In the event of any dispute the Parties hereto shall seek in the first instance to resolve such dispute by way of good faith negotiations and no litigation or any other form of  procedings shall be instigated as between the Parties until such negotiations have been allowed to take place.

A dispute resolution clause in a contract is widely used in jurisdictions such as Germany. It generally requires the parties to a contract to attempt to resolve any dispute by way of discussions (in good faith) and within a limited period of time before the dispute could be referred to court or arbitration.
However, until the decision in Emirates Trading Agency LLC v Prime Mineral Exports Private Limited [2014] EWHC 2104 (Comm) the English courts had held in recent years that any purported agreement to engage in preliminary (good faith) steps (so-called “escalation” or “tiered” resolution clauses) before resorting to court or judicial proceedings was unenforceable.

Indeed, up to the Emirates case the courts generally rejected such clauses by the application of a principle of English law that an agreement to agree is unenforceable (see Walford v Miles [1992] 2 AC 128 ). Moreover,  dispute resolution provisions were often struck down because of a lack of certainty in drafting that also rendered them, it was said, too vague to be enforceable. Thus, courts were rejecting clauses which did not set out a specific, defined mediation process or refer to the services of a specific mediation provider because these contract agreements were not interpreted to create an enforceable obligation to commence or participate in a mediation process (see SulAmerica v Enesa Engenharia [2012] 1 Lloyds Rep 671, Court of Appeal)

But, in the new case of Emirates the court has held that although certainty in contract language is still required, “…an obligation to seek to resolve a dispute by friendly discussions in good faith has an identifiable standard, namely, fair, honest and genuine discussions aimed at resolving a dispute. Difficulty of proving a breach in some cases should not be confused with a suggestion that the clause lacks certainty…”(per Teare J)

Notwithstanding the Emirates case, when drafting a conflict resolution clause, we must still take care to ensure that the particular agreement complies with the English law requirement of certainty. If the parties have to undertake any preliminary attempts at resolution, the drafting must be careful not to allow a party in default to delay the start of any litigation or referral to arbitration proceedings. This is particularly critical in cases of approaching (statutory or other) limitation periods. Time limits are therefore essential. The template clause at the top of this page falls well short of these requirements. Moreover, in some situations, because of the reasons given above, it may even be decided that a contractual dispute resolution clause is not desirable.