The English High Court decision in Emirates Trading Agency LLC v Prime Mineral Exports Private Limited offers guidance.
Why this case is important -
Multi-tiered or dispute escalation clauses are an important means by which commercial parties try resolve disputes amicably and avoid the time and expense of formal litigation or arbitration. Typically these clauses set out a mechanism which requires the parties to engage in negotiation and/or mediation prior to the commencement of litigation or arbitration. Fulfilment of the contractual requirements is generally a condition precedent to commencing litigation or arbitration. However, recent case law, which largely analysed poorly drafted clauses, cast doubt on the enforceability of such provisions. That case law meant that if key elements of the negotiation or mediation procedures are uncertain, including the requirement to negotiate on a friendly basis and in good faith, the English courts might find the clause to be unenforceable, creating doubt as to whether conditions precedents to formal proceedings existed and, if so, whether they were satisfied.
The recent decision in the High Court (Emirates Trading Agency LLC v Prime Mineral Exports Private Limited  EWHC 2104 (Comm)) has provided much needed guidance on the enforceability of such clauses. In this case, the court upheld an agreement to resolve the dispute or claim by “friendly discussion” when no resolution was arrived at within a defined period of time. Subject to terms that create sufficient contractual certainty, enforcement of such an agreement is not only consistent with giving the parties what they bargained for, but is also in the public interest.
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