“Better a bad settlement than a great trial.” This may sound a bit strange as it is mentioned by a litigator. Litigators are sometimes portrayed as conflict seeking, warmongers whose thirst is legal battles in the courts. However, it bears note that the above is one of the very first lessons law students get in law procedure classes. In fact, we are first taught to be peacemakers, to avoid conflict, and only resort to litigation as the utmost and last call. And as we climb the professional ladder, we get to understand the pragmatism of this lesson. Legal disputes are time consuming. Huge amounts of money are spent during a court or arbitration case. In the specific case of Mozambique, court costs are of unsurmountable amounts. Mozambique is among the countries where justice is expensive, whether for individuals or for companies.1
Consequently, that first lesson law students are taught in civil procedure classes seems to make sense. Legal disputes can cost time, emotions and…money!
However, no matter the approach, conflict is likely to come its way. Whether by submitting a lawsuit, or by being sued, a company will eventually have to face a legal dispute. It is part of business, it is part of life! And in such situations, one may ask how best to win a legal dispute. The approach to this matter does not differ from one specific rule of life: “Prevention is better than cure.”
Some examples of the pragmatism of this rule in litigation can be highlighted. In the business environment, most conflicts arise in contracts, and prevention can be ensured by including specific clauses that can lead to peaceful dispute resolution. In my practice I notice that in most situations, parties “forget” to include key clauses such as termination clause, force majeure clause, reciprocal obligations clauses, dispute resolution clause, governing law clause, etc.2 Failure to include key contractual terms may lead to unfair situations such as lion share clauses. Seeking contractual clarity is key to a better settlement of potential disputes.
Another example is labour litigation, where, in most cases employees may sue the company alleging unlawful dismissal or unfair contract termination. The case is won if a disciplinary hearing has been conducted and all the formalities followed with precision, or if contract termination has strictly followed the legal requirements. In such cases, litigation will be less problematic and peaceful settlement is a huge possibility.
In the same sequence I can say that tax litigation is won by the company paying taxes timely, complying strictly with its periodic obligations, avoiding interests and fines. If the Tax Authority proceeds to the courts the chances for a company to prove its case are more likely to be successful.
All the above is common sense in litigation, but it is always worth repeating since it is easy to take things for granted when the sea is quiet.
This takes us to consider the importance of a company doing its homework by timely identifying, preventing, or mitigating risks. Periodic legal due diligences on company’s different areas of activity are pivotal. Most companies think about legal due diligence when a possible deal is on the horizon. One may intend to sell shares, purchase assets, or transfer a title or license. But legal due diligence should not only be confined to M&As known for their complexity. One may want to check if its periodic labour law, immigration law, or corporate law obligations are conforming and up to date. One may intend to see if its contracts with suppliers and clients are conforming. One may intend to ensure that any litigation current or past is or was conducted properly. These measurements to identify, prevent and mitigate risks, can make a difference between winning a court or arbitral case and suffering its setbacks.
Legal disputes vary in complexity and, of course, there is no one-size-fits-all rule on the best way to win. But that common-sense rule of life, i.e., prevention better than cure, is always recommendable and up to date. Timely identifying, preventing and mitigating risks is likely to bring far better results in a legal dispute. Legal due diligence is an effective tool for it!
- In the last ceremony for the opening of the legal year (“ano judicial”), held on 04 February 2020, former President of the Mozambique Bar Association stated in clear and blunt terms that Mozambique is one of the countries with the most expensive justice. https://www.oam.org.mz/cerimonia-de-abertura-do-ano-judicial-2019-intervencao-do-bastonario-flavio-menete/
- In worst case scenarios the parties become so comfortable and resort to verbal contracts or gentlemen agreements.