Sky-High Legal Fees One Reason Directors Must Consider Alternative Dispute Resolution

SKY-HIGH LEGAL FEES ONE REASON DIRECTORS MUST CONSIDER ALTERNATIVE DISPUTE RESOLUTION

With the country’s legal fees reportedly higher than those in Washington or New York—according to Jeff Radebe, Minister of Justice—it is no surprise that company boards are increasingly using arbitration and other methods of alternative dispute resolution to avoid costly litigation. [1]

This is just one reason why such methods are enshrined in King III, which recommends directors ensure that the company has in place mechanisms through which to resolve commercial disputes effectively and without incurring unnecessary cost. In practice, this means alternate dispute resolution via mediation, conciliation or arbitration.

"Alternative dispute resolution has become an important element of good governance because it enables directors to resolve a dispute quickly and cost-effectively,” said Mervyn King, chairperson of the King Committee, addressing members of the Institute of Directors in Southern Africa (IoDSA) on directors’ fiduciary responsibilities relating to dispute resolution.

Another important benefit for companies is that arbitration is a private process, which means that confidential company information does not enter the public realm, as it does during the conventional legal process. Companies who have their dirty linen washed in public via a court case almost inevitably suffer some reputational damage.

Speaking at the same function, Michael Kuper SC, chairperson of The Arbitration Foundation of Southern Africa (AFSA), explained that the Constitutional Court has found that private arbitration is not incompatible with the inalienable right of all citizens to have their disputes settled in the courts—provided that both parties opted for arbitration. This decision aligned South Africa with the rest of the world, where arbitration has come to play an increasingly important role.

"The United Nations has called arbitration the most important legal development since the Second World War,” Kuper said. "Here in South Africa, it has grown in importance since a robust, objective process administered by a neutral body was created via the founding of AFSA.” AFSA is the fruit of cross-disciplinary collaboration between all interested parties, including advocates, attorneys, accountants and business. It offers parties in dispute an accepted process and trained arbitrators to shortcut the time and expense of the legal process.

Kuper went on to argue that as trade between African countries grew, it was becoming essential to create a pan-African arbitration body through a similar collaborative process. "At present, companies operating across Africa have no ‘litigation safety nets’,” Kuper said. "Multinationals must either rely on litigation in the courts of the country in which the dispute occurred—something that is extremely risky for them—or on extremely expensive arbitrators from Europe or America.”

AFSA has launched just such an initiative, Africa ADR, to create an African arbitral authority in collaboration with players across the continent. "We need to create an African solution that will support Africa’s continued business growth by providing a way to resolve commercial disputes quickly and cost-effectively,” Kuper concluded.