If the requirement to attempt to resolve a dispute through ’friendly discussion’ or informal negotiations is mandatory, time limited, contained in the dispute resolution clause, and arbitration is to follow this, some courts may enforce the requirement as a condition precedent to arbitration. The procedure must be certain and clear before it can be a condition precedent to arbitration.
This article discusses an English Commercial Court decision where the court ruled that an agreement to first seek to resolve a dispute by “friendly discussion” constituted an enforceable condition precedent to arbitration. Parties should be aware that the English courts may now enforce a time-limited requirement to seek to resolve a dispute by good faith negotiations, as a condition precedent to arbitration.
The court made it clear that the mandatory nature of the requirement to engage in friendly discussions results from the language of the agreement itself, and not from general policy considerations.
Takeaway:
- If the language of the arbitration clause states that friendly discussions “shall” or “must” take place within a defined time period before a party may give notice of intention to arbitrate, the friendly discussion clause may be enforced as a condition precedent to arbitration.