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20 July, 2009  
More bumf means more value

The economics of lawyering … Lawyers who create lots of bumf can increase the GDP by reducing certainty … Tulkinghorn explains how this notion works

imageMartin Collier, a lawyer and director of the Glaser Progress Foundation has noted in a video interview that “gross domestic product” (GDP) sometimes “counts negatives as positives”.

“If there is an oil spill on Puget Sound, in Seattle, where I live, GDP goes up, because attorneys are hired, there’s clean up crews, all sorts of things … If someone gets cancer, GDP goes up.”

Building new prisons and stuffing them full of prisoners adds value.

Even jailing innocent people adds value. In civil litigation matters, people take problems to lawyers, who add to them.

Most lawyers are property or transactional lawyers. They generate most of the alleged “value added” by “legal services”.

imageClients devise transactions and their lawyers add pages of bumf.

On June 26 Chris Merritt (snap) wrote in The Australian:

“The legal services industry currently employs 99,696 Australians. In the 2007-08 financial year it generated $18 billion in income and – according to the Australian Bureau of Statistics – it contributed $11 billion to the national economy.”


That $11 billion, incidentally, refers to “Industry Added Value (IVA), as defined by the ABS in its latest legal services survey.

Merritt also said that the Australian legal services industry is so good at adding value that the partners of one large Australian law firm (Deacons) should be encouraged to add even more value by being given a capital gains tax break.

imageThe tobacco, liquor and gambling “industries” also add “value” to the Australian economy. Nobody suggests that they should get tax breaks. Except them, perhaps.

US law professor Steven L. Schwarcz (seen here) has produced an article, Explaining the Value of Transactional Lawyering.

A review of his article says:

“How about transactional lawyers? Do they add value by reducing transaction costs, minimizing the chance of ex post litigation, reducing regulatory burdens, acting as reputational intermediaries, providing confidentiality, or exploiting economies of scope? Or do they simply extract value from the transacting parties?”

Schwarcz himself tends to sit on the fence:

“This article does not assume … that transactional lawyers in fact add value; it merely asks – if they do – how would that value be supplied? ...

Transactional lawyers … may view their roles as more important and indispensable than they actually are.”

So what about all the bumf? What use is it?

Most lawyers and clients would answer that it reduces the odds of disputes down the track. Business lawyers … minimise the chances of litigation for their clients.

Schwarcz sets out the results of surveys of lawyers and clients:

“What is litigated is often … different from what anyone negotiating the contract anticipated.

Almost half of all lawyer-respondents, and two-thirds of client-respondents, said that none or at most only some of the issues over which contracts were litigated were anticipated during negotiation.”

The transactional lawyer has a “solution”. Extra dollops of bumf are added to the next similar transaction.

imageLegal bills go up. GDP goes up. IVA goes up.

A 1983 article by US law professor Anthony D’Amato (pic) entitled Legal Uncertainty begins by saying that “legal certainty decreases over time”.

The article is focussed on legal rules, as opposed to legal documents, but the principle that more words increase uncertainty is probably as valid for transactional documentation as well as legal rules.

As D’Amato says: “adding to the world’s stock of verbiage more likely reduces certainty than increases it”.

Lawyers who create bumf can “increase value” by reducing certainty?

If transactional lawyers were genuine about adding value, then they could provide “value added guarantees” to clients in exchange for the fees that were extracted to pay for the bumf.

A guarantee would say that if there is litigation on a transaction, and it turns out that the documentation didn’t provide a clear answer to the problem that arose, then the original fees will be refunded.

Further, it would also say that in these circumstances fees for the conduct of the litigation will be waived, without in any way limiting the right to sue for professional negligence.

imageEarlier this month Fred Swaab, managing partner of Swaab Attorneys, painted a bleak picture for bumf creators.

Swaab (pic) thinks that lawyers were unlikely to be making money from drafting documents in the future.

“Special expertise around document drafting is probably not going to withstand the next 10 years.”

He thought that lawyers should focus on where they can add value in commercial dealings and managing litigation.

“It’s only when lawyers come back and add value … that they are going to take a bigger role in the whole professional services arena.”

Transactional lawyers in law firms of all sizes need to keep their nerve.

They can stick with the bumf business model as long as they remember three rules.

First, transactional lawyers are indispensable in direct proportion to the incomprehensibility of the bumf they produce.

Secondly, judges must keep pretending that all the bumf is necessary whenever it is produced to them.

Thirdly, all transactional lawyers must never forget the principle that underlies their racket: a small town that cannot support one lawyer (or a city that cannot support one large law firm) can always be made to support two.