Chapter C3
Rule 3. Planning Defensive Litigation
In the previous chapter, we observed that in any upcoming legal war, your first duty to yourself is to ensure that you do not suffer defeat. We have observed that the duty to prevent defeat stands at a far higher pedestal than the duty to secure the conditions for victory. The problem with this statement is that we assume that you have a choice to make. This is not a fair assumption. All litigation is not a matter of choice: there are occasions when one has no choice but to litigate. What happens if you do not believe yourself capable of victory and do not wish to engage in litigation. You may end up in a situation where you don’t want to fight but are forced to defend a legal case?
Then again, there may be a situation where you do not want a fight but you are in a position of advantage relative to your enemy. Here, you would want to protect the status quo even as you don’t want to achieve any new goals. You may have assumed so far that the only purpose of litigation is to win something or get to a certain goal. That’s not true of course. You can use litigation as a tool of preservation, as a tool to defend your turf so to speak. You can use your legal war only as a stonewalling tactic. You then fight to keep things from changing.
Then again, you may have assumed that all litigation has a finite life with a beginning, a middle and an end. This is true in a theoretical way, and you may think you are justified in conceiving of your strategy based on a “prepare, fight and finish” model. If your only agenda is to keep things from changing, you don’t want your legal war to finish. You want to keep the show on the road as long as possible and to achieve that, you want the fight to last forever. The good news is that Indian court cases last so long you may well get this result without trying too hard! This is the main reason why the Buffalo school of jurisprudence finds such spectacular success in India.
The finer point here is that it is perfectly possible to be the aggressor, to be seen to be looking for a solution to ‘something’, and yet to be actually trying to keep ‘something’ (and perhaps even everything!) from happening. Indeed, given that offense is sometimes the best form of defense, it may well be that you start a legal fight pretending to be an attacker when actually, everything you do suggests you are a defender! This posturing is implicit in our study of ‘Occupation of the Field’. If you have the high ground, why would you do anything but hang on to the high ground? In this chapter, let us look at the sequitur to the ‘Occupation of the Field’ rule. This is the rule on Planning Defensive Litigation. To understand this rule, let us look at a case where both litigating parties instituted court cases, but one party did so entirely defensively, with no purpose in mind than to stop anything at all from happening.
The Altel Case
Altel was a US registered company, mainly in the business of manufacturing telecom equipment. After DOT started aggressively reshaping India’s telecom sector in the late 1980s, a number of private players set up manufacturing operations in India even though DOT was the only customer. The license-quota-permit Raj was alive and well at the time and we soon had ourselves the usual hellish world of nepotism, scandals and general discontent.
India meanwhile was trying to leapfrog the technology gap and span three generations of telecom equipment in one. At that time, there was wide recognition that India simply did not have the money to lay out miles and miles of fresh copper in the ground. It needed access to new technology by which the same copper wires could be used to carry many times the number of signals over the same pair of wires. DOT now put out successive tenders for the supply of such Carrier Subscriber Systems. Since we were still in the stone age at the time, a ‘foreign collaboration’ was the only way forward.
Bentel, an enterprising young Indian company, persuaded Altel to exploit the opportunities of the Indian market and successfully mounted the collaboration bandwagon. Altel agreed to transfer to India technology embedded in one of its existing Subscriber Carrier Systems which met DOT specifications. Parties executed a License Agreement, and the specifications of this Subscriber Carrier System were written down in an annex. It was pretty clear what exactly Altel sold to Bentel and for how much.
After signing the License Agreement, Altel transferred the promised technology to Bentel, together with some kits. It also helped train key Bentel employees in the manufacture and use of this technology. In turn, Bentel set up a factory and strengthened its ‘marketing network’ in the corridors of DOT. When DOT announced yet another tender for the supply of a large number of Subscriber Carrier Systems, Bentel was there to play the game but ran into trouble.
For the first time, the fine print in the tender revealed that DOT now wanted a perfectly legitimate safety device to avoid unnecessary accidents in the field i.e a “Snooze’ feature. It was all simple electronics. The moment a human hand touched a telecom wire, the Snooze feature reduced line voltage to a lowly 50 volts. This new tender condition found its sleaze fest. Whispers were heard that only one company in India had that feature pre-incorporated into its equipment, that the minister had been paid off and that in any case, the carrying voltage was not such that accidents would occur even without this feature. It’s true that this one company did extraordinarily well in that period but then, so what?
Bentel was not stupid. Necessary or not, safety features cannot be resisted. Bentel asked Altel to provide technology for this feature. Altel had discontinued this product line at home and didn’t want the hassle. It said it sold a well described existing technology and had no ability and no motivation to now start new R&D on old obsolete technology. This was true, which is why it was cheap enough for Bentel to buy! In any case, India was still a small market and there was no profit in sophisticating a technology that had little market in the rest of the world when everyone else knew fiber optics was the way forward.
Then some middle level executive in Altel screwed it all up. In a fit of do-goody decency, he wrote that Altel had no interest in developing the technology, but they knew an independent expert who would design an Add-On module for US $ 10,000, half of it paid in advance. Bentel was quick to accept this offer verbally and confirmed that a Development Order would follow shortly. The advance never came and that started a legal case.
To be fair, it is possible to sympathize with Bentel. India had brutal exchange control laws at the time. To give you a flavor, if you wanted to travel abroad, your foreign exchange entitlement was eight dollars. Bollywood even made a movie about it in 1967 called ‘Around the World in Eight dollars! It had the legendary Raj Kapoor playing lead so you know this was India’s universal reality!
It seems Bentel hadn’t the time or energy to remit the advance to this expert so it asked an American contact to place the Development Order. The American contact placed the Development Order but failed to pay the $ 5000 advance. That failure did not prevent Altel senior executives from ringing the panic bells. Altel went into overdrive. It told Bentel it was not going to accept any such order though Bentel was free to work directly with the expert. Bentel protested noisily but did it have a choice? It contacted the expert who said he was happy to do it but only after his current engagements ended in four months. Bentel didn’t have four months to spare. Bentel desperately tried to buy time with DOT. It argued that the ‘Snooze’ feature was unnecessary and tried to have them withdrawn. When it failed, it went to court against this tender specification and lost the case. With no orders and unserviceable debt, its business failed. It now wanted someone to blame.
Meanwhile Altel was sold to another company and the entire previous management disappeared together with a lot of the correspondence. When Bentel again contacted the now reincarnated Altel, Altel had no idea what the claim was and how it had arisen. Altel asked for settlement talks, but then found no way to understand Bentel’s grievance. Frustrated, Bentel issue a notice of claim of US$ 5 million and asked for arbitration under the License Agreement.
The Arbitration clause in this case was before a Tribunal of three members. In issuing its claim, Bentel appointed one arbitrator and asked Altel to appoint the second arbitrator within thirty days. Bentel reacted with confusion. What was this case about? They found an Indian law firm, but then didn’t know what to say to them. When the thirty-day deadline ran out, this law firm appointed the second arbitrator “without prejudice to its client’s rights remedies and liberties” etc. This was all very well but Altel didn’t want a fight. They asked Bentel to help them understand the case.
Bentel was jubilant. This looked like a quick out-of-court settlement. Masses of papers arrived at Altel’s door. It did not have the intended effect. Altel realized that this claim was all about the Snooze feature. The License Agreement had no reference to such a feature. Where was the ‘arbitrable dispute’? Why should Altel pay US$ 5 million for failure to supply a feature they did not agree to supply? The claim had other legal fine print that made no sense. This was a claim of a breach of contract, but the measure of damages was not the breach! In India, damages are paid to put the injured party in the position it would have been if no breach had occurred. Bentel was at best entitled to such profits it would have made if it had won every tender. Instead, Bentel wanted to be paid for the factory it had set up, the foreign trips it had made, the people it had hired, the dinners it had consumed and whatever else it had done in the last decade. In sum, it wanted to be paid for the factory it built and it wanted to keep the factory at the same time!
The claim was wildly exaggerated. When Altel added up the value of all the tenders floated by DOT with the Snooze feature and derived an average profit, Bentel’s claim was as little as $ 250,000/-. It was a case worth fighting even though it had no desire to fight an unfathomable battle in an alien country working to a legal system it did not understand. Altel now changed tack. It said there was no need to appoint a third arbitrator because there was no arbitrable dispute between parties. This forced Bentel to go to court.
Formal hostilities opened in Jaipur when Bentel filed a simple application asking for the appointment of the third arbitrator (under Sec 8 of the old 1940 Arbitration law). Altel objected, claiming that there was no arbitrable dispute and besides Jaipur had no jurisdiction to hear such a case.
There was substance in the jurisdictional objection. The Jaipur court decided this question needed settling before it needed to decide if this Snooze feature question was capable of arbitration. How do you decide which court has jurisdiction when the contract between parties is silent on the point? Bentel would need to bring witnesses to court to establish this point. It looked like the case would go on a long time.
Altel decided this was the perfect time to raise the bar and complicate the issue. It was time to start a defensive litigation in a totally different court on the same jurisdiction question and let the two courts argue it out between themselves! As it turned out, the law of the time provided the perfect vehicle to do this.
The old Arbitration Act contained a procedure under its Sec. 33 by which a party to an arbitration agreement could ask a court to decide if a particular dispute could be decided in arbitration or not. The scope of the court’s inquiry under Sec. 33 was much wider than the one under Section 8: the court had the power to look at the total dispute. This meant that there was much more room for a crafty lawyer to create the kind of confusion that keeps cases in courts for decades. Altel decided to file its Section 33 counter attack in Alwar, a dusty Rajasthani town on the border of Haryana close to the industrial estate where Bentel had set up its factory.
It was the perfect choice. Alwar courts had just two leading lawyers who invariable appeared against each other in every court and neither of them knew anything about the Indian Arbitration Act! As far anyone could remember, its corridors had never seen an arbitration case. Altel filed a 90-page petition with about 400 pages of supporting annexes. It would take forever to get through all this to arrive at a decision in a court unfamiliar with the subject and unlikely to ever need to do it in a second case of a similar nature. Altel didn’t care either ways because it hadn’t filed the case to win it.
Bentel now found itself in a logistic nightmare, prosecuting two cases on more or less the same subject in two different town against an enemy who was prepared to throw money at the problem. It sent a lawyer from Jaipur every time to defend the case in Alwar. Provincial India being what it is, Altel’s local lawyer was always able to adjourn the case every time it came up for hearing. It soon became clear that whatever happened next, there would be two decisions on the same subject after many years of this kind of stalling and then several rounds of appeals would follow. An arbitration on what if anything Altel owed Bentel in damages now seemed like a remote possibility. In the face of this stonewalling, Bentel lost heart. Its own Sec. 8 petition slowly ground to a halt and as it did, Altel also gradually demobilized its own forces. Eventually, both parties basically abandoned these cases.
The Altel case is a great example to show that pushing for a decision one way or the other is not necessarily the best battle strategy. Cases may be filed to win and they may be filed to complicate the situation and make it difficult to resolve the problem. Defensive Litigation is filed to secure gains already made and to preserve the status quo. When faced with a compelling litigation which cannot be avoided, the smart litigant moves to preserve, to hold off, and to maintain the status quo. Planning is as necessary to win as it is to preserve.