In MRI Trading AG v Erdenet Mining Corporation LLC [2013] EWCA Civ 156, the English Court of Appeal upheld the enforceability of a supply contract despite the parties having failed to agree certain details. The Court of Appeal’s decision gives useful guidance on so-called “agreements to agree”, and promotes the use of arbitration by finding that contractual mechanisms for dispute resolution support certainty of contract.

MRI Trading AG v Erdenet Mining Corporation LLC [2013] EWCA Civ 156 concerned an arbitral tribunal’s finding that a cross-border supply contract was void for uncertainty. By setting aside the tribunal’s award, the Court of Appeal confirmed that arbitration clauses can cure apparently uncertain or incomplete terms. This is because arbitration clauses provide an agreed mechanism for giving content to the contract. The Court of Appeal’s decision is a useful reminder of the benefits of arbitration for parties negotiating contracts for future performance.

Background

In 2005, a Mongolian mining company Erdenet Mining Corporation LLC (“EMC”) and a Swiss trading company MRI Trading AG (“MRI”) entered into a contract for the sale of copper concentrates (“2005 Contract”).

In 2009, EMC and MRI settled disputes under the 2005 Contract by signing a Settlement Agreement (“2009 Settlement Agreement”) which included three new supply contracts in its schedules.

Two of the new supply contracts were fully performed. The third new supply contract (“2010 Contract”) was on similar terms but left certain details to be agreed—specifically, it left the “treatment charge”, the “refining charge” and the “shipping schedule” to be agreed during negotiations which would follow an annual meeting of metal traders in London. The 2010 Contract subjected disputes to arbitration under the London Metal Exchange (“LME”) arbitration rules.

Tribunal decision

EMC and MRI could not agree on the treatment charge, the refining charge and the shipping schedule, and as a result EMC did not deliver any copper concentrates under the 2010 Contract. MRI claimed that EMC was in breach of contract and the dispute was referred to arbitration under the LME arbitration rules.

In February 2012, the arbitral tribunal rejected MRI’s claim on the basis that EMC had no enforceable obligation to deliver copper concentrates under the 2010 Contract, stating: “The contract had left material terms as ‘agreements to agree’, and the tribunal has no option but to conclude that the delivery obligation was therefore non-existent”.1

High Court decision

MRI appealed the tribunal’s award on a question of law under section 69 of the Arbitration Act 1996 (UK).2

In July 2012, the English High Court set aside the award, agreeing with MRI that EMC’s delivery obligation under the 2010 Contract was enforceable on the basis of a “reasonable” treatment charge, a “reasonable” refining charge and a “reasonable” shipping schedule.3

Court of Appeal decision

In March 2013, the English Court of Appeal upheld the High Court’s decision.

The Court of Appeal rejected the tribunal’s conclusion that the 2010 Contract should be construed without regard to the 2009 Settlement Agreement, finding that the tribunal overlooked an express saving provision in the 2010 Contract with regard to the 2009 Settlement Agreement.4

The Court of Appeal also rejected the tribunal’s conclusion that the 2010 Contract was an “agreement to agree” and that therefore EMC had no delivery obligation. This was the substance of the Court of Appeal’s decision.

Two underlying qualities of the 2010 Contract pointed to it being sufficiently certain:

  1. The 2010 Contract had been partly performed. Having determined that the 2010 Contract should be construed in the context of the 2009 Settlement Agreement, the Court of Appeal stressed that “[t]he overall transaction here comprised the settlement of the original dispute”.5 EMC had already derived the full benefit of MRI abandoning its claims in 2009. Further, EMC and MRI had been acting on their wider arrangement for over one year, “without any suggestion that the final part thereof fell into a different and unenforceable category of obligation”.6 In these circumstances, the Court of Appeal looked to preserve rather than destroy the parties’ bargain.
  2. The parties intended the 2010 Contract to be legally binding. A distinction was highlighted between unenforceable “agreements to agree”—where the parties remain free to subsequently agree or disagree—and enforceable bargains where subsequent failure to agree is not intended to be fatal. Here, the presence of an arbitration clause suggested that failure to agree was not fatal. The Court of Appeal was willing to imply into the 2010 Contract that the treatment charge, the refining charge and the shipping schedule would be “reasonable”, and in the event of disagreement a dispute would be determined by arbitration. “[W]here the parties had agreed every other aspect of the contract, including quality, specification and price, and where they had stipulated for the arbitration of disputes by a market tribunal, it is almost perverse to attribute to them an intention not to conclude a binding agreement”.7

Comment

MRI Trading AG v Erdenet Mining Corporation LLC [2013] EWCA Civ 156 offers a commercially sensible analysis of long-term contracts. For parties negotiating contracts for future performance, it is often impossible (and sometimes unwise) to settle every detail as at the day of signing. Obviously, parties should not rely on the courts to complete their bargain. Nevertheless, by including an explicit contractual deadlock mechanism such as an arbitration clause, parties reinforce their intention to be bound. The Court of Appeal’s decision suggests that courts can take this into account when assessing whether a contract is sufficiently certain so as to be enforceable.

This approach is supported by Australian law. In Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1, the NSW Court of Appeal stated that arbitration clauses are “frequently adopted in a concluded agreement where certain details remain to be settled and the parties hope that they can agree but provide in case they cannot. Determination by a third person will remove the uncertainty and attract legal enforcement of the resulting agreement”.8 However, parties must be mindful to ensure that relevant machinery provisions are sufficiently broad. That is, the arbitration clause must extend to resolving disputes as to the existence of the contract.