Businesses spend a lot of money on litigation. The cost of litigation can be steep and, in some cases, have caused a wind-up. The direct costs of litigation include court filing fees and lawyers’ fees. Other costs of litigation to the business include the time spent on the case.
In Kenya, it often takes years to resolve a dispute. The disadvantages of litigation are that it can negatively affect an organisation’s public image. A business that has too many labor lawsuits for example, may not be able to attract or retain qualified staff.
Sometimes, litigation can negatively affect a businesses’ liquidity where injunction or freeze orders are made. Projects and strategy can also be ruined.
A good example is when a merger project being undertaken by a bank was delayed by virtue of a court order in favour of the employees. Litigation may also increase an entity’s legal risk.
Some businesses engage in unnecessary litigation, rushing to court at the slightest whim of offence. Most of the disputes businesses engage in can be avoided. In place of litigation, an organisation can adopt any of these strategies that have the effect of reducing the negative impacts of litigation.
The first tip is to conduct an analysis of the nature of disputes the business has been having. This will expose risk areas and weaknesses in the business. For example, if your business has too many litigation cases against suppliers then this is an indicator of a weakness in supply management practices.
Get a legal audit to identify and mitigate legal risk. In my research I found that one of the causes of high legal risk is improperly drafted and defective contracts.
In some of the cases, the defective contracts exposed the organisation to even more risk. In such cases, re-drafting the contracts would significantly reduce litigation.
A legal audit will also measure the effectiveness of the businesses’ systems and processes in managing legal risk. In some cases, the cause of unnecessary litigation is a weakness in the business systems and procedures. For example, if letters of offer and other documents are issued to third parties without the proper legal advice from the legal department.
At times the cause of unnecessary litigation might be inherent in the legal department itself. Weak systems and processes may cause a rise in unnecessary litigation. Lack of proper departmental structures and decision-making can create loopholes.
This is why I recommend businesses have a conflict management structure in place. This is not necessarily created by the legal department but cuts across all departments. Most of the unnecessary litigation is caused by mismanaged conflicts. When these conflicts escalate they can result in litigation and increase the cost of litigation to the organisation.
For the conflict resolution strategy to be optimised I would recommend that any potential disputes be taken through it as the first line of action, even before going to the in-house lawyers.
The structure can be a higher-ranking sub-department within the legal unit. Negotiations ought to be the first line of dispute resolution, while litigation should be the last resort. The conflict resolution plan would assess which dispute goes where.
Businesses can benchmark such a structure with the Judiciary’s Court Annexed Mediation project. The registrar decides which disputes can go into mediation or mainstream litigation.