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Understanding litigation and transactional practice

Understanding litigation and transactional practice

Harry Clark

29/07/2020

As I’ve previously hinted at in other articles, there is both an internal and external side to commercial awareness. The internal side - understanding how firms function as businesses and add value to clients - is often underappreciated and under emphasised amongst most aspiring lawyers. This article aims to cover an important starting point for developing your internal commercial awareness: namely, the differences in how lawyers assist clients with transactional work and litigation.

In short, some lawyers aim to help bring individuals or groups (better known as ‘parties’) together in order to work toward a common aim. Conversely, others help them resolve conflicts in their client’s favour when things break apart. Whilst there are a number of skills and tasks that will be readily applicable to both of these areas - problem-solving, communication, research etc. - there are also a number of stark differences it is important to understand. Being able to recognise which departments, tasks and practice areas fit under each of these groupings (or often, somewhere in between) will assist you in being able to understand how firms specialise (or not) in generating new business.

Transactional practice

As hinted at above, transactional practice often involves working with client(s) to help them achieve a business objective. This could be acquiring other companies, expanding their current range of business practice, or perhaps investing in new assets. As a general rule, given that all of these will inevitably require money (capital) and a degree of willingness to take risk, transactional practice areas tend to be more active during periods of economic growth. Companies will be more willing to invest and take on riskier ventures, assuming their financial health allows them to do so, given that their own customers and clients will be more economically active.

Conversely, when individuals are more risk-averse and/or have less available disposable income, most companies won’t be able to rely on the same levels of business and engagement they may have enjoyed previously. Lawyers may instead have to pivot from a position of transactional work to crisis/risk management. An investment in acquiring another company which may have looked like a good deal six months ago might look drastically different should economic conditions change. There are of course exceptions to this rule, with video conferencing software companies during the covid-caused downturn in economic activity acting as a good example. Using Porter’s Five Forces can help you with your economic analysis and ability to recognise industries that have a greater degree of exposure to ‘shock’ events like these.

Litigation

Often portrayed more heavily in the media, litigation lawyers must step in when things quote on quote ‘go wrong’. If two individuals or parties are threatening to go to court with each other, there’s clearly been a breakdown to some degree and a movement away from their original common objectives explored above. One might assert another hasn’t fulfilled a contractual obligation, or that they have acted unlawfully, or are owed money, or perhaps a combination of all three.

Whilst TV and media often portray big dramatic arguments in a courtroom, the reality of litigation work is very different. Only a small percentage of disputes actually make their way to trial - it’s is an incredibly time-intensive, risky and potentially expensive route to pursue. It also has the potential to irrevocably damage the business relationships between the two parties. As a result, settlements, negotiations and other forms of alternative dispute resolution (ADR) are, for the most part, much more favourable.

Again, it’s quite clear to see how the commercial and economic world can affect the work that litigation lawyers will do. With such a momentous, disruptive event of covid-19 currently still ongoing, businesses will at least in the short term have to drastically adapt to this new reality. It might involve a constriction of investment, pursuing frustrated contracts and force majeure clauses, or previous commitments not being effectively met due to the crisis. Litigation and dispute lawyers will play a significant part in all of this process and it’s very likely they’ve never been busier as a result!