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Thursday, May 12, 2011

So why do corporates hate jury trials/court processes?

Right from an employment contract to an ISDA agreement, two standard clauses leaps out at you 'waiver of jury trial', and 'arbitration clause'. That dashes any hopes of staging 'The Runaway Jury' type Grishamseque trials, and wheedling out millions of filthy lucre for any supposed offenses. From the corporate's point, you cannot fault it. Typically, their counterparties would be less sophisticated(individuals or SMEs or even other interbank parties at times), and would evoke more sympathy from a jury of their peers. Though one signs away the right to challenge the fairness of contracts etc, when the interpretation of law enters grey areas; when the issue comes about discretionary/punitive damages and emotions come into play, then juries can even ignore the 'true intent' of law and instead apply common commonsensical principles.

The famous Nanavati murder trial in India(1950s) is a classic case where despite a confession, the jury found the decorated naval officer not guilty by way of insanity of murdering his wife's lover. That case(where the jury verdict was declared a mistrial) led to abolition of jury trials, and now common law systems like India rarely have them. Modern corporates have learned at considerable expense(ask any tobacco company!) about how much juries may feel for the underdog. And now judicial activism(judges bend the legal interpretation to achieve their own version of social good over legal correctitude)  is plaguing countries like India. So now, arbitration is the in thing, specially to decide over technical matters/highly specialized issues like construction, finance etc. The advantage of this for frequent users is that the arbitrator(like an auditor) is beholden to the corporates for his appointment, so he may take their side in case of ambiguity. Also, the verdict(called 'award') of the arbitrator cannot be easily struck down for technical grounds(like alternate view possible etc).

High legal costs in the court system are not the only demerits of going to court. The (un)welcome publicity, disclosure of information, interrogation of key executives etc accompanying it; all these are good reasons to avoid court. That is why 'out of court' settlements are quite common, specially where the lawsuit may carry a reputation risk  as in most financial sector related lawsuits.

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