BACKGROUND


1. This judgment of the King’s Bench Division concerns an application by Bugsby Property LLC (“Bugsby”) and Bugsby Investments Limited (“BIL”) (collectively, “Claimants”) seeking the Court’s assistance in appointing an arbitrator under section 18 of the Arbitration Act, 1996 (“Arbitration Act”) with respect to a potential “permissive” arbitration process during the pendency of a mandatory arbitration process under a funding agreement.


2. The case emanates from a dispute between Bugsby and BIL on the one hand, and Omni Bridgeway (Fund 5) Cayman Invt. Limited (“Omni”) and Therium Litigation Finance A IC (“Therium”) on the other. Omni and Therium are funders from whom Bugsby received litigation funding for proceedings against LGIM Commercial Lending Limited and Legal & General Assurance Society Limited (“L&G proceedings”).


3. Bugsby had entered into one litigation funding agreement (“LFA”) with Therium on 23 February 2018 (“Therium LFA”) and another LFA with Omni on 19 July 2021 (“Omni LFA”). Both BIL and Therium were also parties to the Omni LFA.


4. Following the L&G proceedings where Bugsby eventually succeeded, there was a variation to the Omni LFA (“Variation Agreement”), principally for Omni to continue funding Bugsby to prosecute the claim including consequential hearings, and also set out entitlements of Omni, Therium, and Bugsby from recoveries made in prosecution of the claim. However, before the hearing of appeals in the L&G proceedings, Bugsby reached an out of court settlement resulting in disputes over whether the Therium LFA and the Omni LFA are enforceable, and as to the amount of claim proceeds out of which the funders are to be paid.


5. While Bugsby’s dispute with Therium is the subject of an LCIA arbitration pursuant to the Therium LFA, the dispute with Omni resulted in a complicated situation owing to distinct clauses in the Omni LFA and the Variation Agreement.


6. Omni commenced an LCIA arbitration against Bugsby, pursuant to section 10.2 of the specific terms of the Omni LFA,[1] with an arbitrator being appointed and a hearing on jurisdiction being listed as a result of Bugsby disputing jurisdiction.


7. Bugsby, on the other hand exercised its right under clause 19.2 of the Variation Agreement (which superseded and replaced section 10.3 of the Omni LFA), to refer the dispute with Omni to an independent King’s Counsel (“KC”) for resolution.


8. Having already challenged jurisdiction in the LCIA arbitration, the Claimants made an application to the Court under section 18 of the Arbitration Act to seek the Court’s assistance in appointing an arbitrator under clause 19.2 of the Variation Agreement, to adjudicate the dispute with Omni.


9. The burden was on the Claimants to prove that – (i) there is a good arguable case that clause 19.2 of the Variation Agreement was an arbitration agreement within the scope of which the disputes fell; and (ii) the Court should exercise its jurisdiction under section 18 of the Arbitration Act to appoint an arbitrator.


PARTIES’ SUBMISSIONS


Claimants’ Arguments

10. Section 19.2 of the Variation Agreement states 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, with the costs of the independent King's Counsel to be borne equally by the relevant Parties to the dispute, in the first instance with the independent King's Counsel having power to determine who should bear the costs of such determination based on whose position is upheld. The independent King's Counsel shall be appointed by agreement of the relevant Parties to the dispute, or, if no agreement can be reached, the independent King's Counsel shall be appointed by the Chair of the General Council of the Bar of England and Wales (known as the Bar Council).” (emphasis added)


11. The Claimants argued that the intention of the parties under clause 19.2 of the Variation Agreement

was that an independent KC should hold an inquiry in the nature of a judicial inquiry and hear the respective cases of the parties and decide upon evidence laid before him; and that the intention was also to settle disputes when they arise, with the opinion of the independent KC expressly stated to be binding.


12. It was contended that these disputes referred to the independent KC could involve factual disputes or even difficult questions of interpretation, with an intention that the reference was in the nature of a judicial inquiry. It was also submitted that the word “opinion” in clause 19.2 of the Variation Agreement was insignificant insofar as the decision of the independent KC was to be final and binding.


13. Moreover, the idea that the independent KC may determine disputes without hearing in a judicial manner was argued as being uncommercial. The resolution of disputes pursuant to clause 19.2 of the Variation Agreement was contended to be flexible and a speedier alternative arbitral process to the LCIA arbitration process.


14. The Claimants also argued that as a matter of construction, that there was a complete overlap and no coherent relationship between section 10.2 of the Omni LFA and clause 19.2 of the Variation Agreement as a result of an obvious mistake, such that what was intended was for clause 19.2 of the Variation Agreement to replace sections 10.2 and 10.3 of the Omni LFA.[2]


15. Alternatively, it was argued that there was a good arguable case that there was jurisdiction under clause 19.2 of the Variation Agreement even though an LCIA arbitration was commenced under section 10.2 of the Omni LFA, on the basis that clause 19.2 of the Variation Agreement amounts to a “permissive” arbitration agreement and parties can make an election to invoke permissive arbitration provided that they have not waived their rights to go elsewhere. The Claimants argued it would be “commercially absurd” if the right under clause 19.2 of the Variation Agreement was lost by one party starting an arbitration first under section 10.2 of the Omni LFA.


Omni’s Arguments


16. Omni argued that in its contractual and commercial context, clause 19.2 of the Variation Agreement was not an arbitration clause. In the alternative, it was argued that clause 19.2 of the Variation Agreement was limited in its scope, and the issue of the enforceability of the Omni LFA must be resolved by the LCIA arbitration under section 10.2 of the Omni LFA. Moreover, the Court should not exercise its discretion to appoint an arbitration under clause 19.2 of the Variation Agreement in circumstances where the dispute had already been referred to an LCIA arbitration under section 10.2 of the Omni LFA.


17. On the issue of whether the Court should exercise discretion under section 18 of the Arbitration Act, Omni submitted that the Court should look at the particular facts take into account how arbitration under section 10.2 of the Omni LFA about, and that the arbitrator which is already in place will decide the issue.


JUDGMENT

18. The Court considered – (i) whether there was a good arguable case that clause 19.2 of the Variation Agreement was an arbitration agreement, within the scope of which the disputes fell; and (ii) whether it should exercise its jurisdiction under section 18 of the Arbitration Act to appoint an arbitrator.


No good arguable case that clause 19.2 of the Variation Agreement was an arbitration agreement


19. The starting point for the Court was that the issue of whether clause 19.2 of the Variation Agreement is an arbitration agreement was a question of construction. The Court did not agree with the Claimants’ submission that the independent KC would determine disputes on the basis of submissions and evidence presented by the parties. Instead, the Court found that the Variation Agreement was a professionally drafted contract, and the use of words such as “opinion” in clause 19.2 of the Variation Agreement were likely to have been carefully chosen, the natural meaning of which could be accorded more weight.


20. The Court also held that the context of section 10.2 of the Omni LFA suggested that clause 19.2 of the Variation Agreement was intended to be a different process not in the nature of arbitration. Although the Court could have regard to commercial commonsense when balancing competing interpretations, it was found to be highly unlikely that parties intended to have two arbitral processes, both of which would involve submissions and evidence.


21. The Court then referred to the judgment in Langham House Developments Ltd v Brompton Securities Ltd and another,[3] which construed a rent review determination clause in striking contrast with an arbitration clause. Consequently, the Court compared the original section 10.3 of the Omni LFA to section 10.2 of the Omni LFA, holding that the former was intended to be a faster process than arbitration under the latter. This provision was equated with clause 19.2 of the Variation Agreement, in support of the inference that it was intended to provide a simpler and swifter process than the arbitral process in section 10.2 of the Omni LFA. In so holding, the Court rejected the Claimants’ submission that the parties intended for clause 19.2 of the Variation Agreement to replace both sections 10.2 and 10.3 of the Omni LFA.


22. The Court concluded that the Claimants’ case fell far short of a good arguable case and the difference in language of section 10.2 of the Omni LFA and clause 19.2 of the Variation Agreement was striking. It was held that the detailed provisions of section 10.2 of the Omni LFA showed that the parties provided in detail for the arbitration agreement, and had they wished to provide for an alternative method of arbitration in section 10.3 of the Omni LFA (as replaced by clause 19.2 of the Variation Agreement) they would have done so in clear language. Instead, clause 19.2 of the Variation Agreement did not provide for submissions or evidence or an award, and the language referred to an “opinion” of an independent KC. Therefore, there was no good commercial reason which outweighed the clear language read in context.


23. Moreover, if parties intended clause 19.2 of the Variation Agreement to cover the same range of disputes as section 10.2 of the Omni LFA, one would have expected, in a professionally drafted contract, for the same language to have been used in clause 19.2 of the Variation Agreement. The fact that these provisions were different, led to the conclusion that clause 19.2 of the Variation Agreement was intended to be narrower than section 10.2 of the Omni LFA. Therefore, there was no good arguable case that clause 19.2 of the Variation Agreement would extend to the enforceability of the Omni LFA.


24. The Court also rejected the Claimants’ submission that it would commercially absurd the right under clause 19.2 of the Variation Agreement was lost by the other party starting an arbitration first under section 10.2 of the Omni LFA. If there are two forms of arbitration in an agreement, one which was expressed to be mandatory, and one which was permissive, the right for the permissive arbitration is lost once a mandatory arbitration has been started. Both parties contemplated arbitration and agreed to an LCIA arbitration as the mandatory route and thus implicitly agreed that on the mandatory route of an LCIA arbitration there would be in effect more limited rights of appeal than if the arbitration was not under LCIA rules. It would not frustrate or negate intention of the parties to allow an LCIA arbitration to proceed and for the permissive right to be lost once the mandatory arbitration has started.


Discretion under section 18 of the Arbitration Act


25. Although it was not necessary for the Court to address the issue of discretion, it did so briefly, for completeness. This was addressed contrary to the findings on lack of a good arguable case, and on the assumption that the Claimants did have a good arguable case that clause 19.2 of the Variation Agreement was an arbitration agreement within which the disputes fell, despite arbitration having been commenced under section 10.2 of the Omni LFA.


26. The Court noted that the mandatory arbitration under section 10.2 of the Omni LFA was not an attempt to circumvent the parties’ agreement for resolution of disputes. The LCIA arbitration was live, and whether clause 19.2 of the Variation Agreement displaced section 10.2 of the Omni LFA was a question pending in the LCIA arbitration, which if addressed in the positive, would ensure that party autonomy is not to be undermined.


27. The Court held that respect for the principle of party autonomy and the desirability of holding parties to their agreement in this case did not mean that the Court should exercise its discretion under section 18 of the Arbitration Act. Given that the mandatory route of arbitration under section 10.2 of the Omni LFA had been started for good reason, the Court stated that the parties should be held to their agreement and the Claimants could not invoke the permissive route under clause 19.2 of the Variation Agreement.


ANALYSIS AND CONCLUSION


28. This case interprets and construes seemingly two arbitration clauses within the same agreement, one providing a mandatory route and the other providing a permissive route. It highlights the importance of ensuring that dispute resolution clauses are drafted carefully. Where there are multiple provisions for the resolution of disputes, it is necessary to ensure that those provisions are not inconsistent or overlapping.


29. Disputes over the choice of forum or process undermine the purpose of having a clear dispute resolution mechanism, which is intended to provide an efficient mechanism to resolve conflicts. To avoid such conflicts, it is advisable to consolidate dispute resolution mechanisms into a single, coherent provision.


30. It is important for parties to be aware of potential consequences of including multiple dispute resolution clauses in their agreements, and the potential challenges of conflicting jurisdictional claims. However, what is noteworthy is that if one route is mandatory, it will prevail over the route that is permissive.




 [1] Section 10.2 of the Omni LFA states that “If the dispute is not settled by mediation within 14 dates of the commencement of the mediation, or such further period as the parties shall agree in writing, 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. In any mediation, or, if applicable, arbitration commenced pursuant to this Specific Term 10:

10.2.1 the language to be used in the mediation and in the arbitration shall be English;

10.2.2 the governing law of the mediation or arbitration shall be the substantive law of England and Wales; and

10.2.3 in any arbitration:

(a) the number of arbitrators shall be one;

(b) the seat, or legal place, of arbitration shall be London, United Kingdom.”

[2] Section 10.3 of the Omni LFA states that “10.3.1 a dispute between the Claimant, Therium and/or Omni Bridgeway as to the calculation of Omni Bridgeway’s entitlements under Specific Term 4; and

10.3.2 a dispute between the Claimant and Omni Bridgeway as to the exercise by Omni Bridgeway of a right of termination, excluding in the circumstances contemplated by Specific Term 8.1.1 and/or 8.1.2 by reference to the Third Party Disclosure Opinion whereby for the purposes of paragraph 13.2 of the Code of Conduct the Claimant and Omni Bridgeway agree that the opinion of counsel already received will be determinative (for the avoidance of doubt, Therium does not have a right of referral under this Specific Term 10.3.2);

10.3.3 a dispute between Therium and Omni Bridgeway as to the interaction between the Therium Funding Agreement and this Agreement; and

10.3.4 a dispute between the Claimant, Therium and Omni Bridgeway as to the exercise by the Claimant of a right of a termination.”

[3] Langham House Developments Ltd v Brompton Securities Ltd and another, [1980] 2 EGLR 117