In a recent decision, the Commercial Court considered whether a requirement in a dispute resolution clause to seek to resolve a dispute by “friendly discussion” before any arbitration proceedings could be issued was enforceable...
In the case, Emirates Trading Agency LLD V Prime Mineral Exports Ltd a dispute had arisen between the parties. The written contract related to the purchase of iron ore by Emirates from Prime. The dispute arose because Emirates failed to dispose of all the iron as expected. Prime served notice of termination and claimed liquidated damages stating that if the claim was not paid within 14 days they reserved the right to refer the matter to arbitration without further notice.
The contract contained a clause that the parties should seek to resolve any dispute by “friendly discussion” with the added proviso that if the dispute had not been resolved within a continuous period of four weeks the non-defaulting party could then refer the dispute to arbitration. Emirates sought to rely on this clause by way of response to the notice of termination.
Various meetings did then take place between the parties wherein settlement options were discussed but no settlement occurred and arbitration proceedings were issued. The arbitrators found that they had jurisdiction because the obligation to enter into friendly discussion was not enforceable but even if it was so enforceable, the clause had been complied with.
Emirates challenged this under Section 67 of the Arbitration Act 1996 alleging that the relevant clause was a condition precedent that had not been satisfied and thus, the arbitrators had not had jurisdiction. The application failed but only because the Court held that the clause (which the Court found was enforceable) was satisfied because friendly discussion had taken place between the parties.
Distinguishing other existing Court of Appeal authority Teare J considered that Courts should seek to give effect to parties’ agreed dispute resolution clauses that purport to prevent them from arbitrating a dispute without first seeking to resolve the dispute by whatever means is recorded in the parties’ contract. He also considered that there was a public interest in giving effect to such clauses.
Despite the fact that the application failed, this decision is controversial and is a departure from established existing law. It may well therefore mark a turning point in the enforcement of such clauses not only as regards the issue of arbitration proceedings but also court proceedings.
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