Reinsurance Focus

In a three-way dispute between Exxon, BP, and a provider of drilling services over the alleged breach of an assignment agreement, a federal appeals court reversed based on the lower court’s improper resolution of a “lapse” in the parties’ ineffective two-party arbitrator selection procedures. The agreement provided that the dispute would be arbitrated before three arbitrators appointed in accordance with the rules of the Arbitration and Conciliation Act of 1990. ACA’s procedures, however, address a two-party dispute, in which each party selects an arbitrator, with the third selected by the arbitrators themselves.

When the three-way dispute arose in this case, and the parties could not agree on how the two-party arbitration selection process could be implemented, suit was filed in federal court under the New York Convention and the FAA. The court found that the arbitration agreement procedure reached a “mechanical breakdown” or “lapse,” and that it would order the appointment of five arbitrators. While the appellate court agreed with the district court’s determination that it was entitled to intervene under the FAA, it reversed the process that the district court instituted, holding that the FAA limited the court to enforce the underlying arbitration agreement, which in this case provided for only three arbitrators. On remand, the appellate court recommended a procedure for the district court to “consider” to achieve the equitable appointment of three arbitrators in a three-party dispute context. BP Exploration Libya Ltd. v. Exxonmobil Libya Ltd., No. 11-20547 (5th Cir. July 30, 2012).

This post written by Michael Wolgin.

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