Companies in the tech industry are often presented with mundane problems: that of what do we do with pending and imminent litigation? How to derive positive result from one? Whether protracted litigation or litigation generally may be prevented or preemptively resolved? How value assessment of concluded litigation may be used to identify potential areas of opportunity to mitigate risk?
This paper offers answers to these questions and attempts to raise the reader’s consciousness toward the importance of these issues.
Common Areas Where Disputes Arise
Labor and Employment: keeping valued employees and disengaging unsuitable employees usually cause as much difficulty as recruiting. Moreso all of these processes have avoidable landmines beginning as early as recruitment. Firstly, let’s bear in mind that although employment traditionally takes two forms, namely: contract of service and contract for service, both having distinct legal and operational implications. For tech companies, in the spirit of innovation and corporate values-driven eye for efficiency at affordable cost, introductions like work-for-equity employment arrangement are being adopted and there is no gainsaying that this helps micro startups through their early periods to fruition. However, this employment arrangement presents risks far above what traditional employments do.
Structuring and Investment: the tendencies for disputes can begin right from the incubation of and sharing an idea, through forming a company, creating a product and successfully attracting investment. Some of these disputes arise between founders; founders and prospective investors; founders and investors; founders and regulators. The subject of such disputes includes unauthorized disclosure or use of confidential information; shareholding and control; product; non-compliance with extant laws and relevant regulations.
Intellectual Property and Confidentiality: in an industry such as tech that uses peculiarly volatile but highly valuable and sensitive products, the risk of intellectual property breach is not only high but potentially more damaging. This poses one of the major threats to the industry and of course a major area where disputes often arise.
Contracts: contracts in tech, like other commercial contracts often require interpretation, and enforcement where there is breach of some or all obligations, it is therefore an area where concrete litigation preventive or remedial (against reactive) measures should be deployed timeously.
Payment Services, Loans and Recovery: from experience, this area of fintech seems to be the most volatile target for internet fraud or phishing which usually turns out to be untraceable and when traceable through onward transfer or payment destinations, the mechanisms required to secure recovery are too expensive or uneconomical. Equally, loan and debt recovery are other areas where dispute arises more often than it does in payment service.
Data: through regulatory compliance, management members in tech companies have become familiar with data protection laws, their obligations and the importance of adherence. Nevertheless, this area still remains a crucial area where disputes often arise between the company and customers or third parties and between the company and regulators.
Other areas include: actions of the board of directors and documentation; methods of marketing and distribution; real estate planning; insurance, health care and pension coverage; securities law compliance; product liability etc.
While there is precautionary cover by offered by lawyers during structuring, contracts stages as well as regulatory compliance, the cover usually falls short in forestalling all threats of litigation. In fact, I daresay that there are disputes that arise regardless of how perfectly a company is structured or its contracts negotiated, drafted and reviewed, some disputes also appear to be unforeseeable or inevitable.
While some of these problems or disputes may be prevented through what we have devised as dispute resolution risks-based legal audit, others require specialized remedial measures to achieve values-based results through effective dispute resolution mechanisms, many of which are already available but largely untapped.
What is legal audit? Generally, a legal audit focuses on a single aspect of a company’s business and analyzes the legal position. A legal audit ensures that no hidden risks exist within a company. The problems a legal audit identify are those that put the company at risk for penalties and litigation. While a legal audit performs an in-depth analysis of one area of a company, it is not so intrusive as to interfere with a company’s day-to-day operations.
In the form of legal audit that this paper proposes, instead of focusing on one specific area for a company’s operation, it will focus on all or high-risk aspects with the objectives of assessing impending litigation risk, the degree of possible exposure and outlining action steps to forestall litigation and/or claims.
To conclude, let’s consider an example in the area of labor, this legal audit will focus on the need to ensure cover for predictable areas of disputes from regularization of recruitment documentation; developing and adherence to company policies; developing and periodically updating disciplinary and termination policies in line with extant laws and contract; proactive action steps to settle with employees who may raise valid claims for unlawful termination, dismissal or other causes.
Here, this paper presents to the reader the idea of effectively reducing protraction in courtroom litigation through effective case-flow and case management, effective judgment enforcement and adoption of innovative trends.
With respect to debt and loan recovery, innovative trends like the establishment of the small claims court brought about by the Lagos State Judiciary which, now serves as model for other states provides a giant leap in our judicial process as well as viable mechanism through which fintech companies may recover loans and debt within the 60 days prescribed by the practice direction for small claims court. A small claims court is created with jurisdiction to entertain simple and liquidated debt recovery claims not exceeding N5, 000,000.00 and counter claim not exceeding N10, 000,000.00. It is time and cost saving because there is quick and efficient resolution of disputes within 60 days of filing. There is also limited adjournment which results in fast-track proceedings. In practice, courts have an average consolidated time to disposition of 66 days per case.
Upon completion of litigation, it is important to encourage and accept proposition from lawyers to carry out value assessment of concluded litigation which may be used to identify potential areas of opportunity to mitigate risk and set action steps that can provide cover for your company from exposure and depleting viability.
Suitable alternative dispute resolution (ADR) mechanisms: this is another viable solution to mitigating lengthy and protracted court procedures. The methods of ADR include Negotiation; Mediation; Conciliation; Arbitration.
Some courts have created ADR Centers to ease out of court settlements and promote the adoption of alternative judicial mechanisms. These courts include: National Industrial Court–ADR Center; Lagos State High Court – Lagos Multi-Door Courthouse (LMDC) and The Federal High Court.
Finally, it is imperative and in line with the objectives of this paper to highlight the effects of ADR obligations created by contract, the extent of this obligation and the need to only insert ADR clauses that best suit the type of contracts because one size does not in fact fit all. From experience, parties to contracts have hit stumbling blocks as a result of the mandatory arbitration clause in their contract for example. This is because although Arbitration is highly effective in commercial disputes and in disputes generally, unlike other methods of ADR it is not cost-effective, therefore it is not suitable for contracts where for example, the parties are startup companies or founders, or contracts whose subject involve low monetary value.
What is the effect of an ADR clause in a contract?
When a contract has an ADR clause, generally, when a dispute arises it places an obligation on the parties to such contract to firstly explore the method of ADR specified in the contract in the order that the contract prescribes, before proceeding to court if a resolution is not reached.
What happens when one party decides not to participate in order to frustrate the other party?
The law provides that it is enough if the aggrieved party notifies the defaulting party of his intention to explore ADR, where the defaulting fails to take any step, the aggrieved party may proceed by submitting such dispute to the court without falling in breach of the ADR clause.
The questions examined in this paper which typify the challenges being faced by tech companies and the proposals offered underscore the importance of embracing a proactive approach to prevent avoidable litigation and adopt effective and values-based dispute resolution processes where litigation is unavoidable or beneficial.
 A Contract of Service is an agreement between an employer and an employee
 Contract For Service is a contract where instead of an employer-employee relationship, there is a client-contractor type of relationship
 Working for equity means a company compensates employees with shares in a company