A recent decision of the High Court has held that a provision in a multi-tiered dispute resolution clause requiring the parties to hold “friendly discussions” prior to commencing arbitration is enforceable.
The decision is interesting because the English courts have typically held in the past that similar agreements to negotiate are generally unenforceable as a matter of law, often because the obligation set out is incomplete, uncertain and/or difficult for the Courts to police.
In this most recent decision one of the key aspects appears to have been a time limit on the negotiation period. The clause required the parties to seek to resolve the dispute by “friendly discussion” and if no solution was reached within a continuous period of four weeks then either party could refer the dispute to arbitration. The judge held that this provision was complete and provided certainty. Apparently an obligation to hold “friendly discussions” involves holding fair, honest and genuine discussions with the aim of resolving the dispute. Not just sitting down for a cup of tea and some biscuits then.
The judge also considered that it was in the public interest if such a clause was enforceable because it gave effect to the parties’ commercial bargain and was designed to try and avoid a time consuming and expensive arbitration.
If you are considering including a multi-tiered dispute resolution clause in your next contract it would be worthwhile considering the guidance offered by the judgment. It certainly seems that a time limit for the negotiations would be an important element. It would also be worth considering whether you wish to be locked into a negotiation period before being able to refer. As Peter Pan once said (so I’m told by our Moonlight Jasmine tea-drinking trainee); “Would you like an adventure now or should we have our tea first?”.