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Discussion clauses - court may force a friendly discussion

    • Shipping
    • Transport

    07-08-2014

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

    Facts

    • Emirates Trading Agency (Emirates) agreed to buy iron ore from Prime Mineral Exports (PME) but failed to collect all the order.


    • PME claimed liquidated damages of $1.5 million.


    • Following a similar experience the next year, PME terminated the contract and claimed liquidated damages of $45 million, threatening arbitration if not paid within 14 days.


    • Six months later an arbitration was commenced by PME.


    • The parties had conducted several discussions (both prior to and after termination) with Emirates seeking to get PME to withdraw the termination, without a resolution.


    • Emirates argued that the arbitration should be stayed as it had been commenced prematurely under the contract. 

    The vital clauses and questions

    • “In case of any dispute or claim arising out of or in connection with or under this [Agreement] … the parties shall first seek to resolve the dispute or claim by friendly discussion.


    • “If no solution can be arrived at between the parties for a continuous period of four weeks then the non-defaulting party can invoke the arbitration clause and refer the disputes to arbitration”.


    • Was the first clause enforceable?


    • What did the second clause mean?

    The law moves on

    • Agreements to negotiate are not enforceable as they are not sufficiently certain – Walford v Miles [1992] 2 AC 128.

    • Commitments to refer disputes to a named mediation body are – Cable & Wireless v IBM [2002] EWHC 2059 (Comm).

    • In Wah v Grant Thornton [2013] 1 Lloyd’s Rep 11 the Commercial Court said that an agreement to negotiate in good faith was “too open-ended”.

    • But a positive obligation requiring an attempt to resolve a dispute amicably before litigation, clearly enough defined to enable a court to decide what had to be done by the parties without further agreement, would be enforced – although it wasn’t in that case.

    • Recent Australian and Singaporean cases backed this up.

    Decisions in Emirates v. PME

    • There was a public interest in giving effect to a bargain made by commercial parties to prevent either one launching expensive litigation or arbitration without first seeking to resolve the dispute by friendly discussion as they had agreed to do.

    • Especially where this was a time-limited obligation.

    • The agreement in the relevant clause was ‘not incomplete’ so it could be enforced.

    • The parties’ discussions were sufficient to discharge the requirement.

    • The second clause did not require a continuous period of negotiation, but discussions should take place over that period at least.

    • The arbitration could continue.

    Learning points

    • This judge’s decision extends English law, though he says he is applying existing principles.

    • Extensive reliance on two non-English cases shows this.

    • A much clearer clause is preferable: some courts will consider ‘friendly discussion’ too nebulous a concept – eg is holding hostile negotiations compliant with the obligation?

    • The clause here involved an odd concept of engaging in discussions for a period of four ‘continuous weeks’ but the judge side-stepped it by holding protracted discussions were sufficient provided they were conducted in good faith.

    • Given the sum at stake, and the nature of the decision, we expect an appeal. 

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