Commercial deals will feel sting of prolonged U.S. government shutdown

Canadian lawyers working on cross-border files are expecting commercial transactions, litigation and trade shipments to be significantly held up by the U.S. government shutdown.

The shutdown began yesterday after Congress failed to agree on a new budget due to a disagreement over healthcare reforms.

Nearly 800,000 federal employees have been sent home on unpaid leave, and many “non-essential” services will not be functioning until a budget is passed.

Brian Facey, co-chairman of the competition, antitrust, and foreign investment group at Blake Cassels & Graydon LLP, says: “The single biggest effect on cross-border mergers will be the shutdown of the U.S. antitrust agencies?, which work closely with the Canadian Competition Bureau in reviewing cross-border mergers.

“It’s a real challenge when the person you’ve been dealing with suddenly doesn’t answer the phone. It can cause delays, and uncertainty. ?These things need to be managed and to the extent possible worked around.”

The Federal Trade Commission, which deals with antitrust issues, states in its contingency plan that nearly 80 per cent of its 1,178 employees could be “furloughed,” or sent home, during the shutdown.

The U.S. Department of Justice states on its web site that “transactions submitted via the website may not be processed, and the department may not be able to respond to inquiries until funding has been restored.”

The courts have sufficient funding to stay open for 10 days during the shutdown, but government lawyers have asked judges to postpone some civil litigation cases.

It is not clear how long the situation will last; the last shutdown, which started in  December 1995, went on for 22 days.

Brett Harrison, a McMillan LLP partner with a commercial litigation practice, says the shutdown will inevitably affect lawyers working on cross-border commercial transactions.

“It’s unlikely that U.S. companies are looking to do major transactions at this time. Everyone’s going to be holding their breath until the issue’s resolved,” he says.

“Mergers and acquisitions will be significantly impacted. Nobody likes uncertainty, and there’s a lot of uncertainty at this time.”

Harrison fears it could also prove difficult for U.S. courts to process letters of request for judicial assistance, for example to approve e-discovery in cross border litigation.

The U.S. economy could take a big hit if the shutdown drags on; Goldman Sachs has estimated quarterly GDP could be down by 0.9 per cent if it lasts for three weeks.

This figure is likely to be significantly worse if the government fails to take steps to avoid the U.S. debt ceiling from being breached by Oct. 17.

The latter scenario would be “catastrophic” for Canadian businesses and, therefore, lawyers, says Harrison.

In the meantime, Cyndee Todgham Cherniak, a lawyer at boutique international trade law and sales tax firm LexSage, is expecting a slowdown at the border.

Although many U.S. border staff dealing with national security will be classed as “essential,” some workers who focus on technical trade issues have been told to stay at home, she says.

This is affecting shipments leaving Canada for the U.S., particularly those containing controlled goods that require permits, she says, adding: “We now have a lot of our clients, who are shipping into the U.S., completely in a state of panic.”

The U.S. International Trade Commission has stopped its investigative activities, including antidumping work.

Todgham Cherniak says she believes antidumping cases are going through this week, but anything after that will be put on hold.

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