In BP Exploration Libya Ltd v ExxonMobil Libya Ltd, (5th Cir. July 30, 2012), three companies became involved in a dispute over the alleged breach of an assignment agreement for a deep-water drilling rig. When a notice of arbitration was filed, disagreement arose over the procedure for appointment of arbitrators to hear and decide the dispute. Since the tribunal appointment mechanism in the arbitration agreement was designed for a two-party dispute, it was unclear how the panel should be constituted for the multi-party dispute. The parties attempted to negotiate an alternative selection procedure, but when discussions became deadlocked, BP filed suit in the United States District Court for the Southern District of Texas seeking judicial assistance.

The arbitration agreement specified that disputes would be heard by a three member panel, with two members appointed by the parties and the third arbitrator selected by the two appointed members. Notwithstanding the terms of the agreement, the district court, in an effort to accommodate the added complexity of a three-party dispute, ordered the parties to proceed to arbitration before five arbitrators. Under the devised formula, each party would appoint an arbitrator and the appointed arbitrators would select an additional two arbitrators.

On appeal, the Fifth Circuit held that the district court erred in deviating from the parties' express agreement to arbitrate before a three-member panel. The court of appeals emphasised the importance of the parties' intentions and the explicit terms of the underlying arbitration agreement. Here, the parties had clearly agreed to arbitrate this particular dispute before three arbitrators, and the court was not empowered to disregard this mandate to accommodate a multi-party dispute. The terms of the arbitration clause were reached through arms-length negotiations between sophisticated entities and the court could not re-write the agreement by imposing an alternative selection procedure. Ultimately, the Fifth Circuit held that the district court must respect the intentions of the parties as demonstrated in their arbitration agreement.

This case demonstrates the fundamental importance of the parties' intentions and plain language of the underlying arbitration agreement. This case also illustrates complexities that can arise when selecting an arbitral panel for a multi-party dispute and the limits on courts' ability to provide assistance in resolving these potential problems.