Arbitration Update: English High Court Finds Enforceable, An Agreement Between Parties To Resolve Disputes By 'Friendly Discussion' As A Pre-Condition To Arbitration

Introduction

On 1 July 2014 the Honourable Mr Justice Teare handed down an important judgment in the case of Emirates Trading Agency LLC v Prime Mineral Exports Private Limited [2014] EWHC 2104 (Comm) following an appeal by Emirates Trading Agency LLC ("Emirates") challenging the jurisdiction of a tribunal.

The judgment is important as it takes one step further, the thus far reluctant support of the courts (at least at home) to hold parties to agreements or obligations to negotiate disputes in good faith as a pre-condition to arbitration.

Emirates applied, pursuant to s.67 of the Arbitration Act 1996, for an order that the arbitral tribunal lacked jurisdiction to hear and determine a claim brought by Prime Mineral Exports Private Limited ("Prime Mineral") on the basis that the condition precedent to arbitration, namely an agreement to enter into time limited negotiations, had not been satisfied.

Mr Justice Teare (overturning the tribunal's finding on the point) found that an obligation on the parties to seek to resolve disputes by "friendly discussion" was legally enforceable. However, on the facts, the Court decided that the pre-condition to arbitration had, in fact, been complied with and therefore the Tribunal did have jurisdiction in any event.

The judgment provides a review of the obligations on parties in relation to pre-conditions to arbitration and the distinction between those agreements to negotiate in good faith which are enforceable and those which are merely "agreements to agree".

Brief facts of the case

Emirates agreed to purchase iron ore from Prime Mineral pursuant to the terms of a Long Term Contract dated 20 October 2007 (the "LTC"). Emirates failed to lift the required quantity of iron under the LTC as a result of which Prime Mineral claimed liquidated damages.

On 1 December 2009 Prime Mineral served a notice of termination under the LTC. The claim was referred to arbitration in June 2010 pursuant to clause 11 of the LTC which provided as follows:

"In case of any dispute or claim arising out of or in connection with or under this LTC including on account of [any] breaches/defaults ... the Parties shall first seek to resolve the dispute or claim by friendly discussion. Any party may notify the other Party of its desire to enter into consuLTCtion to resolve a dispute or claim. If no solution can be arrived at in between the Parties for a continuous period of 4 (four) weeks then the non-defaulting party can invoke the...