Effective strategies to mitigate risk of litigation

Effective strategies to mitigate risk of litigation By Siphokazi Kayana, Zaakir Mohamed, Lucinda Hinxman

As companies start recovering from the Covid19 pandemic, many are facing some or other form of litigation, whether it be a labour dispute or an insurance claim that has been declined, or a supplier that has reneged on an agreement. Whether the dispute is contested in court or resolved through alternative dispute resolution processes, few companies can sustain long term litigation.

The situation is not limited to commercial enterprises. Some of SA's largest municipalities are facing the long term consequences of agreements that did not make sufficient allowance for changing circumstances. It seems surreal that more than 10 years after the 2010 Soccer World Cup, decisions around the rapid transit  systems, which were designed for the games, could still affect municipal agreements. This does not however need to be the fate of every person and enterprise. We believe there are effective and practical ways in which to avoid and or mitigate the inherent risk of litigation that comes with doing business.

Key to this is ensuring that you have a legal professional who understands your business, to assist you along your journey as opposed to only engaging your external counsel once a dispute arises. The many benefits of engaging a legal professional regularly include conducting legal due diligence of your business and its risks, the execution of existing contracts, putting in place project management systems and upskilling internal teams. These mechanisms and engagement your business the millions of  rand it often costs to litigate in SA. A few case studies illustrate how the lack of litigation mitigation processes and techniques resulted in lengthy, expensive litigation.

In one example, a dispute arose relating to a contract entered into with a municipality. The risk of this litigation could have been curtailed had the original team included basic document collation and preservation methods, as well as regular oversight over the implementation of contractual provisions. In addition, had a legal professional conducted a regular audit over the implementation of the relevant contract, they could have pointed out the risk of any legal issues arising at an early stage.

Another example involves an unprotected 2009 strike at a mine, resulting in the dismissal of 4,000 employees. The matter made its way to the labour court, resolving  the issue for 1,200 employees. However, it cost the mine just over R8m in legal fees, and its financial liability in the matter ran in excess of R250m. Had the mine used different strike management principles, there may have been fewer dismissals, which would have in turn reduced or done away with the selective reemployment which later occurred. Reaching a settlement with the majority union within the first year of the litigation would have reduced the financial liability. Moving the main trial to private arbitration not only brought an end to the matter but also allowed for the expeditious argument of some preliminary points.

Kayana is head of dispute resolution, Mohamed is head of corporate and forensic investigations and Hinxman a consultant for employment and labour law, all at CMS SA.