Not So Friendly 'Friendly Discussion'

'Friendly discussion'. Two words that perhaps on first sight appear uncontroversial as to their meaning. However, when put into the dispute resolution clause of a contract, these two seemingly simple words can create issues from a contractual certainty perspective.

Two recent cases heard in the English Commercial Court dealt with this issue (Emirates Trading Agency LLC v Prime Mineral Exports Private Ltd [2014] EWHC 2104 (Comm) ("PMEPL case") and Emirates Trading Agency LLC v Sociedade De Fomento Industrial Private Ltd [2015] EWHC 1452 (Comm) ("SFI case")). Gautam Bhattacharyya (Partner) and Simon Greer (Associate) acted for Sociedade de Fomento Industrial Private Ltd in the SFI case.

The clauses in question The contracts between the parties in both cases were iron ore supply contracts. Disputes arose under both contracts as to breaches of contract by Emirates Trading Agency LLC. Both contracts had dispute resolution clauses providing for English law as the governing law and providing for disputes to be resolved by way of ICC arbitration. However, both contracts also had similar wording in them suggesting that, prior to arbitration being commenced, the parties to the contract had to seek to resolve their dispute by way of 'friendly discussion' (for a period of four weeks in one case, and a period of three months for the other) namely:

"In case of any dispute or claim arising out of or in connection with or under this LTC including on account of a breaches/defaults mentioned ... above, 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 consultation 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 arbitration clause and refer the disputes to arbitration." "In case of a breach mentioned ... above, if such breach is not caused by an event of Force Majeure, the Parties shall seek to resolve any dispute or claim arising out of or under this LTC by friendly discussion. Any Party may notify the other Party of its desire to enter into consultation to resolve a dispute or claim. If no solution can be arrived in between the parties for a continuous period of three (3) months, then the non-defaulting Party can invoke the arbitration clause..." Why have such a clause? This is the first question that may come to mind. The answer is...