Condition precedents to arbitration are common, especially with respect to provisions indicating that the parties must negotiate for a certain period prior to commencing arbitral proceedings.
Emirate Trading Agency LLC v Prime Mineral Exports concerned a dispute arising out of a contract for the sale and purchase of iron ore entered into by the parties on 20 October 2007.
After several alleged breaches of contract by the Respondent, the Claimant decided to suspend performance of the contract.
As a result, the Respondent terminated the contract on 1 December 2009 and claimed liquidated damages amounting to US$ 45,472,800 to be paid within 14 days. Failure to pay would lead to arbitration.
After months of negotiations, no solution was found and the Respondent filed for arbitration before the ICC. On its side, the Claimant filed before the English Commercial Court and requested an order that the Arbitral Tribunal was incompetent.
The Claimant argued that the condition precedent of time-limited negotiations prior to commencing arbitration had not been satisfied, relying on Clause 11.1 of the contract, which stated that “if no solution can be arrived at between the parties for a continuous period of four weeks […] then the non-defaulting party can invoke the arbitration clause.” The Respondent, on the other hand, argued that the condition precedent of four continuous weeks of negotiation was unenforceable.
The Court made a clear ruling. First, it determined that before the parties could file a claim in arbitration, negotiations to amicably resolve their dispute were required. The Court thus held that the condition precedent to arbitration found in Clause 11.1 of the contract was enforceable, as a matter of public interest. In so doing, it distinguished the case at hand on the facts from the principle established in Walford v. Miles (1992) 2 AC 128.
Although the Court found the Clause to be enforceable, however, the Court rejected Claimant’s argument that negotiations had to occur and continue continuously for a period of four weeks.
The Court explained that the clause had to be construed as referring to the time limit rather than the discussions themselves. Therefore, it was important as part of the condition precedent that negotiations were held for four weeks prior to arbitration, even if those negotiations were not continuous.