Get to Know the Arbitration for Breach of Contract
When engaged in a transaction, many people rely on a contract to set out the terms that detail the rights and obligations of those involved. If those terms are not met, it could be considered a breach of contract, and the injured party may want to seek a remedy. While some may think that filing a suit in court may be the best alternative, many others prefer alternative dispute resolution (ADR), specifically arbitration. This is because arbitration offers benefits of expediency and cost-effectiveness that many businesses prefer. Here we discuss breaches of contract and how arbitration can be an advantageous solution for the parties involved.
What is arbitration?
Arbitration is a form of alternative dispute resolution. While it is not the same as litigation, it is the most similar to it among ADR methods. Unlike litigation, the parties, and not the court and legal system, determine the rules, scheduling, and other aspects of the arbitration, including appointing the arbitrator(s) who will oversee the proceedings. Like in litigation, where a judge or jury may decide outcomes, the arbitrator adjudicates the outcome, including any arbitral awards.
The involved parties are the ones who have control over how an arbitration unfolds, so there is greater flexibility for them, which in turn could lead to time and cost savings since they do not have to defer court schedules and fees or rely heavily on legal counsel.
What is a breach of contract?
A breach of contract is very much as its name implies – a contract is breached, in other words, broken. This violation could range from a failure to pay for a single purchase to a failure to complete a complex project. Basically, as mentioned above, a contract lays out the obligations of the parties involved in a transaction. Not fulfilling them can be construed as a breach of contract. There are different types of breaches, including:
- A minor breach would be a simple matter, such as delivering a washing machine a day later than contracted. In this case, the buyer received the product just a day later.
- A material breach would be more serious, where the breach significantly impacts the completion of the transaction contemplated in the contract, such as delivering building materials a week late to a construction site. In this case, the builder has lost time and money waiting for the materials but can still complete the project.
- A fundamental breach is a terminal, so to speak. This is when one party cannot fulfill their obligation at all, potentially terminating the contract, such as if a construction company goes out of business so that it can no longer serve a contract with a real estate developer.
- An anticipatory breach could be any of the previous three, but it is anticipated and reported to the others involved. So, the retailer calls the customer to say the washing machine will be a day late, the vendor contacts the builder about the delivery delay, and the construction company warns the developer about its impending dissolution.
How to settle breaches of contract
Even if there is a breach, there may not be cause to escalate. It may be a minor issue that technology has not harmed any party. Considering the little breach example – the buyer received the product as promised, only a day late. Even more serious breaches, which may be actionable, could be overlooked if all parties are satisfied with the progress or outcome of the transaction. The injured party in a material breach such as discussed above may not want to seek a remedy if the lost time or money is minimal by their account.
If a party believes that a breach of contract is actionable, then they must decide how to seek a remedy. The extent and value of the breach may compel some to bring a suit to court, demanding compensatory and maybe even punitive damages. However, this could take up more time and money than the actual value when considering litigation costs. Also, there may be limits regarding the lawsuit depending on the jurisdiction(s) involved. So, disputing parties may prefer a more affordable and flexible ADR method like arbitration.
Nevertheless, this issue may be moot since many contracts include an arbitration clause, which mandates that parties seek remedies in arbitration first.
Arbitration agreements for contract disputes
Many contracts include an arbitration clause, which sets out arbitration as the first stop in resolving any disputes between the involved parties. The arbitration clause (or arbitration agreement) details the rules and procedures of the arbitration and can include the appointment of the arbitrator(s) to decide on any settlements or awards. Importantly, an arbitration agreement should also specify whether it is binding or non-binding. If it is non-binding, the parties could skip arbitration and file a lawsuit in court.
In some cases, a contract will have language outlining how certain breaches will terminate the contract. This does not necessarily mean that the arbitration clause is terminated with the contract, thereby voiding the mandate to pursue arbitration. Many jurisdictions adhere to the concept of severability so that the arbitration clause or agreement is still in force even if the contract has been terminated.
Let THAC help resolve your breach of contract issues
Nevertheless, as with every other part of a contract, it is important for an arbitration clause or agreement to be well drafted so that neither party can contest it and demand going to court instead. One excellent option is to use model clauses offered by esteemed arbitration institutes, such as those available from the Thailand Arbitration Center (THAC). Additionally, THAC is a world-class resource for those contemplating or pursuing ADR solutions. THAC is conveniently located in central Bangkok, easily accessible by public transportation and major thoroughfares, including from international airports. This makes our state-of-the-art, full-service facilities ideal for local and cross-border ADRs, whether they are conducted through in-person or remote hearings. Please feel free to contact us at [email protected] or +66 (0) 2018 1615.