Settling Breach of Contract Disputes: Litigation vs. Arbitration 

When a breach of contract occurs, deciding how to resolve the dispute is a critical step for protecting your business or practice. Two common paths for settling these conflicts are litigation and arbitration, each having its advantages and drawbacks. While both aim to enforce contractual rights and provide remedies for harm caused, they differ significantly in process, cost, timing, and privacy. Understanding the key differences between litigation and arbitration can help you make an informed decision about the best way to resolve your dispute efficiently and effectively. Here is what to consider when attempting to resolve a breach of contract situation.

What Is a Breach of Contract?

A breach of contract occurs when one party fails to fulfill their obligations under a legally binding agreement. When parties sign a contract that meets the legal requirements for the state the contract is executed in, the parties are legally bound by the terms of the agreement. For example, let’s suppose that Party A promises to supply durable medical equipment (DME) by a certain date, and Party B promises to pay for the DME by a certain date. If Party A or Party B does not do what they have promised to do when they have promised to do so, then they are in breach. 

Why Do People Breach Contracts?

People breach contracts for various reasons, ranging from financial difficulties to misunderstandings about the agreement’s terms. In some cases, a party may lack the resources or cash flow to fulfill its obligations, such as making payments or delivering services. Others may breach due to negligence, poor planning, or unexpected business disruptions. Sometimes, breaches are intentional—one party may believe they can gain more by walking away from the agreement or entering into a more favorable deal elsewhere. In other situations, disagreements over contract interpretation can lead to unintentional breaches when one party believes they are in compliance but the other disagrees. Regardless of the reason, a breach can seriously harm the non-breaching party.

What Can I Do If The Other Party Breaches the Contract?

If the other party breaches a contract, you have several legal options depending on the terms of the agreement and the nature of the breach. One of the first steps is to review the contract to determine your rights and obligations, including whether there are specific dispute resolution procedures outlined, such as litigation or arbitration. Litigation allows you to take the dispute to court, where a judge can enforce the contract and award damages or other remedies. Arbitration is a private process where a neutral third party resolves the dispute outside of court. Here are the pros and cons of each.

Pros and Cons of Litigation

Litigation is often the route that most people think they need to go. There are some benefits to this route. Litigation results in a legally binding outcome that can be enforced by the court. If the outcome is unfavorable, parties typically have the right to appeal, offering an additional layer of review. Because court proceedings are part of the public record, the exposure can help deter future breaches or misconduct by bringing things out in the open.

However, there are definite downsides to litigation. Litigation can be time-consuming, with cases often taking months or even years to fully resolve. It can also be expensive, as parties may incur significant costs for attorneys, court filings, and expert witnesses.

There is public exposure, since court proceedings and outcomes are generally part of the public record. Parties have less control over aspects like the timeline of the case, the final outcome, and which judge is assigned.

Pros and Cons of Arbitration

Some of the reasons people choose arbitration often center on the fact that it is generally faster than litigation, resolving disputes in months instead of years, making it an appealing choice for those seeking a quick resolution. Although arbitration can still incur costs, it is usually less expensive than litigation due to its streamlined process and reduced procedural requirements, cutting down on expenses like court fees and witness costs. A major benefit of arbitration is its confidentiality, as proceedings are private and the details of the case are not made public, which is especially beneficial for businesses concerned about negative publicity.

There may be reasons to avoid arbitration. Arbitration decisions are typically binding, with a limited right to appeal, which can be a disadvantage for parties who believe the ruling is unjust. The discovery process in arbitration is more restricted than in litigation, limiting access to evidence and potentially affecting the strength of a case. While parties can select their arbitrators, this can raise concerns about bias, especially if one party feels the arbitrator may favor the other side. Although generally less expensive than litigation, arbitration can still be costly, particularly when involving high-profile arbitrators or a panel, leading to significant fees in complex cases.

What Should You Choose?

Although there are pros and cons to both litigation and arbitration, there is no hard and fast rule for every breach of contract situation because the situations can vary so much. However, these are some things to consider when deciding on whether to go to arbitration or pursue litigation: 

• How complex the case is: If the dispute involves complex legal issues or substantial damages, litigation may be preferable.
• How important confidentiality is: If privacy is a key concern, arbitration is often the better choice since the process is confidential and does not become part of the public record.
• How much it will cost: While litigation can be expensive due to court fees, expert witnesses, and lengthy timelines, arbitration is generally quicker and more cost-effective, though it can still incur significant fees depending on the arbitrators’ fees and the complexity of the dispute.
• How important the relationship is with the opposing party: If maintaining a business relationship with the opposing party is important, arbitration may be more conducive to a collaborative solution. In contrast, litigation can be more adversarial and might damage relationships.

Contract a Breach of Contract Healthcare Law Attorney 

A breach of contract in healthcare can lead to serious financial and legal consequences. A healthcare law attorney with experience in breach of contract issues can help interpret contract terms, assess damages, and represent your interests, whether it is in arbitration or litigation. Their expertise is crucial for resolving disputes efficiently so that you can focus on your practice. Contact us for immediate assistance.