Shepherd and Wedderburn

UK 200 2014 position: 68

Obligation to enter into ‘friendly discussions’ before commencing arbitration is held enforceable

By John MacKenzie

In a significant departure from the traditional English position, a contract obliging parties to enter ‘friendly discussions’ to resolve a dispute before commencing arbitration proceedings has been held to be enforceable. The court considered that the term ‘friendly discussion’ not only implies a degree of good faith, but also sets an identifiable standard. Arguably, this reduces the uncertainty as to the behaviour and procedures required of each party pre-litigation or arbitration.

As illustrated in Walford v Miles [1992] 2 AC 128, agreements containing clauses to compel parties to ‘negotiate’ or ‘discuss’ disputes before commencing arbitration or litigation have up until now been considered too uncertain to be enforced by the English courts.

In that case, an agreement to negotiate in good faith was deemed inherently inconsistent with the position of a negotiating party, and in another case — Sulamerica v Enesa [2012] EWCA Civ 638 — an undertaking to ‘seek to have the dispute resolved amicably by mediation’ was held unenforceable because it did not define the parties’ rights with sufficient certainty…

Click on the link below to read the rest of the Shepherd and Wedderburn briefing.

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