Emirates Trading Agency Llc v Prime Mineral Exports Private Ltd

A time-limited dispute-resolution clause in an existing commercial contract may create an enforceable condition precedent to arbitration. An obligation to seek resolution by friendly discussions imports a requirement to act in good faith, meaning that the parties must engage in fair, honest and genuine discussions directed towards resolving the dispute.

The obligation is not incomplete or uncertain merely because breach may be difficult to prove. The parties need not confine their discussions to strict contractual rights; wider commercial interests may legitimately be considered. A period during which no solution is reached operates as a waiting period before arbitration, rather than necessarily requiring discussions to continue throughout the whole period.

Emirates Trading Agency LLC challenged the jurisdiction of an arbitral tribunal under section 67 of the Arbitration Act 1996. The dispute arose from a long-term contract for the purchase of iron ore. The contract required the parties first to seek resolution of disputes by friendly discussion and provided that arbitration could be invoked if no solution was reached for a continuous period of four weeks.

The tribunal had held that the clause was unenforceable but, alternatively, that it had been complied with. The jurisdiction challenge was reheard by the court. The issues were whether the clause was an enforceable condition precedent and, if so, whether the parties had engaged in sufficient discussions before arbitration was commenced.

1. Application dismissed. The arbitral tribunal had jurisdiction.

2. Clause 11.1 imposed a mandatory obligation to seek to resolve disputes by friendly discussions. The use of “shall”, contrasted with “may” in the provision concerning notification of a desire to enter into consultation, showed that friendly discussions were required before arbitration.

3. The clause was enforceable. It was part of an existing and enforceable contract, was not incomplete, and contained an identifiable standard: fair, honest and genuine discussions directed towards resolving the dispute. Difficulty in proving breach did not make the obligation uncertain. The obligation was not inherently inconsistent with negotiation because the parties had voluntarily accepted a material restriction on their freedom not to negotiate.

4. The obligation imported a duty to act in good faith. The parties were required to make an honest and genuine attempt to resolve the dispute, but the discussions were not confined to strict contractual rights or to fidelity to the existing bargain. Wider commercial interests could be considered.

5. The reference to four continuous weeks did not necessarily require discussions to continue for four weeks. It required the relevant discussions to take place and, if no solution was achieved, a period of four continuous weeks to elapse before arbitration could be commenced.

6. The meetings on 1 and 2 December 2009, and the further meetings in February and March 2010, were friendly discussions conducted in good faith concerning the claim for liquidated damages. The claim need not have been mentioned in express terms where the parties were plainly seeking a solution that would avoid arbitration. More than four continuous weeks had elapsed before the claim was referred to arbitration. Any requirement to give notice of a desire to enter discussions had been satisfied or waived in the circumstances.