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10 Factors to Consider Before Settling a Commercial Contract Dispute

Settling a commercial contract dispute allows the parties to move on. Once they settle, they can get back to business as usual, and this is often not only in their own best interests but in their customers’ best interests as well. Of course, settling also reduces the costs of dispute resolution, and it avoids the inherent uncertainty of going to an arbitration hearing or trial.

Even so, the decision to settle is not one that should be taken lightly. In fact, there are several factors involved in deciding whether a settlement makes sense in light of the circumstances presented. When settling a commercial contract dispute doesn’t make sense, coming to terms can often have the opposite of its intended effect.

Key Questions to Consider When Evaluating the Potential Settlement of a Commercial Dispute

So, when does it make sense to settle? Here are 10 questions to consider when evaluating the potential settlement of a commercial contract dispute:

1. Is the Other Party Likely to Comply with the Terms of the Settlement?

One of the first key considerations is whether the other party is likely to comply with the terms of the settlement. For example, let’s say your company suffered business losses because a contractor failed to meet its contractual obligations on time. If you settle for damages and an agreement that the contractor won’t commit similar breaches in the future, how likely is the contractor to comply? Does the contractor have the resources to comply? Or is settling simply delaying inevitable litigation?  

2. What Remedies Are Available for Non-Compliance?

When negotiating a settlement to a commercial dispute, it is essential to address the possibility of non-compliance. If the other party doesn’t uphold its end of the bargain, what remedies does your company have available? There are several ways to address (and mitigate) the risk of non-compliance in a settlement agreement, and companies must work with an experienced Miami breach of contract lawyer to ensure that they have suitable protections in place.

3. What is the Risk of a Similar Situation Arising in the Future?

Another factor to consider when evaluating settlement options is the risk of a similar situation arising in the future. Was this a one-time issue, or is the other party (or is your company) at risk for committing similar breaches down the line? If you can foresee a similar situation in the future, this is a factor that should play into your settlement analysis as well.

4. What Rights Is Your Company Giving Up By Settling?

Settlements inherently involve compromise. Even if your company is receiving damages or other remedies in a settlement, it is almost certainly giving something up in exchange. Thus, a key question when evaluating settlements is always: Is the exchange worth it?

For example, when one party agrees to pay damages in a settlement, the other party will generally give up its right to sue. But is this waiver appropriately limited to the dispute at issue? Or, is your company giving up the right to sue for unrelated claims—or similar claims of which you might not currently be aware?

5. What Rights Is the Other Party Giving Up By Settling?

Equally important when negotiating a settlement is understanding what rights the other party is giving up in the agreement. When negotiating settlements, commercial parties have the opportunity to be creative, and an experienced Miami breach of contract lawyer can help you make informed and strategic decisions about the language you include in a settlement. After executing a settlement agreement, the last thing you want is to discover that you failed to secure the protections that you could—and should—have secured during the negotiating process.

6. What is the Likely Outcome of Arbitration or Litigation?

In order to know whether it makes sense to settle a commercial contract dispute, you need to know what is likely to happen if the dispute goes to arbitration or litigation. If your company is clearly entitled to damages, then you should be willing to give up little during the settlement negotiation process. Conversely, if your company is at risk for substantial liability, then you will need to factor this risk into your cost-benefit analysis.

7. Does Settling Have Implications for Any Third-Party Contracts?

In some cases, settlements between contracting parties can have implications for their respective third-party contractual relationships. If settling a dispute by renegotiating commercial terms or waiving the right to sue could leave your company exposed vis-à-vis a customer or other third party, this is a factor that you cannot afford to overlook during your company’s settlement negotiations.

8. Does the Settlement Include Adequate Confidentiality Provisions?

Typically, it will be in both parties’ best interests to keep the terms of their settlement confidential. If other companies know what your company is willing to accept in the event of a dispute, this can give them leverage in the event that a similar dispute arises down the line. While settlement agreements will typically include boilerplate confidentiality provisions, it is important to work with an experienced Miami breach of contract lawyer who can make sure that the confidentiality clause in your company’s settlement agreement provides adequate protection.

9. How Will Settling Impact Your Company’s Reputation with Customers and the Public?

The impact of any settlement on your company’s reputation with customers and the public is an important factor to consider as well. If the settlement gets publicized, will it paint your company in a positive, negative or neutral light?

10. Are There Better Alternatives Available?

Finally, when evaluating the costs and benefits of settlement, it is also important to assess whether there are better alternatives available. For example, if your company is facing liability, could it be better to consider a business bankruptcy? While settling is almost always an option, it isn’t always the best option, and determining what makes the most sense for your company requires a comprehensive assessment of all of the options that are on the table.

Contact the Commercial Dispute Resolution Lawyers at Edelboim Lieberman Revah

We represent companies in commercial contract disputes, settlement negotiations and business bankruptcy proceedings throughout Florida. If you would like to speak with an experienced Miami breach of contract lawyer in confidence, please call 305-768-9909 or request an appointment online today.

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