Emirates Trading v Prime Mineral Exports
Emirates Trading Agency LLC v Prime Mineral Exports Private Limited
English High Court: Teare J.:  EWHC 2104 (Comm): 1 July 2014
Vasanti Selvaratnam QC, instructed by Clyde & Co. LLP, for the Claimant, Emirates
D. Brynmor Thomas, instructed by Addleshaw Goddard LLP, for the Defendant, Prime Mineral
CONTRACT: DISPUTE RESOLUTION CLAUSE REQUIRING PARTIES TO TRY TO RESOLVE DISPUTES BY FRIENDLY DISCUSSION WITHIN A CONTINUOUS PERIOD OF FOUR WEEKS BEFORE RESORTING TO ARBITRATION: WHETHER ARBITRATORS LACKED JURISDICTION BECAUSE THIS PROVISION NOT COMPLIED WITH: WHETHER PROVISION UNENFORCEABLE AS UNCERTAIN: WHETHER PROVISION HAD BEEN COMPLIED WITH
In this case, the Court held that a clause in a contract that provided, in the event of a dispute arising, for friendly discussions to seek to resolve it within a limited time period, was an enforceable condition precedent to the right to invoke arbitration. On the facts, the provisions of this clause had been complied with before arbitration was commenced. Accordingly, the arbitral tribunal had jurisdiction to determine the dispute.
This note is based on a note on the case prepared by Paula Cook, a solicitor at Waltons & Morse LLP, a firm of solicitors based in London, United Kingdom
The Claimant, Emirates Trading Agency LLC, (“Emirates”) entered into a long term contract with Prime Mineral Exports Private Limited, (“Prime Mineral”) to purchase iron ore. However, Emirates failed to lift all of the iron ore expected to be taken up during the first shipment year and, in the second shipment year, 2009, did not lift any iron ore at all. Accordingly, towards the end of the second year, Prime Minerals terminated the contract and claimed damages in excess of USD45 million.
Various meetings and discussions took place between the parties following termination of the contract but no agreement was reached. As a result, Prime Minerals commenced arbitration in June 2010. Emirates then applied to the Court under s.67 of the Arbitration Act 1996 for an order that the arbitration tribunal lacked jurisdiction to determine the claim.
The dispute resolution clause of the contract (clause 11) read:
“In case of any dispute or claim arising out of or in connection with this [Agreement] …the Parties shall first seek to resolve the dispute or claim by friendly discussion. Any Party may notify the other Party of its desire to enter into consultation to resolve a dispute or claim. 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”.
Emirates submitted that the clause required, as a condition precedent to the tribunal having jurisdiction to decide the dispute, friendly discussions for a period of four weeks. They maintained that, as there had not been a continuous period of 4 weeks of consultations, the condition precedent was not satisfied and the tribunal lacked jurisdiction. Prime Minerals maintained that the clause was unenforceable because it was a mere agreement to negotiate, but that if it were enforceable it had been satisfied and therefore the arbitrators had jurisdiction.
One of the cases relied upon by Prime Minerals was Walford v Miles  2 AC 128, where Lord Ackner had held that a bare agreement to negotiate lacked the necessary certainty and was therefore unenforceable. In addition he said that a duty to negotiate in good faith was inherently inconsistent with the position of a negotiating party and that such an agreement was unworkable in practice.
Teare J held that the dispute resolution clause was enforceable.
Whilst he acknowledged that the present state of English case law suggested that the provisions of clause 11 of the contract were unenforceable - the obligation to seek to resolve a claim by friendly discussions being no more that an agreement to negotiate with a view to settling a dispute between the parties – he was impressed by the argument of counsel for Emirates that, in this case, the provision that barred arbitration until four weeks had elapsed made all the difference.
In particular, he was prepared to follow the judgment of Allsop P in the Australian case of United Group Rail Services v Rail Corporation of New South Wales (2009) 127 Con LR 202, where the judge had upheld a dispute resolution clause in a contract which provided that the parties “should meet and undertake genuine and good faith negotiation with a view to resolving the dispute”, failing which the dispute could be arbitrated.
Mr Justice Teare, applying this “cogent” reasoning to the present case, held that a dispute resolution clause in an existing and enforceable contract which required the parties to seek to resolve a dispute by friendly discussions and within a limited period of time before the dispute could be referred to arbitration was enforceable. That was so for the following reasons. The agreement was not incomplete; no essential term was lacking. Further, it had sufficient certainty to be enforceable; an obligation to seek to resolve a dispute by friendly discussions – which must import an obligation to do so in good faith (fn.1) - had an identifiable standard, namely fair, honest and genuine discussions aimed at resolving a dispute.
Difficulty of proving a breach in some cases should not be confused with a suggestion that the clause lacked certainty. In the context of a dispute resolution clause pursuant to which the parties had voluntarily accepted a restriction on their freedom not to negotiate, it was not appropriate to suggest that the obligation was inconsistent with the position of a negotiating party. Enforcement of such an agreement when found as part of a dispute resolution clause was in the public interest: first, because commercial men expected the court to enforce obligations which they had freely undertaken and, second, because the object of the agreement was to avoid what might otherwise be an expensive and time-consuming arbitration,
In reaching this conclusion, the judge distinguished the decision in Walford v Miles on its facts.
However, having concluded that the terms of clause 11 were enforceable, the judge went on to hold that the parties had complied with those terms, by virtue of the discussions and meetings that had taken place between December 2009 and February 2010. The clause did not require those discussions to last four continuous weeks. The proper construction of the clause was that if, notwithstanding the friendly discussions to resolve the dispute (which might last one day or one week or more, depending on the dispute) no solution could be found for a continuous period of four weeks, then arbitration could be invoked.
The result was that the arbitrators did have jurisdiction to determine the claim and Emirates’ application was dismissed accordingly.
As this case demonstrates, obligations to comply with pre-arbitration steps need to be considered carefully, particularly if they are stated to be conditions precedent to arbitration. Parties will need to balance the commercial advantages of a multi-tiered dispute resolution structure against the obligations imposed by such clauses and may benefit from alternative provisions being built into the contract to prevent claims becoming time barred whilst pre-arbitration obligations are satisfied.
Fn.1 The judge said that, in modern terms, that is what the contract would be reasonably understood to mean, referring to the decision of Leggat J in Yam Seng Pte Ltd v International Trade Corporation Ltd  EWHC 111 (QB). He added (para.53) that “[g]ood faith connotes an honest and genuine approach to settling a dispute.”