The judgment in the recent English case of Bugsby Property LLC and Anor v Omni Bridgeway (Fund 5) Cayman Invt. Ltd serves as a useful reminder of the test for the exercise of the discretion of the Court in appointing an arbitrator and the importance of taking care when drafting dispute resolution clauses.

In this case, the subject contract (a main contract as amended by a variation agreement) contained two separate dispute resolution clauses:

1. Section 10 of the Specific Terms of the main contract provides that “…in the event of a dispute arising out of or relating to this Agreement, including any question regarding its existence, validity or termination … the dispute shall be referred to and finally resolved by arbitration under the LCIA Rules, which Rules are deemed to be incorporated by reference to this Specific Term 10.2 …”
2. Clause 19.2 of the variation agreement provides that “If a dispute arises in relation to the interpretation, enforcement, or adjudication of this Amendment Agreement or the Omni Funding Agreement, the Parties agree that any Party to that dispute shall be entitled to resolve the dispute by referring it to an independent King's Counsel who will be instructed to provide the Parties with a final and binding opinion …”

LCIA arbitration had been commenced by Omni pursuant to Section 10. On the other hand, Bugsby wished to invoke the dispute resolution mechanism under Clause 19.2 but Omni refused to agree to the appointment of a King’s Counsel. Bugsby therefore applied to the UK Court to appoint an arbitrator under section 18 of the Arbitration Act.

Citing Males J in Silver Dry Bulk Company Limited v Homer Hulbert Maritime Company Limited, the Court confirmed the test for the exercise of the Section 18 discretion – namely that an Applicant has to show a good arguable case (which is taken to mean “a case which is somewhat more than merely arguable but need not be one which appears more likely than not to succeed”) that there exists an arbitration agreement covering the dispute in question. If a good arguable case is established, the Court then has a discretion as to whether it exercises any of the powers under section 18(3) of the Arbitration Act.

Having considered at length relevant authorities and principles, as a matter of interpretation, the Court held that the Applicant failed to show a good arguable case that Clause 19.2 is an arbitration agreement or that the relevant dispute fell within Clause 19.2. In any event, the Court took the view that if it were wrong to find that there was no good arguable case, the Court would decline to exercise its discretion under Section 18 in circumstances where an arbitration has been commenced under the main agreement.

This case highlights the importance of precise and accurate drafting, in particular, if it is envisaged that an agreement is to provide for separate and distinct dispute resolution mechanisms.