“Friendly discussion” as a condition precedent to arbitration

In a recent UK High Court Queen’s Bench Division case of Emirates Trading Agency LLC v Prime Ministerial Exports Private Limited [2014] EWHC 2104 (Comm), Justice Teare concluded that a dispute resolution clause in which parties agreed to “first seek to resolve the dispute or claim by friendly discussion” before referring a dispute to arbitration was enforceable. His Honour’s reasons were summarised at para [64]:
• The agreement was not incomplete; no term was missing. The parties had agreed to the condition precedent to seek to resolve their dispute by “friendly discussion” and that if no solution had been reached within four weeks, then the arbitration clause could be invoked. Unlike an agreement to engage in mediation, “friendly discussion” did not require details of the process involved or appointment of a third party dispute resolution practitioner.
• The agreement was not uncertain – “an obligation to seek to resolve a dispute by friendly discussions in good faith has an identifiable standard, namely, fair, honest and genuine discussions aimed at resolving a dispute.”
• The agreement was not uncertain merely because it might be difficult to prove a breach of the clause in some circumstances. In some circumstances it could be concluded that a party had failed to engage in friendly discussion (for example, by not engaging in any attempt to negotiate).
• It is inappropriate to suggest that a clause that has been freely entered into by commercial parties, by which they have “voluntarily accepted a restriction upon their freedom not to negotiate” is inconsistent with the position of a negotiating party.
• Enforcement of the agreement was consistent with the public interest on two bases; first, freedom of contract and secondly, to avoid expensive and time consuming formal dispute resolution processes (in this case, arbitration).
His Honour considered a range of prior decisions in the UK, Australia and Singapore about the enforceability of dispute resolution clauses. Teare J was particularly influenced by the reasoning of Alsopp P in the New South Wales Court of Appeal case United Group Rail Services v Rail Corporation New South Wales (2009) 127 Con LR 202 regarding an agreement to “meet and undertake genuine and good faith negotiation with a view to resolving the dispute.” However, Teare J disagreed with Alsopp J’s limitation of negotiations under such a clause to discussion of the parties’ assessment of their rights and obligations under their contract. Rather, the topics that could form part of a “friendly discussion” that aims to resolve a dispute are unlimited and potentially much broader than the contractual rights and obligations of the parties.

This is an interesting case for those curious about developments in the judicial treatment of dispute resolution clauses and attitudes towards the concept of “good faith” in negotiations.

 

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This entry was posted in Uncategorized by Dr Olivia Rundle. Bookmark the permalink.

About Dr Olivia Rundle

Dr Rundle is a senior lecturer at the Faculty of Law, University of Tasmania. She has worked as a nationally accredited mediator and a Family Dispute Resolution Practitioner. Dr Rundle is especially interested in the role of lawyers in dispute resolution processes and the policy environment that positively encourages lawyers to engage with dispute resolution. She teaches and researches in broad areas of Dispute Resolution, Civil Procedure and Family Law.

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