When a company is affected by a breach of contract issue, the situation can potentially disrupt business operations, damage relationships and lead to significant financial losses. Therefore, deciding the best way to resolve breach of contract disputes is consequential.
While litigation is a common method for resolving breach of contract issues, it may not always be the best approach. Understanding the advantages and disadvantages of litigation, as well as alternative dispute resolution (ADR) methods, can help businesses make informed decisions about their options.
Benefits and drawbacks of litigation
When a breach of contract case goes to litigation, the process typically involves filing a complaint against the other party (defendant), outlining the breach and the damages sought. If the case does not settle during the pre-trial stages, it proceeds to trial, where both parties present their arguments and evidence. The court then makes a decision, which may include awarding damages or specific performance.
Potential advantages of litigation include:
- Binding decisions: A court judgment is legally binding and enforceable, providing a clear resolution to a dispute
- Precedent: Litigation can set legal precedents, which may benefit the plaintiff company in future disputes
- Public records: Court proceedings are typically public, which can be advantageous if one party wants to make the breach known
With that being said, there are some potential disadvantages of litigation that companies should consider before committing to this approach. While litigation is the best option under a variety of circumstances, the following potential drawbacks may render an ADR approach preferable in certain situations:
- Costly: Litigation can be expensive, as pursuing legal action is often an involved process
- Time-Consuming: The litigation process can take months or even years to reach a resolution
- Adversarial: Litigation can damage business relationships, as it is inherently adversarial
- Publicity: Public proceedings can expose sensitive business information and damage reputations
Given the potential drawbacks of litigation, many businesses consider ADR methods such as mediation and arbitration when it may be possible to reach a favorable resolution without taking a dispute to court.
While litigation provides a formal, legally binding resolution to breach of contract disputes, it is not always the best option for every scenario. Therefore, it is generally a good idea for companies whose rights have been violated to seek personalized legal guidance before committing to a response.
