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6/11/13: Scotus takes a BIT arbitration case for next fall

The U.S. Supreme Court granted a petition yesterday to hear BG Group PLC v. Republic of Argentina, Docket No. 12-138, to determine an arbitrability issue.

The specific question presented in the case is, “In disputes involving a multi-staged dispute resolution process, does a court or instead the arbitrator determine whether a precondition to arbitration has been satisfied?”
The Court’s page on the case can be found here. Scotusblog has the petition and briefs here.

The dispute arose after a 2001 economic crisis, when Argentina enacted legislation that had an effect on the BG Group PLC’s revenue. BG, a U.K. company that had invested in an Argentina energy project, took the matter to arbitration, where it received an award for $185 million, plus interest and attorney fees, in an arbitration that took place in Washington, D.C.

A 1990 bilateral investment treaty between Argentina and the United Kingdom  provides for submission of disputes to arbitration under the United Nations Commission on International Trade Law only if the parties have complied with a litigation precondition provided for by the arbitration agreement. 

The precondition involved litigating for 18 months in Argentina, though not necessarily requiring completing the litigation. The failure to comply with the litigation precondition is the basis of Argentina’s original action to overturn the award.

The BIT doesn’t state who determines the question of arbitrabilty.  In federal district court in Washington, D.C., the challenge by Argentina to the BG award was rejected, and the award upheld.  The trial court backed the arbitrators’ jurisdiction in deciding whether the treaty’s litigation precondition applied.  

The D.C Circuit Court reversed, concluding that such authority is vested in the courts. Republic of Argentina v. BG Group PLC, 665 F.3d 1363 (D.C. Cir. 2012)(available here).

The Circuit Court found that it had the power to review the case de novo, and it concluded that the British investment company had not met its treaty obligations before the arbitration.

Last July, BG petitioned the Supreme Court to take the case, after the D.C. Circuit rejected requests to rehear the case or have it presented to the full circuit court en banc.   

The American Arbitration Association filed an amicus curiae brief in support of petitioner BG Group at the U.S. Supreme Court, available here. The petition requested the court to reverse the D.C Circuit decision holding that the courts, not the arbitrator, have the authority to decide if the arbitration precondition has been complied with. The decision, it says, invites judicial intervention to arbitration, which will likely have “far-reaching implications.”

This view also is held by the United States Council for International Business. In its amicus brief, (available here), the council states that “the decision has far-reaching and adverse if not potentially disastrous implications for the future of the U.S. as an attractive forum for international arbitration and the freedom of choice to arbitrate, in particular, the freedom of the parties to authorize the arbitrators to rule on their own jurisdiction.  . . . ”

The case is expected to be argued in the fall.  

--Thendo Tshivhengwa, CPR Intern