Achieving certainty, interpreting “shall be agreed” in a settlement agreement by reference to the ‘bigger picture’ – MRI Trading AG v Erdenet Mining Corp LLC [July 2012]

The facts

On 28 June 2005, Erdenet (“EMC”) contracted to sell copper concentrates to MRI. Disputes arose which were referred to an LME arbitration and were eventually settled by an agreement dated 30 January 2009. That agreement contained terms requiring performance of three future contracts which were attached in draft form.

EMC performed the first two contracts, but refused to perform (by refusing to deliver) under the third. This third contract stated that terms such as the treatment charge, refining charge and shipping schedule “shall be agreed”.

MRI issued proceedings for breach of contract and the matter was brought before another LME arbitration tribunal. That tribunal issued an award stating that: (1) as important information had not been agreed, the third contract was unenforceable due to uncertainty; and (2) the third contract must be read independently, without reference to the settlement agreement or the other two contracts.

MRI appealed under S69 Arbitration Act 1996 on the grounds that the tribunal was wrong to neglect the settlement agreement when interpreting the third contract.

The decision

The appeal was allowed.

  1. The third contract should not be read in isolation, but alongside both the settlement agreement and the two other contracts. The totality of the contracts were to be examined to determine the “bigger picture” of the relationship between the parties and their intentions.
  2. The language of the settlement agreement as a whole showed that the parties intended the three contracts to be binding. Use of the phrase “shall be agreed” indicated an intention that there should be performance of the contract rather than uncertainty and that the outstanding points identified would be agreed.
  3. That there was no statement that the parties “may” agree was held to be a strong indicator that the parties did not intend a failure to agree, or a refusal to negotiate, as entitling either party for walk away from the third contract.
  4. It was not impossible for a court or tribunal to identify reasonable charges, nor a shipping schedule, nor had the tribunal found that the relevant contract was unworkable in any way.

Comments

This decision was clearly highly fact specific, but demonstrates that the Court is prepared to consider the parties’ intentions when seeking to interpret arguments of uncertainty and particularly so when faced with arguments of unenforceability on the grounds that important outstanding issues were yet to be agreed. The Court applied the principle that it would look at the totality of the agreement, including the three attached contracts, and attention should be paid to the wider contractual background. Permission has been granted to appeal to the Court of Appeal.

Irrespective of the outcome of any Court of Appeal decision, the case reminds us that having such uncertain clauses in a contract is a clear invitation to a dispute. If key points cannot be decided at the time of signing, contractual mechanisms should be provided for to allow for an independent party to determine them. When in doubt, it is always better to draft clearly and concisely and ensure there is minimal room for uncertainty.