1. Tips to Stay out of Litigation
December 2005/January 2006 asialaw - 17
I
t is a well-acknowledged fact that
litigation is the ultimate tool for
harassed parties to obtain justice.
However, litigation as far as possible
should be the last resort to be exercised
by either the litigant or the defending
party, having exhausted all other
avenues available. Before exploring
the various methods available to avoid
litigation, it is important to understand
why litigation takes place and why it
should be avoided.
Why litigation takes place
Litigation can be necessary due to
both controllable and uncontrollable
factors. Controllable factors include
the disputing parties’ attitudes,
communications and actions.
Non-compromising attitude: A non-
compromising attitude and stubbornness
is what separates an unsuccessful
business from a successful one. It is
advisable and prudent to be willing to
compromise or even to negotiate instead
of being too egoistic or stubborn.
Lack of communication: Poor
communication produces unnecessary
misunderstandings between business
partners, which in turn lead to
misconceptions. Litigation is often
unnecessarily initiated when it would
have been possible to avoid it by merely
talking to the other party.
Acting by emotion and not reason: It
has often been seen that the decision
to opt for litigation is taken in the heat
of the moment by those who are most
personally affected by the disputed
matter. However, emotions often cloud
objectivity and the ability to evaluate
and think rationally about whether or
not to litigate.
In the auto sector, litigation normally
occurs because of the following:
(i) the profile of the customer has
undergone a significant change
from a passive to active mould and
the customer has become more
knowledgeable and demanding in
nature;
(ii) the company / distributor / dealer
doing business with the customer
does not provide sufficient product
quality;
(iii) poor customer service (pre/during/
post-delivery), and
(iv) poor after-sales service.
Typical examples of such problems
include customers promised products
with exact dates of delivery which are
not met, thus resulting in unnecessary
litigation. The correct method is to give
an indicative time for delivery instead
of the exact dates when it is not clear
whether delivery can be given on the
designated date.
Sales consultants, in their exuberance
to sell, giving unsubstantiated promises
to customers under various incentives,
including commenting on the
performance of cars, without specifying
under what conditions the performance
can be guaranteed. A common example
is an assurance on a particular mileage
of a car without actually explaining
under what conditions the mileage can
be obtained.
Why to avoid litigation
It is prudent to avoid litigation, as it
compromises business relationships,
incurs additional unnecessary costs,
damages a company’s reputation and
goodwill and detracts from a company’s
core work.
Risk to business relationships: Litigation
generally has the effect of either directly
or indirectly resulting in personal
grudges, which impacts existing and
future business relationships.
Practical Tips
to Stay out of
Litigation
Litigation is often considered
the last resort for business
partners involved in a dispute,
given the significant drain
it has on resources and
the heavy damage it can
bring to both companies’
reputations and relationships.
S Ramaswamy of Honda
Siel Cars India discusses the
various litigation prevention
methods available to
companies in Asia.

2. Tips to Stay out of Litigation
18 - asialaw December 2005/January 2006
Cost: Whether initiated by an individual, corporation or a government,
cost plays an important part in taking a decision whether or not to
litigate and can be a significant drain on resources.
Reputation/goodwill: Litigation brings with it the peril of damaging a
company’s reputation and standing, particularly within the industry
and with its employees and investors.
Shifting attention away from core work: Litigation has the effect
of not only distracting key personnel from discharging their core
jobs but also of leading to wastage of time and emotional stress,
resulting into reduced productivity. Litigations can be messy, time
consuming and expensive affairs, particularly in Asian countries
such as India where they take several years to resolve and thus
require the commitment of significant resources.
As far as possible, it is advisable to avoid litigation without in any
way compromising on a company’s values, ethos or principals by
meeting with customers and offering viable and workable solutions
in an agreed timeframe.
Ways to avoid litigation
Communicate: Lack of communication is a common reason for
ending up into litigation. By talking frankly, a channel of dialogue
is opened and if both parties approach it in good faith through
communication, a resolution to many problems can be reached.
Act fast: Typically, litigation is caused by a delayed reaction to
a situation which is not perceived to be urgent. This could be
due to lack of adequate resources available to manage potential
disputes and a limited level of dedication to resolve a dispute at its
inception stage. A company can overcome this problem by having
a faster review process which conforms to its business structures
and categorizes all anticipated risks.
Empathize: It is quite likely that the litigating party will have a well-
founded cause. It would thus be desirable to at least consider
the other party’s position in order to try and pursue a win-win
situation. Thus, by being empathetic to the cause of the other, an
amicable solution can be easily concluded.
Avoid working with litigious parties: Before deciding to conduct
business with new companies, it is worth researching into whether
they are litigious. If they are, such business partners are best
avoided, as they are likely to treat litigations as part of a cost
centre rather than something to be avoided at all costs.
Involve impartial parties: It is important to bring in representatives
who are not a part of the dispute to help resolve the issues. Many
times those not involved in the dispute can quickly discover the
real controversy at hand and offer a realistic alternative. Most
countries in Asia have formal and informal dispute resolution
bodies to help disputing parties reach a speedy settlement out
of court.
Deal in an ethical manner: Undoubtedly, the key to avoiding
litigation is to conduct all business dealings in an ethical manner
and in conformity with the terms of the agreements formed.
Irrational actions which violate contracts will only antagonize
business partners and may result in litigation.
Evaluate the economics of litigation: Before entering into litigation,
it is important evaluate all the possible results of doing so,
including the cost of lawyers, travel and hotel expenses. If the
economics do not provide a positive result, it is worth exploring
the option of meditation.
Documentation: To avoid all doubt, it is vital that business
partners enter into written documentation so that there are no
questions about the terms of the deal between them. It is best to
use industry-specific documentation which is commonly used and
understood. In case of doubt, it is worth having the documentation
drafted by an experienced law firm, as it is cheaper to pay for the
documentation review upfront rather than to litigate later.
Include litigation provisions in contracts: Every business dispute
will be either directly or indirectly related to a contract. A safe way
to avoid litigation is to build litigation-avoidance provisions into
business contracts. These should include:
(i) indemnity provisions associated with identified risks in the
other party;
(ii) clauses covering natural disasters;
(iii) the required notice period in case of a breach of contract
before filing for litigation, including details of a time period to
remedy a breach;
(iv) mandatory mediation and conciliation provisions before
arbitration;
(v) an arbitration clause in case mediation and conciliation fails,
and
(vi) an agreement to be bound by neutral experts opinions.
About the author
S Ramaswamy is currently working at Honda Siel Cars India, a
subsidiary of Honda Motors Japan, as company secretary and
head of legal, secretarial corporate affairs and internal audit. He
has held the position since 1996.