November 6, 2006

An American subsidiary has no rights -- How corruption leads to absurdity

When we registered our company in this country in 2002, we registered as a wholly owned subsidiary of the US based company. We took this decision for purely management reasons as we wanted to maintain control over the subsidiary.

A couple of years ago, the subsidiary had to take a large client, one of Africa's largest companies, to court after they would not pay their bills. After a year, many many court hearings, and lots of adventures I will eventually post about, we finally won a multi-million dollar judgment. Yea, we thought, finally! Our celebration was short lived. This client had better understood the legal environment than we had. Getting a judgment is one thing, enforcing it is a whole other.

The defendant filed multiple procedures to prevent us from collecting on the judgment. Their argument? Our company is a registered subsidiary of an American company and therefore we lack the judicial identity permitting us to appear in this country's courts.

What?! You can sign a contract with this subsidiary; use the product you bought from this subsidiary; you partially pay this subsidiary; this subsidiary can obtain a judgment; but when it comes to enforcing the judgment, this subsidiary has no rights. As absurd as the argument was, it took the lower court 6 hearings to render a decision (in our favor, thus against the "no rights" argument). The defendant took the case to the Court of Appeals which took 5 months to finally agree with the defendant. Yes, as a registered subsidiary of an American company, we have no rights.

Obviously, this is a huge loss for us but the repercussions of such an absurd decision are much farther reaching than our case. Indeed, all investors, local or foreign, must feel confident that their investment is protected. And, in case they have recourse to the courts, these will be impartial. If an investor from the all powerful USA cannot count on the judicial system in this African country, then who can?

There is evidence that the decision was reached after large sums were paid to certain judges by the defendant. We actually obtained proof of some of the transactions and submitted the evidence to authorities who did absolutely nothing.

We knew going in that in case of subjectivity, we would most certainly lose to this very wealthy and powerful defendant. This is why we sued only for contract based invoices, no damages. We thought that since the case had received so much attention, the judges would not risk taking decisions which were blatantly unfair. We were wrong. When faced with enough cash, the judges showed no shame.

How many investors will shy away because of this decision? How many jobs will be lost? The consequences of corruption don't end with immorality. There are economic consequences as well.

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