Clifford Chance

Duty to negotiate before arbitration held to be enforceable

1 December 2014

In commercial contracts, parties frequently agree to negotiate before submitting a dispute to formal arbitration or litigation proceedings. The purpose of such agreements is to encourage parties to reach an early settlement of the dispute, thereby reducing time, cost and potential damage to the ongoing business relationship that may result from the parties' positions becoming entrenched in formal proceedings.

 

While the commercial purpose of agreements to negotiate is clear, their legal status is not. The question as to whether such agreements are bare 'agreements to agree', devoid of legal content, or whether they are legally enforceable has been the subject of a number of decisions.

 

English courts have generally adopted the view that such agreements are not sufficiently certain to be enforceable. However, the recent decision in Emirates Trading Agency LLC v Prime Mineral Exports Private Limited marks a departure from this approach.

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