English Commercial Court Enforces Obligation To Resolve Disputes By Friendly Discussion Prior To Arbitration

Emirates Trading Agency LLC v. Prime Mineral Exports Private Limited [2014] EWHC 2104

The English courts have previously grappled with the extent to which agreements to negotiate are unenforceable.

The previous authorities

In Walford v. Miles [1992] 2 AC 128, it was held that an agreement by the owner of a business to terminate negotiations to sell the business to a third party in exchange for the Claimant's promise to continue negotiations to buy the business lacked the necessary certainty and was unenforceable. How would the court police such an agreement?

This thinking underpinned later cases relating to dispute resolution clauses. In Cable & Wireless v. IBM [2002] EWHC 2059, the Court commented that an obligation to attempt in good faith to settle a dispute would have been unenforceable because of an obvious lack of certainty, but the contractual obligation to attempt in good faith to settle a dispute through alternative dispute resolution (ADR) was sufficiently certain to be enforced because the procedure to be followed was that recommended by the Centre for Effective Dispute Resolution (CEDR).

Also in Holloway v. Chancery Mead Limited [2007] EWHC 2495, the Court reviewed authorities concerning the enforceability of ADR agreements and agreements to agree, concluding that to be enforceable they had to be sufficiently certain, administrative procedures for selecting a party to resolve the dispute should be defined, and a process to be followed should be defined or sufficiently certain.

In Sul America v. Enesa Engenharis [2012] 1 LLR 671,the Court of Appeal had no doubt that a clause stipulating that prior to arbitration the parties would seek to resolve disputes amicably by mediation was enforceable and a clause that did not set out a defined mediation process or refer to the services of the specific mediation provider would not amount to an enforceable obligation to mediate. Also in WAH v. Grant Thornton [2013] 1 LLR 11, it was held that obligations in the dispute resolution clause were too nebulous to be given legal effect as an enforceable condition precedent to arbitration. To be enforceable, an obligation to attempt to resolve a dispute amicably before referring to arbitration needed to be:

"(a) A sufficiently certain and unequivocal commitment to commence a process;

(b) From which may be discerned what steps each party is required to take to put the process in place; and which is

(c) Sufficiently clearly defined to enable the court...