. Suffice it to say that, all considered, I felt I was best not involved in the deal upon any terms.

As time-consuming (and as seemingly unrewarding ) as that process may appear, I have learned from experience that the time is well spent, for the simple reason that it avoids having to eat the words "I knew I shouldn’t have done that!" at a later date, after far more damage has likely occurred. The "Retainer Agreement" which is currently so popular in the Law Society’s list of continuing legal education publications and seminars is not something to be ignored. It takes but a moment’s reflection to discern the huge value of such an Agreement, even if the terms are never committed to writing, by which I mean the very canvassing of points of interest by the Parties is extremely valuable. There is always an urge, especially for young lawyers, to plunge right into a deal without sufficient forethought to the many indicators and issues which have already been given or arisen in the matter, even before a deal takes flight. The Retainer Agreement is, after all, the foundation of the structure to be built, and the superstructure can only arise from it safely and adequately if its base is secure. But those early warnings must not be neglected. It is not, as the other Solicitor so shamefully observed, "all about the coin". It qualifies as very poor judgement to envisage a transaction at the outset by what it is to be in the end. Only by moderate and deliberate steps from the beginning does the commerce unfold. Flying leaps are dangerous for all concerned, make no mistake!

I believe that a substantial part of the enthusiasm of lawyers of any age for their Clients is nothing more than the desire to serve. Never having been in retail, I cannot comment or compare with certainty, but I am inclined to think that the persuasiveness of a professional client is perhaps more engaging than even the most vital interest of a purchaser of hard commodities, many of which are not manufactured or fabricated by the retailer. Professional retainers of any but the most modest scale are in most instances highly personal, usually not marked by that retort from the buyer, "Just looking!". By the time the Client gets to the lawyer’s office, the Client has frequently made up his or her mind that it is that particular lawyer by whom the Client wishes to be represented. Unfortunately for all concerned, the relationship is as regularly as not clouded by misconceptions touching upon the fundamental elements of the retainer, including the service to be provided, for whom specifically, when and what price. If any one of these elements is overlooked, peril may result.

I have in the past expanded upon the business model which arises from the considerations just enumerated for a Retainer Agreement. Those repercussions of the Agreement virtually predict the ultimate result of the association. Remarkably, many people spend more deliberation upon the terms of a contract with a tradesman to build a hot tub in their back yard than they do upon the terms of a million dollar business transaction, which as I say is frequently and blindly labeled by the Client as simple. Even if the Client is adamant, it clearly flies in the face of reason if the professional defers to the instructions of the Client where the Solicitor knows it is a mistake. It is tantamount to giving the keys of the car to an inexperienced driver. In this business, one must do more than hope for the best!

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