Wednesday, 22. May 2024

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When should Corporate Clients get their Lawyer involved?

Hiring a lawyer is often subject to a cost/benefit consideration, especially in business law matters. The corporate client asks himself:

– Is it worthwhile to involve a lawyer, or is it better/cheaper if I settle the conflict with my opponent directly?

– Do I involve the lawyer already when potential difficulties are on the horizon, or only when litigation is unavoidable?

These questions are legitimate. After all, buying legal services is not something that is fun for the client. The purchase of a new company car for the boss has both economic aspects (mileage, reliability, value) and those that could be summarized under the keywords “driving pleasure” or “prestige”. People would rather spend money on the latest iPhone than on legal advice.

In this sense, legal services are often a necessary evil for the client. They hire him (or her) because they need him (or her). In this respect, the service provided by a lawyer is comparable to the service provided by a doctor. You only go there because something hurts or because you want to avoid major (health or legal) problems in the future. Unlike with a BMW X6 or iPhone Pro Max, however, you usually cannot proudly brag about your doctor or lawyer (“Well, I am being treated or advised by the well-known and reputable Dr. X. …”).

So, from an economic point of view, when should the client call in a lawyer?

1. If a lawsuit can no longer be avoided, the engagement of a lawyer is usually indispensable. In case of proceedings before the district court (or higher) in Germany, representation by a lawyer is compulsory. But even if there is no obligation to hire a lawyer, very few clients will be able to manage a legal dispute without a lawyer.

2. In my opinion, however, it is usually economically reasonable for the client to involve a lawyer at an earlier stage. I am thinking of the following constellations:

a) Drafting of contracts

Contracts determine legal relationships. A good contract should clearly and unambiguously define rights and obligations. It should also arrange the distribution of rights and risks in such a way that it is as advantageous as possible for the client. Thus, the seller will limit the buyer’s warranty rights as much as possible, and the service provider will limit his liability as much as possible. Ambiguities and later disputes can be avoided by a solid contract. This avoids future litigation and thus saves the client time and expense.

b) Correspondence with the contractual partner/customer/opponent

Legal advice also makes sense in the context of business correspondence. When it comes to defending liability claims, for example, one should choose one’s formulations carefully. A “guarantee” is different from a promise to “use your best efforts. …”.

c) Notice of Terminations

Unilateral legal acts, for example a notice of termination, are also particularly susceptible to legal blunders. What must be the content of the notice? Who is entitled to make such a declaration? Who on the other side must receive the notice of termination and when, so that it is legally effective and in due time? These are all questions that the legal layman is often unable to answer correctly. It is therefore a good idea to issue such legal declarations, e.g. notices of termination, only after consulting with one’s attorney or, ideally, to have the notice of termination drafted by your attorney.

d) Promises and Commitments

Another  relevant subject: Can one really rely on a promise made by the other party, for example, the contractual partner, or is this promise possibly invalid because it was made by a person not authorized to represent the company? Is the promise maybe invalid because the law requires it to be in writing? Is an e-mail sufficient? … These are all points that are best discussed with your lawyer in advance, before you rely too hastily on a promise made by your counterpart and then lose out.

3. But doesn´t the involvement of a lawyer cost (a lot of) money? – Yes, that is usually the case. However, these costs (fees) are usually much lower than, for example, if you give an invalid notice of termination or rely on an invalid promise. And a good, reasonable lawyer with whom you work together in a trusting relationship will not “drive you into” a useless lawsuit, but will avoid such a lawsuit if possible. This is because he wants to work for you in the long term.

4. But lawyers can also make mistakes, can´t they? – Yes, they can, but then they are also liable for them. And lawyers are insured against such liability risks. If your employee (e.g. your vice president)  makes a mistake, as an entrepreneur you usually bear the damage yourself. If your lawyer makes a mistake, he must compensate you for the damage caused. This is an important difference.

5. Of course, you can be lucky and get away with the biggest nonsense as a client. For instance, make terrible contracts and still get no problems. That can happen, no question. But especially when you as an entrepreneur have to deal with important transactions, the costs of a single mistake are often higher than if you let your lawyer review 10 contracts in which no mistake would have occurred even without legal advice. In this sense, legal advice is a kind of insurance. It was not in vain even if your lawyer did not find any error in the contract.

6. Moreover, neatly made contracts also testify to the professionalism of a company. Of course, contracts can also be ” sloppily drafted” by the sales department. But if there is a professional business partner on the other side, he knows what to think of such a contract. He may not tell you that to your face, but he thinks it anyway.

7. So my recommendation is: Get your lawyer involved as early as possible. Have contracts drafted by an attorney and/or reviewed by an attorney. Involve your lawyer also in the legally relevant correspondence with the other party, especially when it comes to terminations, warranty or liability issues. In the long run, you will be better off that way. At least that is my opinion (as a lawyer).

Dr. Wolfgang Gottwald
Rechtsanwalt/Attorney at Law

Attorney at Law

Leopoldstraße 51
80802 München

Tel.: 089/383 293-10
Fax: 089/383 293-13