Pillsbury Winthrop Shaw Pittman

English contract law: has the camel’s nose of ‘good faith’ crept under the tent flap?

By Raymond L Sweigart

Under the English Arbitration Act 1996, the grounds on which an English arbitration award can be challenged in court are very limited. Section 67 of the act provides that a challenge may be brought on the basis that the arbitral tribunal lacks substantive jurisdiction. That position can include the argument that the dispute has not been submitted to arbitration in strict compliance with the terms of the arbitration agreement. In Emirates Trading Agency LLC v Prime Mineral Exports Private Ltd [2014] EWHC 2104 (Comm), just such a section 67 challenge was brought alleging that the tribunal lacked substantive jurisdiction. The challenge, however, failed, as the court concluded that although a required pre-arbitration ‘friendly discussion’ was a condition precedent to arbitration, it had in fact occurred. However, in what might seem surprising given previous English case law, the court found that participation in such discussion obliged the parties to conduct good-faith negotiations before commencing arbitration. This conclusion may reflect a growing interest among English judges in finding contractually implied obligations of good faith, consistent with the approach in other jurisdictions.

The dispute itself is not particularly noteworthy or exceptional. It involved a long-term contract under which the defendant was to sell iron ore to the claimant. After the claimant had failed to acquire all of the iron ore that it was obliged to purchase during the first two years of the contract, the defendant sought liquidated damages and served notice of termination of the contract…

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