The existing dispute arises from a disagreement over a system integration project between Galactic and Solutions. The fourth integration of a four-part system has been left unfinished by Solutions causing strained communication, threats of legal action, and payment retainment. Both parties blame the other for being responsible for the incomplete integration with Galactic’s sales estimated to be taking a continuous loss of close to $5000 daily from the incomplete integration. This paper intends to provide recommendations to Galactic’s CEO on the various legal matters at play and the best way to move forward while suffering minimal additional loss.
From the information provided, various legal actions would be recommended depending on the initial contract. The first assumption is a breach on the part of Solutions Inc. According to ‘Damages for Breach in Commercial Contracts’, the non-breaching party is entitled to damages to indemnify them due to the losses caused by the fault of the breaching party (Practical Law, n.d). In this case, the losses suffered by Galactic due to the incomplete integration arising from Solutions’ incompetence include daily losses of close to $5000 and the potential risk of turnover. If found in breach of contract by a court of law, Solutions will be required to cover the losses as damages in addition to extra costs arising from breach of contract. As such, Galactic should seek legal help in resolving the matter to avoid further loss.
The issues arising from this dispute highlight the importance of a clear definition of risks and responsibilities of each party in a commercial contract as documented in ‘Risk Allocation in Commercial Contracts’ (Practical Law, n.d). The contract between Solutions and Galactic was in disregarded the risks and responsibilities relating to the integration, therefore, resulting in the current stalemate. Solutions blame Galactic for failure to provide vital information about their systems, while Galactic blames Solutions for not assessing the four integrations more diligently.
A second assumption would be if according to the existing contract between the parties, both of them may be in breach having failed to uphold the terms stated as applicable to each. In this instance, the allocation of risk provisions in the contract may come into play. The provisions guide how to allocate losses in the event of a breach on both sides(Practical Law, n.d). If the contract is silent on risk allocation, the court may apply the principle of “contributory negligence” to allocate damages between the parties. Contributory negligence evaluates the extent to which each party contributed to the loss, and the court may reduce the number of damages payable by the violating party appropriately (Mulheron, 2016).
The non-breaching party may be entitled to damages if only one party broke the agreement. Contract damages are intended to return the non-breaching party to the position they would have been in had the agreement has been upheld. The party who didn’t break the contract must demonstrate the losses they sustained as a result of the breach, and the losses must have been conceivably foreseeable when the deal was struck (Cimino, 2015). In this case, if Galactic is in breach of the contract between itself and Solutions, it would be forced to indemnify Solutions by paying the full amount and the additional damages arising as a result of the withheld payment. As such, a careful examination of the contract binding the two parties will need to be carried out before determining the next course of action.
If Galactic goes to court, a number of claims could be pursued. Firstly, damages for loss of earnings could be sought. Galactic says that they are losing between $2,000 and $5,000 per day in orders because they are unable to access data in the connected systems quickly enough to meet customer demands. Other potential claims include; damages for breach of contract, damages for the cost of remedial work, and damages for the loss of senior sales representatives. Demonstration and proof of these claims will result in recompense. The recoverable amounts would depend on the evidence presented. If the company can prove the sales team’s estimation of daily losses of $2000-$5000, the total loss is the amount recoverable as damages for loss of profits.
Litigation processes are usually long and drawn out. As such, they are often time-consuming and costly. Alternative dispute resolution models could be pursued to reduce the cost incurred and spare the public image of both companies. According to Domke et al., (2022), one of the models applied could be a negotiation. This is a voluntary, non-binding process in which the parties can choose to involve a third party or not. It is advantageous in that it allows the parties to maintain control over the outcome and reach. The main disadvantage is the unwillingness of either party to compromise which will result in failure or an impartial solution.
Another model, mediation includes a neutral third party who assists the parties to conclude (Domke et al., 2022). Its advantage is the opinion of a neutral third party who offers suggestions without bias, therefore, leading to an amicable solution. It may not however be effective if the parties are unwilling to participate or if there exists a big imbalance of power between the parties. A third alternative solution is an arbitration in which the parties present their case to an arbitrator who makes the final decision. This solution provides the parties with a final binding decision that is enforceable in court. It is also faster and less expensive than litigation (Domke et al., 2022). It is however limited and does not provide the same level of procedural protections as in litigation.
Assuming the success of the negotiation model and the presentation of various amounts for settling the dispute, final offer arbitration is applied in case of disagreement on the values suggested. Under this method, Galactic would submit its final offer of $500,000 and Solutions present theirs of $100,000. Following a study of the offers, the arbitrator would decide on the one that, in their opinion, is the most reasonable without making any changes (Domke et al., 2022). The total compensation that Solutions would have to give to Galactic would be this sum. Final Offer Arbitration has the benefits of encouraging parties to submit acceptable proposals and being a reasonably speedy and economical method of dispute resolution.
In conclusion, the case of Galactic and Solutions is an example of the complexities that may arise from commercial contracts and how they can be addressed. The breakdown of negotiations between the two companies has brought about strained relations and losses on both sides. Through the use of alternative dispute resolution models, the parties can reach a mutually beneficial agreement outside of the courtroom. Going forward, the CEO of Galactic should take into consideration the suggestions put out to determine a valid course of action.
References
Cimino, C. F. (2015). The relational economics of commercial contract. Tex. A&M L. Rev., 3, 91.
Domke M., Wilner G., and Edmonson E.L. (2022). Domke on Commercial Arbitration
Mulheron, R. (2016). Principles of tort law. Cambridge University Press.
Public Law. (n.d). Practical Law articles on Damages for Breach in Commercial Contracts
Public Law. (n.d). Risk Allocation in Commercial Contracts.
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