An English court has held that a dispute resolution clause in a contract that requires the parties to try to resolve a dispute by friendly discussions in a limited period of time before referring the dispute to arbitration is enforceable.
Where commercial parties have agreed a dispute resolution clause which purports to prevent them from launching into an expensive arbitration without first seeking to resolve their dispute by friendly discussions, the courts will seek to give effect to the parties’ bargain. There is a public interest in giving effect to a clause which requires the parties to seek to resolve a dispute before engaging in arbitration or litigation.
The obligation to try to resolve disputes by friendly discussion must import an obligation to do so in good faith even though the test of good faith has been criticised as being too open-ended a concept to provide a sufficient definition of what such an agreement must, as a minimum, involve. It does require an honest and genuine approach to settling a dispute and the observance of reasonable commercial standards of fair dealing. The court upheld an arbitration clause which required discussions for four weeks before invoking arbitration.
These clauses are probably not enforceable in South Africa if there is no time limit on the negotiations.