So what’s all the fuss with cross-border transactions?

Cross-border transactional work is a tough cookie, and even after three decades of ‘watching that space’, I am still not sure if I can see any real clarity!

Take for example, a loan arrangement negotiated in Indonesia.

Let’s assume that the lender is a ‘global bank’, for example an entity incorporated in Japan, but with global reach. The lender may kick-off negotiations using a loan agreement governed by English or New York law.

And let’s assume that this is a secured loan, and the security provided comprises a pledge over shares, and an Indonesian hypothec (essentially a mortgage) over land.

The pledge and the mortgage will naturally be governed by Indonesian law.

So, we have a transaction in which one of the key transaction documents is governed by one body of laws, but where security is governed by another.

The lawyers negotiating this transaction will need at least some familiarity with both ‘local’ as well as ‘foreign’ law, and in fact in practise, the lender and the borrower will each engage lawyers who are licenced to practice the ‘foreign’ law used, and these lawyers will themselves appoint a ‘local’ law firm to opine on the ‘local’ law component of the transaction.

It sounds easy and trouble-free, but believe me, it isn’t!

Just how good the documentation is, and the attendant legal advice and representation is, depends very much on the skills and familiarity of the lawyers with the doing of cross-border deals, and in particular with that kind of cross-border deal.

Both the ‘foreign’ and the ‘local’ lawyer will need to have at least a working understanding of each other’s systems of law (in that particular area, be it contract law, or land law, or corporate law), and ideally the level of that understanding would need to be quite extensive.

Take another situation: a certain part of the world has just discovered hydrocarbons in their territory, or has decided to develop its first natural gas liquefaction plant in the territory; perhaps it has decided to site that technology offshore, in the form of a FSRU[1].   

But let’s imagine that there is as yet no regulatory framework for upstream hydrocarbons exploration and production, or no maritime law and practise in place there.

What is to be done?

Typically, the ‘parties’ will ‘borrow’ a quantity of law and practise from another jurisdiction, where that kind of transaction is commonplace and well-operated.

In the longer term, this may require the introduction of a swathe of new legislation, enabling and otherwise, to regulate the new activity in question.

And again, there will need to be a marrying of bodies of law which may have very few fundamental commonalities to begin with.

Plus the cooperation between professionals, including legal professionals, with diverse skills sets, and often with very different technical know-how.

It is never a case of simply ‘parachuting in’ some bright spark from London (even if they are so-called “Magic Circle”[2]), or New York, with the objective of imposing his or her own ‘knowledge-base’ somewhere else in the world!

It is always a case of being exceptionally creative, profoundly collaborative and sympathetic, and always being willing to learn, as well as being courageous enough to teach, at every step of the way.

An example?

Some years ago, I was General Counsel to the upstream oil and gas operator in Oman, and we were required in one instance to work with the relevant Ministry in connection with an acquisition of assets. The key transaction documentation was English-law governed, though the asset was in Oman, and Omani law applied to many aspects of this deal. But at one point, it became clear to me that the Ministry was confusing an English-law novation, with an English-law assignment. The two are pretty different, using different contractual forms, and being regulated by a different body of law. It took time and effort on my part to guide the Ministry through these differences, but the effort was worthwhile, as otherwise we would have been left with an imperfect, and possibly malfunctioning set of contractual documents, and one day in the future that may have resulted in an unnecessary dispute!

This blog is for information purposes only. It is not intended to constitute legal advice. For legal advice on any cross-border matter, please contact the author.

[1] A floating storage and regasification unit, which is something akin to a cross between an offshore platform, and a sea-going vessel.

[2] Obviously a concept which is entirely ‘English public school’ in origin, but means ‘zilch’ to the uninitiated!

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