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opinion BANKING ON CORPORATE BY CHERYL SATIN of third-party opinions Limiting the risk sidiary was formed and operated only in Europe, both buyer and seller used European counsel to advise on the deal. Given the subsidiary did not generate sizeable revenues or operate an asset- intensive business, the transaction was of small dollar value. Despite this, shortly before closing, the buyer asked my firm for an opinion on various matters. While I had considerable history with the client, I had limited knowledge of the subsid- iary and no involvement in the transac- tion. Several of the opinions requested would have required me to undertake substantial due diligence at my client's expense. Initially, my position was the size and nature of the deal, and lack of any Canadian connection (other than the seller's location), did not warrant an opin- ion. Besides, if the opinions requested were so important to the buyer, it should engage its own Canadian counsel as I was in no better position to give most of the opinions than any other Canadian firm. However, my client urged me to give as much as I could, as quickly as I could, as it was anxious to complete the sale. These scenarios are not uncommon I in a transactional practice. While the frequency at which lawyers are asked to give opinions to other parties to a deal (known as a "third-party opinion") has notably declined in recent years, the requests still arise (especially if the deal requires third-party financing or involves multiple jurisdictions). And when asked, the lawyer never likes to be seen as the one who is holding up the deal. Upon receipt of a third-party opinion request, the first question should always be: is the opinion necessary and reason- able in the context of the deal? The deci- sion depends on the size and nature of was recently asked to deliver an opin- ion about a sale of the shares of a cli- ent's foreign subsidiaries. As the sub- the deal, the parties involved, their geo- graphic location, the location of counsel, the scope of the opinions requested, and the research cost necessary to give those opinions. In most circumstances, the bal- ance lies in favour of resisting the request and leaving it to the third party to satisfy itself through its own counsel and due diligence, and receipt of representations and warranties in the transaction docu- mentation. However, in those circum- stances where a third-party opinion is reasonably requested, should the opining lawyer's risk be unlimited? In the late 19th century, when requests for third-party opinions first arose, the opinion giver was simply putting his or her professional reputation on the line. As a matter of professional courtesy, and due to the lack of any direct contractual nexus between the third party and the opining lawyer, lawsuits against the opin- ion giver were rare (if ever). However, as the volume and size of transactions increase, and society becomes more litigious, the potential lia- bility to lawyers for third-party opinions is a bigger concern, especially given deal values often exceed lawyer's insurance coverage. Cases such as Enron, YBM, and Dean Foods are a few examples, some of which have threatened a firm's existence. How can lawyers rationalize assuming these risks when the fees received are a fraction of the transaction value? How can we minimize our risks when giving third-party opinions (besides the obvious of exercising due care and diligence in giving the opinion)? One thought is to contractually limit our liability to the third-party recipi- ent. We negotiate limitations to our cli- ent's liability in a transaction. In its 2009 study of private M&A transactions, the American Bar Association found 92 per cent of transactions studied capped the seller's liability. So why are law firms not entitled to the same liability protections? A lawyer is legally and ethically pro- hibited from limiting his or her liability to a client in Canada and in several U.S. states. However, no such bans exist on limiting liability to non-clients. In the United Kingdom and some U.S. states, lawyers cannot exempt themselves from liability to clients but can impose rea- sonable limits on their liability (such as capping exposure at the amount of the firm's insurance coverage), provided the limitations are in writing and brought to the client's attention, or subject to inde- pendent legal review. The Law Society of England and Wales has also publicly stated that limiting a lawyer's liability to non-clients may be justified. Presumably, any such cap on liability would be the subject of negotiation, such that its size assures the recipient that the opinion giver exercised due care, but is not dis- proportionate to the risks assumed by the lawyer's client or puts the future of the lawyer's firm at risk. We routinely advise clients to have third parties sign confidentiality agree- ments, incorporating suitable disclaim- ers, before releasing confidential infor- mation. Why couldn't the third party also sign an acknowledgment that any opin- ion, due diligence reports, or similar materials provided by counsel to the other party are received for limited pur- poses, and that the lawyer's exposure to that third party is appropriately limited? I suspect the answer will generally be: "because no other firm is doing it." Perhaps it's time for lawyers to consider changing that. Cheryl Satin is a partner at Blake Cassels & Graydon LLP in Toronto practising in the business group. She can be reached at cheryl.satin@blakes.com. www. C ANADIAN Law ye rmag.com NO VEMBER / DECEMBER 2010 17