An Overview of Ex Ante Legal Matters

An Introduction to Ex Ante Legal Issues

Ex Ante in the legal world simply means "before the fact." It is commonly used to refer to prospective legal analysis, usually in terms of reviewing or considering the law as it was at the time a plan was developed or proposed . Ex ante analyses are often conducted in the context of constitutional law concepts such as the traditional test for the validity of legislation for taking private property under the "Takings Clause" and the review of past exercise of police powers such as land use regulations for proper takings compensation. Ex ante analysis is also commonly considered in the administrative law context of APA review, especially in terms of the appropriate standard of review for a federal agency’s exercise of its discretion.

Ex Ante and Ex Post: A Comparison of Terms

Ex ante considerations focus on decision-making from a future-oriented perspective. Instead of waiting for an event or transaction to occur, the analysis is forward-looking. Ex post legal considerations focus on resolution after events have occurred. The focus is on what happens after an incident; for example, the management of risk. There are risks with both ex ante and ex post requirements or considerations. With ex ante considerations, there is a risk of over-regulation, or placing requirements without realistic timelines. In an international context, ex ante considerations may not meet national or international obligations. With ex post considerations, there is a risk of under-regulation, or not implementing the best solution possible. Ex ante legal requirements can be used by governments to encourage foreign investment. Ex post requirements can be viewed as being anti-foreign.

The Importance of Ex Ante Analysis in Managing Risk

Ex ante legal analysis plays a crucial role in risk management by proactively identifying potential legal risks and formulating targeted strategies to mitigate them. A thorough ex ante legal review helps assess an organization’s exposure to lawsuits, regulatory actions, and other liabilities. It also facilitates the development of effective solutions, such as structured policies, defensible practices, and responsive remediation strategies. Internal policies and procedures are essential components of effective risk and compliance programs. These policies, however, must be developed with an understanding of relevant legal and regulatory requirements. Moreover, they usually must be applied consistently in a manner that affirms and supports the objectives underlying each policy. Seeking external legal advice during the policy drafting period helps minimize unnecessary costs associated with later litigation and other activities. It also maximizes the likelihood that the policies will be implemented effectively and achieve their intended results. While some matters are unavoidable, they may be more effectively addressed when the best available solutions have been identified with the help of ex ante legal analysis.

Ex Ante as It Relates to Contract Law

Whereas ex post considerations focus upon the resolution of disputes, ex ante considerations focus upon the prevention thereof. Thus, ex ante considerations are not relevant to the resolution of disputes, but rather to the avoidance of future disputes.
In the context of contract law, this avoidance takes place at the pre-litigation and drafting and negotiation stages of the life cycle of contractual relationships. The ex ante analysis of contracts is thus based largely on the proper reflection of the interests and intentions of the parties within the contract, in order to avoid disputes from arising in the first place.
The state of the articulation of the intentions of the parties and proper drafting decisions will determine whether a given dispute may be resolved efficiently. The reasons that this is the case is that (1) whereas contract disputes are often premised upon the meaning of particular clauses which are subject to multiple interpretations, the sophistication of counsel will often allow for a relatively elegant solution to the resolution of a dispute based upon the intention of the parties, and (2) the risk of liability of any given party is substantially higher when a contract is not clearly articulated.
Accordingly, states that, "[a]s ex ante, pre-contractual judgments impact on the likelihood of litigation, ex ante considerations are likely to be more relevant in relation to the drafting and negotiation of contracts than ex post considerations." (Emphasis added.) This is true to the extent that the proper articulation of the contract and the reflective and detailed analysis of the parties’ intentions will allow for one of the common lessons of contract law, i.e., the rule that where a contract is binding upon the parties, the courts will generally seek to enforce its terms, as opposed to establishing the terms for the parties.
As a matter of prevention, therefore, analysis of the intentions of the parties and proper articulation of a contract are critical. This is the essence of ex ante considerations in the context of contract law. A strong ex ante consideration of contracts will generally be accompanied by an elimination of the litigation that might otherwise arise. In practical misuse, this means that what is often the next best solution to litigation, settlement negotiation, is rarely viewed as a legitimate option where the skill of counsel is such that contractual issues can be resolved based upon the articulation of the intentions of the parties.

Ex Ante in Administrative Law

Just as with transactional compliance, ex ante legal evaluation has become increasingly important in regulatory compliance as well. Determining how a business can or should comply with a particular regulation or guidance interpretation is commonplace , and advice on the best path is often sought both before drafting or before being "married" to a particular approach. And with the emphasis on compliance risk of both the new guidance on the Yates Memo and (once again) the soon-to-be-released FCPA guidance, getting compliance right, particularly when not all approaches are the same, is key.

Real-World Examples of Ex Ante Legal Analysis

Ex ante legal determinations have been instrumental in streamlining business operations and mitigating compliance risk across a variety of industry sectors. The following case studies illustrate some of the common applications of ex ante legal analysis and some of the more substantial benefits that have been derived by companies that have chosen to undertake the analysis before entering into acquisitions, strategic alliances, customer/third party agreements and joint ventures.
Example 1 – Acquisition of a Company
Although the antitrust laws are intended to preserve competition, the structure of the laws and rules governing how the antitrust laws are applied can turn agnostic positions into significant problems for U.S. companies. For example, a U.S. company that plans to acquire a foreign company must take into consideration the antitrust laws of other countries. Where a foreign company has significant assets or operations in foreign countries, it is common for the foreign country to have mandatory notification requirements. In many instances, the foreign country is permitted to block the acquisition or impose onerous conditions to approval. U.S. and foreign companies have benefited from studying the requirements under the antitrust or merger control laws of each country before entering into an agreement for the acquisition. Legal counsel can conduct a global or local analysis that entails securing preliminary clearance from antitrust authorities in the various relevant jurisdictions before consummating the acquisition. There are a variety of benefits to this approach, including: (1) adequate time to address the potential impact on international operations and relationships; (2) creating a record of having complied with the antitrust laws and having completed a relatively seamless process and (3) limiting the extent to which complicated issues end up as post-acquisition litigation over how to "unwind" an acquisition that has received clearance, but is challenged several years after consummation.
Example 2 – Joint product Development Agreement or Strategic Alliance
Joint development and related arrangements permit companies to pool resources and develop new products or services more quickly and efficiently than they could accomplish individually. Successful joint arrangements also facilitate access to new markets, customers, supply chains and technologies. However, international transactions also raise global antitrust issues that can slow down a joint venture or development project, impact pre-closing planning and spending, and create additional hurdles with antitrust authorities. Legal counsel can facilitate a process for dealing with international antitrust issues before entering into the strategic alliance or joint product development agreement. The analysis generally involves conducting antitrust risk assessments in multiple jurisdictions, negotiating the terms of the transaction (including non-competition covenants, joint marketing issues, and joint business unit management) and advising on contractual governance issues. Companies benefit by having a more definitive understanding of the global risks associated with their transaction and can better structure their transactions and relationships to reduce competition concerns or to ensure that the alliance is achievable within the parameters of the partner’s antitrust regulatory regime.

Limitations and Challenges of Ex Ante Analysis

While ex ante legal analysis and predictions are a useful way to make judgments about the possible outcomes of a legal dispute, they are not without their challenges and limitations. The following are some of the challenges and limitations that have been identified by the author: This approach posits that prior legal decisions will help determine the outcome of future legal controversies. In one sense, this is a reasonable prediction theory. But it very much presumes a commonality between cases that is perhaps difficult to specify. While there may be some common features of prior legal decisions that can be outcome-determinative, it is far more common that any similarities represent only superficial comparisons. Temperature records may be relevant to tort cases arising from a heat wave, but how much else can they reveal? A second challenge is essentially that of the alternative outcomes . Assuming away a contrary outcome to focus on one possible outcome is sometimes inappropriate and can lead to erroneous judgments. One example is where a legal controversy is either seemingly going to be resolved by established legal precedent or where the controversy appears to be novel. Relying too heavily upon the apparent existence of legal precedent may lead to an over-reliance on an imperfect analogy where the determination of the outcome would rest on an extremely involved analysis of the legal precedent. Similarly, a novel controversy may be resolved in a manner consistent with established legal precedent; conversely, a seemingly novel controversy may give rise to historical practices that have not been fully considered in prior precedent.