‘Friendly discussions’ requirement in dispute clause enforceable
EMIRATES TRADING AGENCY v PRIME MINERAL EXPORTS [2014]
This case involved a dispute resolution clause which required the parties to seek to initially resolve a dispute by ‘friendly discussions’. The Court had to decide how this clause should be interpreted, whether the provision was enforceable and if so, whether the clause been complied with.
Facts:
- A dispute arose between the parties whose contract contained a clause saying, “... the Parties shall first seek to resolve the dispute or claim by friendly discussion. ... If no solution can be arrived at between the Parties for a continuous period of 4 (four) weeks then the non-defaulting party can invoke the arbitration clause and refer the disputes to arbitration”.
- Various meetings took place during which the parties discussed options to settle the dispute but these ultimately failed. Prime Mineral then commenced arbitration proceedings.
- Emirates (E) challenged the arbitration proceedings, maintaining that the arbitrators did not have jurisdiction to rule on the claim as the dispute resolution clause required the parties to negotiate in good faith for a continuous period of four weeks and that this condition had not been met.
Decision:
- The Court concluded that the requirement to seek to resolve the claim by ‘friendly discussion’ was mandatory and had to be complied with before going to arbitration. The four week period referred to did not require continuous discussions but proceedings could not be brought until its expiry.
- It was then considered whether the dispute resolution clause was enforceable and the Court held that it was: it was complete, certain and the obligation to negotiate had an identifiable standard, namely a fair, honest and genuine discussion aimed at resolving a dispute.
- The parties had met on a number of occasions over the course of several months following termination to try to resolve their differences and the required ‘friendly discussions’ had in fact therefore taken place. Consequently the arbitrators did have jurisdiction to decide the dispute.
- As a result, E’s challenge to the arbitration was unsuccessful.
Points to note:
- In general, English law does not recognise ‘agreements to agree’ even in good faith. Such agreements have been held to be too uncertain to enforce, and the Courts have declined to do so because of the practical difficulties of monitoring and enforcing compliance. However, the provision barring arbitration until four weeks had passed meant that the circumstances in which a party could withdraw from discussions and commence arbitration were sufficiently certain to be enforced.
- The Court said that agreed dispute resolution clauses that purport to prevent the parties from starting court proceedings or arbitration without first seeking to resolve the dispute by friendly discussion for a defined, limited period, should be upheld. There was a public interest in giving effect to such clauses. This is entirely consistent with the avowed intent of the Courts to support ‘alternative dispute resolution’ pre-litigation if at all possible.