I hope you’re doing well. Having read the scenario that you’re in, I am writing to inform you on three workable solutions which are mediation, litigation and arbitration. I will advise you on the best option for your current situation having explained the strengths and weaknesses of all three options.
The first possibility to consider is litigation. This is the process in which a person or company, can take legal action against another person or company through a legal proceeding in court. As you are the party being potentially sued against, you will therefore be the respondent and hence cannot commence the litigation. It is in your best interests to avoid going to court as this process can be very expensive due to the use of the courts resources, payment towards attorneys as well as, filling out court documents. It is also very likely that the court proceeding go on for months, or even years, extending these costs. In contract law, the damages which the other party ought to receive in respect of such breach of contract should be in reasonable contemplation of both parties when entering the contract. It is highly likely for you to pay £10,000 out of the £20,000 for the annual retainer as the contract was terminated in less than 2 years.
Also, the £60,000 claim in damages for the unpaid services is enforceable as it is already provided under the contract. However, there is precedent to support that you do not have to pay £70,000 for anticipated profits. The basic rule in Hadley v Baxendale stated that; It must also be considered either arising naturally or, reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it. It is unreasonable for you to have contemplated anticipated profits as this tailored specifically to HYTRI’s business which is not shared among other businesses. Also (in contrast?), in the case of Czarnikow v Koufos (The Heron II) it was held that, it must’ve been reasonably contemplated by both parties that the sugar market prices fluctuates frequently.
Therefore, the drop in market price of sugar would’ve been in contemplation of the defendant as a possible result of the breach. Consequently, the defendant had to pay damages for the difference in market price of sugar due to a contract for the carriage of a cargo of sugar was delayed. Due to this precedent, it is not reasonable for you to have known that a breach of contract would have resulted in loss of the anticipated profits claimed. The anticipated profits determined by HYTRI will be from a forecast which is only used by HYTRI of which you would’ve had no knowledge of. Therefore, at the time you contracted with HYTRI you had no information that a breach of contract will result in the loss anticipated by HYTRI and thus could only have been known to HYTRI themselves. Consequently, you would not pay any damages for anticipated profit, however you would pay a total of £80,000 in damages if proceeded to litigation based on precedent. Moreover, in the unlikely event of a loss there is a possibility that you will have to pay all the legal costs for the winning party, as well as your own costs making litigation highly undesirable. As well as this, going to court is a lengthy procedure.
This is partly due to the filing out of all the relevant documents as well as finding availability on a judge’s calendar. Subsequently, the process between HYTRI serving a lawsuit to you about the damages they’re claiming and your preparation to respond to that lawsuit is a matter of months. This back and forth process can be very time consuming. Despite court being a slow process, it’s also a very stressful experience with requirements to meet deadlines as well as the formal procedure of the courtroom itself can be overwhelming and tense. Litigation Is considered adversarial in that it will usually result in a clear winner. This can be damaging for the future relationship between you and HYTRI, potentially halting any future business with them, which could in turn prevent your company expanding across Leicestershire.
A Second option which is an alternative to going to court is mediation. This is a type of Alternative Dispute Resolution (ADR) in which a third party assists the disputant to communicate in order to reach an agreement that each party considers acceptable. Mediation can either be evaluative, where the mediator gives an assessment of the legal strength of a case, or facilitative, where the mediator concentrates on assisting the parties to define the issues. A main strength of mediation is the cost compared to litigation.
Employing a mediator costs significantly less than employing a lawyer and combined with the much quicker turnaround, you’ll be paying less money over a shorter period of time. Nevertheless, mediation is not binding, meaning if either you or HYTRI do not agree with the final settlement, the case can still go to court hence more time-consuming and an increase in expense with no consensus outcome. Nonetheless in mediation, unlike in a lawsuit, the parties are in control. Accordingly, the parties have a much greater say in negotiations and greater control over the outcome of the dispute. One of the most overlooked benefits of mediation is that it can help preserve business relations as it is a collaborative rather than an adversarial process. This may be a decisive factor for you if working with HYTRI in the future is considered. In order for mediation to be successful, it requires full participation between you and HYTRI to cooperate together.
The final option to consider is arbitration, another type of ADR. This is an adversarial process whereby the parties agree on one or more third neutral party known as the arbitrators. The third party will adjudicate all their disputes in which the arbitrators provide an arbitration award which is legally binding. A strength of arbitration is that the arbitrators are usually experts in the subject of dispute. Therefore, the arbitrators will have good knowledge and understanding in contract law, specifically in terminating a contract. One benefit from arbitration is that it’s confidential as it tends to be a private procedure. This has the advantage that outsiders such as the media do not get access to any potentially sensitive information, and both you and HYTRI do not run the risk of any damaging publicity arising out of reports of the proceedings. Another advantage is that section 1 of the Arbitration Act 1996 limits the interventions of the courts by giving a greater role to the arbitrators.
Despite the benefit of limiting the court, it is very difficult to appeal an arbitration award as its binding, which could in turn backfire due to the prevention of the courts lack of involvement to resolve the potential unfair decision made in arbitration. Therefore, it is crucial to be active and participate with arbitration in order to obtain the best decision. Moreover, the Act also guarantees party autonomy and that you and HYTRI should be free to agree how your disputes should be resolved, giving more freedom to both parties.
The main objective of arbitration is to obtain a fair resolution without any necessary delay or expense. As arbitration is not a court proceeding, there is no precedent to decide the outcome. Further, the arbitrators will look at all the key aspects for terminating the contract and determine a better decision rather than going to court where there is a pre-existing decision similar to this case in the common law.On balance, I highly recommend arbitration as the best course of action to pursue to resolve this dispute. This is mainly because arbitration employs the use of experts to give detailed advice specific to this conflict.
As the procedure is confidential, your reputation will also not be in jeopardy as sensitive information is preserved as private and not open to the public unlike in courts. Also, the party’s freedom in the involvement of the dispute from choosing the arbitrators to agreeing on a mutually acceptable agreement between both parties allows you to be a part of the proceedings. Permitting a fair verdict without the use of precedent is the predominant reason why arbitration is most appropriate in your position.
