Emirates Trading Agency v Prime Minerals (2014)
This case is significant because it creates an exception to the general principle that an agreement to negotiate is unenforceable. The High Court decided that it could enforce a clause in the parties’ agreement requiring them to negotiate in good faith for four weeks before commencing arbitration proceedings.
The dispute resolution clause in the agreement entered into between the parties contained the following wording: “In case of any dispute....the Parties shall first seek to resolve the dispute... by friendly discussion... If no solution can be arrived at 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”.
The parties did have a dispute and arbitration proceedings were commenced. The claimant applied to court for an order under section 67 of the Arbitration Act 1996 that the tribunal lacked jurisdiction to determine the claim because the condition precedent set out in the clause above (i.e. a requirement to engage in time limited negotiations) had not been fulfilled and hence arbitration could not take place. The High Court reviewed prior case-law to the effect that an agreement to negotiate is unenforceable on the basis that it lacks certainty, but concluded that prior case- law could be distinguished because of the time-limited nature of the provision here. The Court held that: (i) the provision was complete as no essential term was lacking; (ii) an obligation to seek to resolve disputes by friendly discussions imports an obligation to do so in good faith; (iii) a time limited obligation to seek to resolve a dispute in good faith should be enforceable; (iv) an agreement to seek to resolve a dispute by discussion or negotiation does not prevent the parties considering their wider commercial interests; and (v) an argument that a party has not acted in good faith is not too uncertain. It may be difficult to establish, but an example would include a party refusing to negotiate at all.
The High Court remarked that: “good faith connoted both honesty and the observance of reasonable commercial standards of fair dealing. Where a party clearly fails to honour such standards of conduct judges and commercial arbitrators will have no particular difficulty in recognising and identifying such failures”.
The High Court went on to distinguish this case from the Court of Appeal decision in Sulamerica v Enesa Engenharis: “Since the obligation in that case was to seek to have the dispute resolved amicably through mediation rather than by friendly discussions in good faith I have considered whether this is a material distinction given that mediation is merely a supervised form of discussion or negotiation with a view to resolving a dispute. However, I consider that it is a material distinction because in the absence of a named mediator or an agreed process whereby a mediator could be appointed the agreement was incomplete. An agreement to seek to resolve a dispute by friendly discussions in good faith is not incomplete”.
The Court went on to find that the condition precedent had been satisfied here. The Court did not believe it was necessary to show that the friendly discussions lasted for four continuous weeks but even if this was necessary, it held that that condition had been met: “Although no meetings lasted for four continuous weeks, the discussions can fairly be regarded as doing so”.