Chapter D3
Rule 3 - Seek Quick Results
There is no such thing as a cheap war. There are any number of reasons why. For a start it needs money, lots of money. It needs people, equipment, consumables, logistic support and lots of time. Worse, all these resources are not used to create something: they are used to engage in destruction. It doesn’t matter that ‘enemy’ assets are destroyed. In any war, the destruction occurs on both sides for at least three reasons. First, if you hit somebody, he is going to hit you back. Both of you may end up with broken jaws. You may win in the end but you will come out busted and bruised. Second, you would have spent a lot of time brawling, time you could have spend earning money and getting richer (or doing more social work and uplifting the Gross National Happiness). That’s also true of the employees you use to run your brawls. Third, brawls are bad for business. If you spend your time beating up people on the pavement, no one will come to your shop. You will have the reputation of an ‘avoidable type’. People will lose confidence in you and they won’t deal with you. That’s probably true of your shareholders too. Who wants to invest in a business which is neglected because the managers are always too busy brawling on the street to run the business?
Then there is the unpredictability of it all. You may think you will beat up someone on the pavement but will that be the end of it? For all you know, your victim’s cousins will show up with weapons of targeted destruction and you will dive back into the shop and down the shutters to avoid a hammering. Your remaining customers will now disappear. You will then call your cousins and they will come with weapons too. Soon you will have a full-blown riot in the street. This is when the cops get involved. For a start, they will arrest everyone concerned and stick them into the slammer. That’s a dozen people in jail who should be at work. It never ends there though. Someone would have been injured so both groups will end up defending criminal cases. These cases will then go on for a decade, or three. You will spend a hundred days hanging about the criminal courts instead of running your shop. When tempers have finally cooled a very long time later, you will find that no one came out any better off but what remains of your life is much shorter than it was. At that point, would you remember what it was you started the brawl about?
Here is the thing to remember: you can start a war, but you do not decide when it ends. In some societies, you may have a reasonable ability to predict its end date, and it is likely to be some years. In India, this kind of calculation is impossible. I have fought plenty of cases that have run for longer than 30 years. In most cases, I was hired after they had run for 20 or more. In many cases, both the original litigator and the original lawyer had died of old age. At its heart, the Justice Machine is very litigation friendly. Because litigation can be started cheaply, your anger management issues will drive you to file more and more cases and your enemy will pay you back in kind. It’s not just the ease of litigation though: the incentives of the Justice Machine promote the proliferation of litigation. It’s a hierarchal structure, which means that any issue any level of the hierarchy decides can be agitated again at the next higher level.
As young lawyers, I recall all of us coming into the profession with zeal, a belief that we were there to provide expeditious solutions to defined problems to a budget that made business sense. Then we got Justice Machined! The system was ponderously slow, and largely unconcerned with the interest of the fee-paying customer. In time, most of us resigned ourselves to walking in rhythm with the environment in which we operated. I see many litigating parties experience a similar transformation. Litigants come into the courts as newbies with a high degree of energy focused on their goals. The system fails to respond to their zeal. They suffer what I suppose is the Five Stages of Litigation Grief: first Denial, then Anger, then Bargains, then Sorrow and then Acceptance!
If you plan to fight a case, it may help to understand these Five Stages of Litigation Grief a bit better. Shortly after entering the wheels of the Justice Machine, most litigants find themselves shocked. ‘What’s this’? ‘Dates of hearing six months apart’? ‘Hearing after hearing in which nothing happens’? ‘How can this be’? There is complete Denial. ‘This can’t be happening to me’. ‘Its not true’. As they start to get ground down, this Denial turns to Anger. ‘I have a stupid lawyer’. ‘He is slothful and obviously clue less’. ‘I need a better lawyer’. The litigant loses his temper and screams at the lawyer. The lawyer simply shrugs, or worse, laughs. The litigant can change his lawyer, but how does he know the next one would get it done any faster? Sometimes, this anger focuses on the judge. ‘The judge is corrupt’. ‘This is rank incompetence’. I have seen litigants stand in court and shout at judges. It’s not pretty. Nine times out of ten, the judge is gentle about it. He understands the frustration. He does not run the Justice Machine alone. There is not that much he can do. Occasionally, he loses his temper. He issues a contempt notice but in time, his sense of humanity overcomes his anger. In the end, nothing much happens. There is no escape from the system. You can run with it, or you can destroy yourself.
Enter now the ‘Bargain’. The litigant starts making extraordinary offers to his lawyer. ‘If you get this done faster, I will give you so much more money as an incentive’. ‘Can we bribe the Court Reader to give shorter adjournments?’. Better still, ‘can we please fix the judge and make him do something quickly?’. He might even get his lawyer to try some of these tactics. In the long run though, none of it works much. The Justice Machine is a juggernaut. Its movements are very determined, and very slow. It crushes everything in its path, including the ambitions of its fee-paying customers. Inexorably, the litigant reaches stage four. He is engulfed in Sorrow. ‘This is so sad’. ‘We should all be ashamed’. ‘This is my karma and my destiny’. The litigant sinks into a kind of debilitating sulking despondence. It helps him to eventually achieve some mental balance, but it does nothing for the litigation he is fighting. While this process goes on, the litigation often goes into a limbo. He has lost the energy to keep going.
Eventually, he comes round. The ship has been launched and he must now sail it. The litigant adapts to the reality. He finds acceptance. It is what it is and he has to get on with it. Now that he knows how it goes with the Justice Machine, he adapts his thinking and starts thinking of adapted solutions. Thus, it comes to be that after this long and exhausting process, a litigant comes to a point where he should have been before he started his little war. If he had known, would he have done it differently? Maybe he would have done it differently, or maybe he would have not, but either ways, he would have saved himself much angst and he would have been more efficient in his decision making.
The message we take home from all this comes in two parts. Both are simple and self-evident. First, if you want to partake of the joys of the Justice Machine, you should make an attempt to understand its true nature before you jump into it. This will prevent some nasty surprises but more importantly, will help you make smarter decisions. Second, once you know that the system is slow and ponderous, you would find ways to make it quicker and more solution oriented. We have seen many examples in this book where litigants have worked around the sloth in the system and found speedy resolution to their legal problems. Here is a little Aide Memoir to remind us how it was done in three different cases.
Metro Cable case
Let us recall the essential facts of the Metro Cable case. This pan-national cable TV company had controlling equity in every JV company it operated across the country. In all cases, management control was handed over to the local partner. Metro also owned all Head-End Satellite reception center in each of these territories. Metro then leased this equipment out to each local JV Company. In turn, these JV Companies connected the Head-End to each local cable operator through its network of city-wide cable system.
In this particular case, Reddy, AP Cable’s MD became a law unto himself and Metro Cable was unable to persuade him to work for the common good of both partners. He continually ran up losses in the JV while lining his own pockets. When Metro confronted him, he threatened to move out with all cable operators.
Did Metro Cable want a dog fight with a partner who controlled the business, the Head-End, the customers and the cash flow? And if Metro Cable did want a dog fight, what was the correct way to go about it? On the simple principle of it, Metro could adopt the text book straight-line approach. Metro could call for a board meeting, seek Reddy’s explanation, remove him from his MD’s post (without proof of misappropriation), and then try and terminate his directorship at an expeditiously convened general meeting of shareholders. This seems simple enough, but surely, Reddy would have his own storyline. He would deny misappropriation and claim helplessness. What could be do if customers didn’t pay AP Cable? Metro couldn’t prove defalcation. He was the nominee director of a 49% shareholders: Metro couldn’t simply throw him out on a whim.
The pragmatic truth is that this kind of straight forward tactic rarely works. If Metro Cable issued a Board Meeting notice, Reddy could go to the local court and get a status quo order. He could then quickly move customers out of AP Cable and to another company. Given the opportunity, he could also remove key bits of the Head-End equipment and empty out whatever remained in the Bank accounts, leaving Metro holding the bath water with no baby in sight.
Metro Cable needed a blood less coup. It chose to divert Reddy in a Board Meeting, seize control of the JV Company’s offices, ferret out proof of defalcation, transmit the information to a tardy Board proceeding, use that information, not to remove him as director, but to merely strip him of executive powers, appoint a committee to further inquire into the allegations, appoint a new Managing Director, change all bank signing authority and turn the cable operators against Reddy. We have studied how Metro implemented such a plan. Thus, in one fell swoop, Metro Cable took complete control of the JV Company, and then sat back, waiting for Reddy to hit them with court cases.
Metro succeeded because it planned for rapid action. It succeeded because it quickly moved to achieve substantially all corporate objectives in a single stroke. At the end of the day, Metro probably succeeded because it planned a war where most all major battles had been won even before the first battle started.
Metro Cables is a good illustration of high-speed action, immaculately planned, flawlessly executed and quickly won. Its greatest strength lies in a plan that won the war before the war began.
Regrettably, it is not always possible to implement such a strategy. There are cases where the action must begin with a court case, not with a pre-emptive strike. These are the cases where the pre-emptive strike, as it were, is the court order. The war begins by getting a stay order, and the litigant then hangs on to that order at all costs forcing a settlement of the dispute. The trick is to structure the case in a way that the court thinks it makes total sense to grant such an interim order, and yet, in truth, the order is so damaging that no defending party can suffer it for too long. Such an order must seriously threaten the defending party’s designs. If possible, it must cause the defendant daily losses. This is the key thing: the order has to be such that it makes more commercial sense to settle the case than absorb the damage while being at the mercy of the Justice Machine. The Ecological Solutions Case, discussed in the previous chapter, is just such an illustration.
Ecological Solutions case
The Ecological Solutions blew up because a group of relaxed bureaucrats failed to protect the Society’s interest in a commercial contract, which they had signed with Khanna for the operation of its hospitality facility. When they did finally figure it out, they hastily terminated the contract without considering its implications. Khanna had already invested substantial resources in time, money and market reputation into the project. He was already ‘in the deal’. It wasn’t a matter of not letting him in: it was about kicking him out. That is a very different animal.
But termination did occur. What were Khanna’s options? For one, he could sue for breach of contract in which he could claim substantial damages. If he had been allowed to perform the contract to its full term, he would have made a lot of money. His second option was to find a way to force the Society to take back the termination, to cancel the cancellation so to speak. If he somehow obtained an interim status quo order, he could then sit on the order till the war of attrition compelled the Society to review its decision to terminate.
His first option was correct in law. If someone breaks a deal with you, he has to pay for the losses he causes you. You can’t force him to remain in the deal. Strictly speaking, there is no commercial marriage that cannot be terminated: one just has to be ready to pay the bill! In practice, this works poorly because the Justice Machine delivers results very slowly, if at all. Khanna had neither the resources, nor the patience to suffer that process. The good news is that the Judiciary knows this too. All to often, they ignore the law and help aggrieved parties get round the failures of the Justice Machine. On this belief, Khanna planned a quick war. He managed to get his interim status quo order. In time, the pressure from those who had paid for the hospitality facility became unbearable. The Society was forced to sue for peace and Khanna won.
Just to be clear, calling a battle quick does not make it literally quick: its quick because it lets you get to where you want to very quickly. Then time comes to a near standstill! This is of course in your interest. The law says every interim ex parte stay order (passed without hearing both sides at an initial stage) should be decided after hearing both sides within thirty days. That’s not how it turns out most of the time. The court has to wait for your enemy to appear in court, then file his reply, the for you to then file your rejoinder, and only then can it decide if the initial order should survive or be withdrawn. Once you have a stay order in your hands, it is in your interest to make very elaborate ‘arguments’ over many days before the Court gets to decide what to do with the initial order. You also have other weapons in your arsenal. Whatever happens to the initial order, you can appeal the decision, as the other side can. Meanwhile, the main case is stalled, awaiting decision in just that one application. More often than not, that one application and that initial order will decide what happens to the whole case because long before the parties get to a second application, they are driven to a settlement. The sloth in the Justice Machine then becomes the foundation of a great part of litigation strategy.
Let us turn to another case to examine how a litigant’s compulsion to quickly finish the war impacted the litigation strategy in practice.
The Weizmann case
We have already discussed the Weizmann case, a war for corporate control between a foreign majority shareholder and Gupta, the minority Indian Promoters. When the deal was made, Weizmann included an ‘indemnity clause’ in the JVenture Agreement by which Gupta would have to compensate Weizmann for any false representation it made to Weizmann about the company. This indemnity clause stated that if Weizmann discovered after the acquisition that the agreed accounts of the company were incorrect because of a willful misstatement of a fact, or a willful omission to state a material fact, Gupta and his associates would compensate the Indian company for the losses so caused to the Indian company.
Once it became clear that Gupta had engaged in an accounting fraud, the simple and straight forward legal solution was to sue Gupta and enforce the indemnity. Weizmann looked at this option and decided against it. For one, there were substantial court fees to be paid up front. Secondly, there was no room for some sort of interim order which would seriously encourage Gupta to settle the case. The case could go on forever. Even if Weizmann did ultimately win, would Gupta have the money to pay the bill ten years down the road?
Here is a little tip for you to tuck into your gun belt. In life generally, your ability to get a useful answer to any issue frequently depends upon your ability to ask the right question.
Weizmann at this point asked itself the right question. It did not ask: how do we get Gupta to compensate the Company. Instead, it asked: how do we get Gupta to stop fighting and get out of there. The answer then became simple. It was only about money. Weizmann had to undermine his financial credibility. The simple way to do that was to cut off Gupta’s revenue streams. Gupta received a hefty salary and perks from the Company. All his money was invested in the Company. The Company was sick and would not declare dividends for many years. Given its financial track record, he could not sell his shares in the stock market either. Most significantly, Weizmann controlled the company and therefore in effect controlled the share valuation. Gupta seemed to have no other income. He could not start another business without seed capital.
If squeezed for cash even as his litigation costs spiraled, what could Gupta do but find a way to cash out the shares he held in the Company? Pushed to a corner, Gupta to cash this asset at a discount after compensating the Company for its losses. This would give Weizmann 100% control over the Company. This would also allow Weizmann to recapitalize the company, buy out public shareholders and get out of the whole sick company conundrum. Weizmann decided to go down this road. It was a resounding success. After the last of the litigation went into limbo, Gupta sued for peace. Although the entire indemnity amount was never recovered, part of it was set off against the acquisition share price and Gupta sold out cheaply. Within a year, the whole matter had been settled.
We can synopsize this entire chapter in a simple message. Every litigation must be short, focused, self limiting, and decisive. A slow litigation is the same as losing a litigation. In the attrition of a slow litigation, both sides lose.