Commercial Disputes: When Discussions Before Arbitration are Required

Commercial Disputes: When Discussions Before Arbitration are Required

A salutary lesson has emerged from the English Commercial Court - that contractual parties involved in a dispute must discuss the issues before arbitration.  The expert commercial litigation lawyers at Bahamas law firm ParrisWhittaker are highly experienced in advising and representing commercial parties involved in all kinds of disputes. 

‘Multi-tiered’ dispute resolution

In this case(1), a contractual clause provided for ‘multi-tiered dispute resolution’, which is an increasingly common feature in commercial contracts.  A multi-tiered dispute resolution clause provides for various stages in the resolution of a future dispute involving the contract. This may include arbitration, mediation, negotiation – and informal discussions. Such clauses recognise the importance to the parties of maintaining their commercial relationship, savings costs, and so on. 

Discuss then arbitrate

The court ruled that the clause can be enforceable, and went on to enforce the obligation on the parties to seek to resolve the dispute in good faith, within a limited period of time by friendly discussion before reference to arbitration.   This meant the parties could not begin the arbitration process until discussions had first taken place to try to resolve the matter.

This ruling is in line with a growing trend (particularly in the English judicial system) towards the enforceability of good faith obligations.

Importantly, the court found that the enforcement of the clause was in the public interest.  The ruling confirms the increasingly willingness of the courts to uphold clear and certain commercial clauses agreed through negotiations by the parties - rather than dismiss them on the basis of uncertainty, and will interpret agreements to give them business efficacy and to reflect the true intentions of the parties.

The disadvantage, however, is that it will most likely lead to inevitable delays should court proceedings or arbitration eventually become necessary should such discussions fail.

What does this mean?

Arbitration clauses and multi-tiered dispute resolution clauses must be negotiated and finalised with care.  Multi-tiered clauses in particular should be carefully considered to ensure each element is fair, clear and certain so as to be upheld by the court.   The parties must then be prepared to abide by the terms agreed, otherwise the other party can apply to court to enforce the terms – incurring costs, delaying resolution of the dispute, and with ramifications for the business interests of both parties.   Taking expert advice is vital at all stages.

How can we help?

The commercial litigation lawyers at Parris Whittaker have years of experience advising commercial organisations on their commercial contracts and on alternatives to litigation.  If you are negotiating the terms of a commercial contract, contact us straightaway for urgent, strategic advice.

(1) Emirates Trading Agency LLC v Prime Mineral Exports Private Limited [2014] EWHC 2014 (Comm)