Assessment 1 Memo LLH341 Renee Kemps n9446478 PDF

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N9446478

RENEE KEMPS

LLB341

INTERNAL MEMORANDUM ___________________________________________________________________________ To:

SUPERVISING PARTNER

From:

RENEE KEMPS

Subject:

PROPOSED TECHNOLOGY FOR MERGERS & ACQUISITIONS

Word count: 1,997 ___________________________________________________________________________ Executive Summary 1.

The nature of the work to be performed by the firm's Mergers and Acquisitions department, for Auscohol and generally, can be summarised into three components: contract drafting, contract review and due diligence.

2.

The firm should consider adopting Natural Language Processing and Intelligent Documents Processing software in order to increase the efficiency and effectiveness of the work performed. Having conducted market research on product availabilities, it is recommended the firm consider two products, being 'Kira Due Diligence' and 'HotDocs'.

3.

It is further recommended that the firm implement the technology gradually, whilst complying with existing laws that regulate the legal industry, in order to minimise risk.

1.

Overview

Contract management, particularly drafting, can be a costly, risky and labour-intensive process.1 Artificial intelligence (AI) technology has the potential to improve how firms contract by increasing efficiency and overall effectiveness. Considering transactional lawyers have been notoriously slow to integrate technology into their practices,2 doing so may set the firm apart from competitors. The firm's Mergers and Acquisitions (M&A) department has been approached by Auscohol Pty Ltd ('Auscohol') to assist with their contract management. The Client Service Agreement between Auscohol and the firm does not allow for work capable of being automated to be billed. Accordingly, appropriate AI technology will be recommended in 1

Sean Farrell and Kira Systems, How AI Accelerates the Legal Contract Drafting Process (Webpage, 10 July 2020) . 2 Thomson Reuters, Emerging Contract Technology: Automating the Contract Life-Cycle (Webpage, April 29 2015) .

order to ensure cost-effective work is performed for Auscohol, which may result in an overall upgrade for the M&A department. 2.

Scope of work

The work to be performed for Auscohol can be separated into three components. Firstly, Auscohol has requested assistance with drafting fast and flexible contracts immediately upon instructions of a deal being received. Secondly, Auscohol requires approximately 8,000 existing contracts between Auscohol and its various suppliers to be reviewed. Lastly, Auscohol has advised that it is preparing to merge with a large alcohol producer company, requiring the review of approximately 12,000 contracts in order to identify relevant clauses, provisions and termination dates. The third component, although similar to contract review, forms part of an important diligence process required for Auscohol's merge that can result in grave consequences if not completed correctly. 2.1.

Contract drafting

Drafting is a significant task for lawyers of whom practice in M&A as they are inevitable for commercial transactions. The prevailing opinion has been that the reasoning required to draft complex transactional contracts is uniquely human and beyond the capacity of technology.3 Yet, many firms have adopted the use of auto-generated precedents in order to increase drafting efficiency.4 Contracts can vary in complexity; however it is the generic contracts that are commonly generated with the assistance of precedents and limited human contribution. Whilst efficiency is important for the firm in order to save on costs, the effectiveness of a contract is critical as they provide for protection and mitigation against risks. 2.2.

Contract review and due diligence

Contract review and due diligence are essential components of legal practice, particularly M&A. They both involve rational analysis comprised of clarifying, measuring and forecasting contractual obligations and associated risks.5 Undertaking due diligence by contract review is not only a common activity for lawyers, it is a requirement, and can vary in complexity. The importance of accurate contract review varies case by case and depends on the overall

3

Kathryn Betts and Kyle Jaep, 'The Drawn of Fully Automated Contract Drafting: Machine Learning breathes new life into a decades-old promise' (2017) 15 Duke Law & Technology Review 216-233. 4 Ibid. 5 Louis Caplan, Importance of Contract Review (Webpage, 27 March 2019)..

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significance of the contract. Nonetheless, most contracts substantially impact the rights and interests of entities and must be reviewed in a careful manner in order to best protect client interests.6 Auscohol is required to perform a due diligence process for its merge and whilst this ultimately involves a similar process to that being performed for Auscohol's 8,000 existing contracts, it is often more complex as it requires the identification of unknown liabilities, risks and opportunities within unfamiliar documents. 3.

The use of Artificial Intelligence for contract management

Advances within contract management software have seemingly plateaued.7 Contract drafting software emerged during the 1970's and 1980's and by the 1990's, some practitioners were using drafting systems far beyond common word processing tools, whereby a user would be asked a series of questions based on a preprogramed 'logic tree' and then generated a document based on the answers.8 This resulted in contracts generated in such a manner that rarely deviated from standard form. Further in the 1990's, firms began implementing document management systems, such as iManage, that housed contracts in their original digital formats, allowing for searches to be performed based on keywords.9 Contracts often use unpredictable and inconsistent language, therefore although search engines enable lawyers to search through large bodies of contracts, finding crucial clauses and terms that would be hit-or-miss.10 AI technology fills the gaps identified about by allowing for more case-specific contract generation and review. 3.1.

Strengths

AI technology can interpret more language-based data than humans, with consistency and without fatigue or prejudice. Given the amount of data produced in the legal profession, this strength will hold a crucial role to allow for comprehensive analysis. A I will allow for the identification of critical information instantaneously. For example, Auscohol has instructed that its merging partner has approximately 12,000 contracts that may or may not contain a change in control clause. Further, AI can evaluate risk in contracts by identifying substandard

6

Jacob Zahniser, ‘Commentary: The importance of contract review ’ (2015) The Daily Record , 12. Kathryn Betts and Kyle Jaep, 'The Drawn of Fully Automated Contract Drafting: Machine Learning breathes new life into a decades-old promise' (2017) 15 Duke Law & Technology Review 216-233. 8 Ibid. 9 Steve Obenski and David Curle, Part I - The Emergence of Contract Automation and Technology (Website, 4 August 2020) . 10 Ibid. 7

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terms.11 Whilst these contracts exist in both paper and electronic formats, conversion programs exist that allow for paper copies to be converted into electronic versions capable of AI interpretation. AI makes it feasible for computers to not only read text, but hear speech, interpret it and make determinations based on measures set by the user.12 Most importantly, the firm would be able to complete contract review and drafting, as well as perform due diligence, in an efficient and cost-effective manner.13 3.2.

Weaknesses

Unfortunately, current AI tools are not yet able to imitate the many progressive cognitive processes that humans can offer to the due diligence process, including comprehension, metacognition or contextual perception that are vital to legal analysis.14 AI has not yet developed to have the same intuitive understanding of natural language that humans do, meaning language is understood 'strictly'. AI's lack of creative thought and abstract understanding presents risk of misinterpretation, missing key information that a human may detect upon appraising the same material. Further, it may be said that AI is not completely free of prejudice as decisions are made based on human programming.15 Given AI is yet to prove its accuracy, it may also be essential for the firm to 'double-check' in order to avoid costly mistakes, which in itself can be seen as an inefficient and costly process.16 3.3.

Opportunities

AI has opened opportunities and changed the competitive landscape of the legal industry.17 Currently, most legal professionals use applications to enhance productivity. For example, rather than reading an entire judgement, most resort to the common functionality of searching text in order to find particular terms. Shortcuts such as this provide assistance to legal professionals, allowing them to make informed decisions in a fraction of the time. Adopting AI technology will afford the firm an opportunity to complete monotonous routine work, such as basic contract review, and providing the firms legal professionals to complete complex tasks

11

Beverly Rich, ‘How AI Is Changing Contracts’ (2018) Harvard Business Review. Arthur Samuel, ‘Some Studies in Machine Learning Using the Game of Checkers ’ (1959) IBM Journal of Research and Development 3(3), 213. 13 Beverly Rich, ‘How AI Is Changing Contracts’ (2018) Harvard Business Review. 14 John Haugeland, Artificial Intelligence: The Very Idea (Cambridge, Massachusetts: MIT Press, 1985), 157. 15 Samara Donald, Don't blame the AI, it's the humans who are biased (Website, 18 September 2019)

16 John Markoff, ‘Armies of Expensive Lawyers, Replaced by Cheaper Software ’ (2011) The New York Times, 35. 17 Lars Mahler, ‘What Is NLP and Why Should Lawyers Care?’ (2015) Law Practice Today, 11. 12

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that can only be undertaken by a human. The Australian legal industry is currently facing internal and external pressures, accelerated by new technology, whereby clients want to pay for experience and knowledge rather than routine work,18 the firm should gradually introduce new technologies in order to maintain competitive in the market. 3.4.

Threats

AI has increased competition in the legal profession by changing what is demanded by it.19 Whilst technology may be seen as a tool for lawyers, rather than their replacement, technology is also providing consumers with more opportunities to complete legal tasks themselves and threaten the traditional aspects of legal work. Nevertheless, it is argued that automation of tasks is good because it does not necessarily involve the most fundamental skills a lawyer can offer.20 AI allows legal professionals to spend more time focusing on fundamental skills and may therefore provide legal professionals greater assistance in providing just results for their clients in a cost effective manner. In this context, automation may not necessarily be a threat but rather a support system that clients of the firm will appreciate. In a 2017 article, Mark A Cohen, a leading Legal technology authority, was quoted as saying "robots are doing repetitive, mundane tasks".21 He continues to say, "this does not mean that those lawyers who were doing those tasks are going to be out of a job, but they are going to be liberated to do other types of things". The firm should therefore consider upskilling staff who currently perform work that can be automated, focusing on the skills technology cannot substitute.22 It would be preferable for the firm to adopt emerging technologies now in order to advance its position in its market, rather than fall behind when such technology is more readily available to the public at large. In doing so, consideration should be given as to regulation that applies to its use. Unfortunately, the regulation of AI in Australia has yet to be considered at great lengths, maintaining a 'soft' regulation model and relying on frameworks and roadmaps for self-regulation. Nevertheless,

18

Judith Bennett, Tim Miller, Julian Webb, Rachelle Bosua, Adam Lodders, ‘Current State of Automated Legal Advice Tools’ (2018) University of Melbourne 3.1, 14. 19 Adrian Cartland, ‘Intelligent law: The rise of artificial intelligence in the legal profession’ (2016) 38(5) Bulletin (Law Society of South Australia) 8. 20 Remus, Dana and Frank Levy, ‘Can Robots Be Lawyers? Computers, Lawyers, and the Practice of Law’ (2017) 30(3) Georgetown Journal of Legal Ethics 501. 21 Tobias O'Hehir, The Rise of AI, Are there consequences for graduates? (Website, 8 September 2017) . 22 Remus, Dana and Frank Levy, ‘Can Robots Be Lawyers? Computers, Lawyers, and the Practice of Law’ (2017) 30(3) Georgetown Journal of Legal Ethics 501.

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Australia's legal industry has given recent thought to this.23 Whilst there are risks associated with using the technology at an unregulated stage, once a threat associated with its use is known, regulation will respond to ameliorate it.24. In the meantime, the firm should prioritise the adoption of AI in a manner that complies with and upholds existing requirements of the profession, such as the requirement of confidentiality. 4.

Proposed technology for contract review and due diligence - Natural Language Processing Software

Natural language processing (NLP) is a branch of artificial intelligence that allows for the interpretation and manipulation of human language in order to understand information being processed, resulting in reasonably accurate and efficient contract review. The global NLP market size is expected to grow from $10.2 billion in 2019 to $26.4 billion in 2024.25 NLP's purpose is to bridge the gap between human communication and computer science and linguistics.26 A Canadian company, 'Kira Systems Inc' developed a software called 'Kira Due Diligence', using artificial intelligence to highlight, analyse and organise documents of due diligence processes. This technology provides for up to 50 varied types of documents, all of which are usually reviewed in a due diligence process, catering for the work to be performed for Auscohol and the M&A department generally. 5.

Proposed technology for contract drafting – Intelligent documents processing

Intelligence data processing (IDP), as the name suggests, is the process of intelligently capturing data and streamlining document generation, with the goal being to extract information. A well-known IDP software is HotDocs, of which allows for the transformation of frequently used documents, into intelligent templates that, in their words, “enables superfast production of custom documentation".27 Whilst market research revealed that software designed specifically for contract drafting does exist, an analysis discovered that HotDocs performs similar functionality for a broader spectrum of purposes. Whilst still suitable for

23

Morry Bailes, 'An End to Lawyers? Implications of AI for the Legal Profession' (Speech, Australian Defense Seminar, 24 October 2018). 24 Michael Guihot, 'Coherence in Technology Law' (2019) 11(2) Law Innovation and Technology, Forthcoming 25 Alison Wilkinson, How Natural Language Processing Can Improve Legal Search Results (Website, 22 July 2020) . 26 Peter Stone et al, ‘Artificial Intelligence and Life in 2030. One Hundred Year Study on Artificial Intelligence’, (2016) 15 Stanford University Study, 27. 27 Lawgeex, 5 Players in Contract Drafting (Website, 10 July 2017) .

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contract drafting, HotDocs can also generate letters, forms and even court documents based on custom input data. 6.

Conclusion and recommendations

On the basis of the advice provided above, it is recommended that the firm consider adopting the proposed technology in order to benefit the M&A department both in completing its work for Auscohol and all work going forward. If the firm were to adopt this technology, a strategy would be for the firm to focus on specific types of documents, such as contracts, and to broaden its reliance on the technology once experiencing success,28 given the technology can still be susceptible to error and is relatively unregulated.29 It would also be recommended that it be introduced gradually in order to allow for professional staff to become familiar with its use overtime so not to interrupt the firms day to day running's. While there are potential threats, these are considered inevitable. The firm would be well advised to be at the forefront of these challenges and embrace the changes technology is offering the profession.

28 29

Robert Dale, ‘Law and word order: NLP in legal tech ’ (2019) Natural Language Engineering 25, 211-217. Yogen Kapadia, ‘Why existing AI techniques are not suitable for Contract Analytics’ (2018) Infinote.

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BIBLIOGRAPHY Articles / Books / Reports 1.

Adrian Cartland , ‘Intelligent law: The rise of artificial intelligence in the legal profession’ (2016) 38(5) Bulletin (Law Society of South Australia) 8.

2.

Arthur Samuel, ‘Some Studies in Machine Learning Using the Game of Checkers ’ (1959) IBM Journal of Research and Development 3(3), 213.

3.

Beverly Rich, ‘How AI Is Changing Contracts’ (2018) Harvard Business Review.

4.

Jacob Zahniser, ‘Commentary: The importance of contract review’ (2015) The Daily Record, 12.

5.

John Haugeland, Artificial Intelligence: The Very Idea (Cambridge, Massachusetts: MIT Press, 1985), 157.

6.

John Markoff, ‘Armies of Expensive Lawyers, Replaced by Cheaper Software ’ (2011) The New York Times, 35.

7.

Judith Bennett, Tim Miller, Julian Webb, Rachelle Bosua, Adam Lodders, ‘Current State of Automated Legal Advice Tools’ (2018) University of Melbourne 3.1, 14.

8.

Kathryn Betts and Kyle Jaep, 'The Drawn of Fully Automated Contract Drafting: Machine Learning breathes new life into a decades-old promise' (2017) 15 Duke Law & Technology Review 216-233.

9.

Lars Mahler, ‘What Is NLP and Why Should Lawyers Care?’ (2015) Law Practice Today, 11.

10. Michael Guihot, 'Coherence in Technology Law' (2019) 11(2) Law Innovation and Technology, Forthcoming. 11. Peter Stone et al, ‘A rtificial Intelligence and Life in 2030. One Hundred Year Study on Artificial Intelligence’, (2016) 15 Stanford University Study, 27. 12. Remus, Dana and Frank Levy, ‘Can Robots Be Lawyers? Computers, Lawyers, and the Practice of Law’ (2017) 30(3) Georgetown Journal of Legal Ethics 501. 13. Robert Dale, ‘Law and word order: NLP in legal tech ’ (2019) Natural Language Engineering 25, 211217. 14. Yogen Kapadia, ‘Why existing AI techniques are not suitable for Contract Analytics’ (2018) Infinote.

Other 15. Alison Wilkinson, How Natural Language Processing Can Improve Legal Search Results (Website, 22 July 2020) . 16. Lawgeex, 5 Players in Contract Drafting (Website, 10 July 2017) . 17. Louis Caplan, Importance of Contract Review (Website, 27 March 2019).. 18. Morry Bailes, 'An End to Lawyers? Implications of AI for the Legal Profession' (Speech, Australian Defense Seminar, 24 October 2018).

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19. Samara Donald, Don't blame the AI, it's the humans who are biased (Website, 18 September 2019)

20. Sean Farrell and Kira Systems, How AI Accelerates the Legal Contract Drafting Process (Website, 10 July 2020) . 21. Steve Obenski and David Curle, Part I - The Emergence of Contract Automation and Technology (Website, 4 August 2020) . 22. Thomson Reuters, Emerging Contract Technology: A...