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.