BG Group PLC v. Argentina: First ever US Supreme Court Investment Arbitration Case – Oral Argument December 2nd – CPR Analyzes the Briefs

In preparation for the highly anticipated US Supreme Court oral argument in its first ever investment-arbitration related case, on December 2nd, CPR has analyzed the briefs of the amici and the parties (31 Alternatives 162, 178; http://bit.ly/OBHtab (subscription required). Here we review two additional amicus briefs. 

Republic of Ecuador: The Republic of Ecuador, in support of Argentina, urges the Court to affirm the court of appeals’ judgment and rule that US courts must independently review a state’s objection to arbitration based on consent. (Brief of Amicus Curiae the Republic of Ecuador in Support of Respondent at 21, BG Group PLC v. Republic of Argentina, No. 12-138 (2013); available at http://bit.ly/1bdxP3d). Ecuador notes the case’s significance, highlighting its impact on US foreign relations under existing or prospective treaties governing investment disputes, investment disputes between foreign nationals and the US and the treatment of the US before foreign courts. For the purposes of its amicus brief, Ecuador writes as a sovereign state and US bilateral investment treaty (BIT) partner, emphasizing the importance of giving effect to the shared intent of the parties to an investment treaty.

 First, Ecuador argues that the Court should affirm the court of appeals’ decision because the result would have been the same under treaty interpretation principles. Ecuador agrees with the court of appeals’ decision to distinguish the case from private arbitration precedent. According to Ecuador, federal courts should apply treaty interpretation principles including examination of the treaty’s text, context, history, negotiations, and party-adopted practical construction in construing a treaty. The DC Circuit did not apply these principles expressly, relying instead on private arbitration precedents, but its rationale “sounded in treaty interpretation.” Regardless, Ecuador asks the Court to affirm the court of appeals, disagreeing with the US amicus brief’s suggestion to remand the case, which Ecuador argues would waste time and resources.

Second, Ecuador urges the Court to hold that treaty interpretation principles will govern future judicial review of state objections to arbitration based on consent. Although the present case is “straightforward,” Ecuador points out that the terms of a state’s standing offer to arbitrate with foreign investors in other treaties, such as the US-Ecuador BIT, are not. The Court should therefore require reviewing courts to apply treaty interpretation principles to determine whether investors have satisfied the conditions to a sovereign state’s consent to arbitrate. This becomes particularly important in light of existing and prospective investment treaties to which the US is a party.

 Third, Ecuador urges the Court to “hold squarely that a State’s consent-based objection to arbitration is subject to de novo review.” Such guidance is consistent with respect for sovereignty. Ecuador argues that under the Foreign Sovereign Immunities Act (FSIA), which is a federal court’s sole basis for obtaining jurisdiction over a foreign state, a court can exercise jurisdiction to confirm an award only when the foreign state “in fact agreed to arbitrate the particular dispute at issue.” As the existence of jurisdiction under the FSIA is a question of law subject to de novo review, the issue of whether an investor’s acceptance of an offer to arbitrate constitutes a valid agreement to override immunity requires de novo review as well. Ecuador adds that limiting when federal courts exercise jurisdiction over foreign states reflects respect, comity, and the US’s interest in receiving similar treatment from foreign courts. According to Ecuador, “[a] fresh assessment is required in light of the fact that an investment treaty with an arbitration provision represents the States’ consent to arbitration of only qualifying (not all) disputes.”

Mark N. Bravin of Winston & Strawn LLP is counsel of record.

Practitioners and Professors of International Arbitration: A group of eight professors and practitioners of international arbitration have submitted a brief as amici in support of Argentina, urging the Court to affirm the court of appeals’ judgment. (Brief of Amici Curiae Practitioners and Professors of International Arbitration Law in Support of Respondent at 20, BG Group PLC v. Republic of Argentina, No. 12-138 (2013); available at http://bit.ly/1hnAmAt) (for the brief of a different group of practitioners and professors of international arbitration, in support of reversal, see 31 Alternatives 163). These amici write “to assist the Court in deciding the issue before it in a manner that upholds and is consistent with well-established principles of international arbitration.” This group consists of Michael M. Collins, Yves Derains, Bo G.H. Nilsson, Alan S. Rau, Jesper Tiberg, Anthony Trace QC, Jorge E. Viñuales, and Michael Waibel.

 First, the amici argue that pursuant to the BIT’s terms, Argentina did not consent to arbitration. The amici state that the UK-Argentina BIT is not an agreement to arbitrate “but rather an offer to arbitrate, which can give rise to an agreement only if an investor accepts the terms of the offer.” Given that the BIT’s terms are unambiguous as to the litigation requirement, BG Group’s “failure to submit the dispute to the Argentine court was not a valid acceptance of the offer, and thus, no agreement to arbitrate disputes between Argentina and BG Group ever came into existence.”

For several reasons, the amici reject the notion that the requirement was materially identical to procedural pre-conditions that arbitrators typically decide. Specifically, the amici contend that (1) the BIT provision constitutes a choice of forum, which is an issue of substantive arbitrability; (2) the provision is an offer and therefore not an agreement to arbitrate; and (3) under the investment arbitration chapter of the North American Free Trade Agreement (NAFTA), no agreement to arbitrate arises unless a claimant investor complies with certain pre-arbitration requirements.

 Second, the amici argue that competence-competence ultimately subjects arbitrators’ decisions on their jurisdiction to judicial review, and point out that the UNCITRAL Arbitration Rules incorporate this principle. The amici contend that Argentina acted consistently with the principle of competence-competence in not seeking judicial review on jurisdiction at the initial stage of arbitration. The principle is intended to allow arbitration to proceed without interruption. However, the amici also maintain that under the laws of many nations, “[a] party that unsuccessfully challenged the arbitrators’ jurisdiction before the arbitrators has an absolute right to raise that challenge in court following the issuance of the arbitrators’ award, and the court has both the power and the obligation to review that challenge de novo.” The amici defend the court of appeals’ review function as “required by [. . .] the courts of the supposedly most arbitration-friendly nations.”

Third, the amici contend that the court of appeals’ decision is consistent with prior Court decisions establishing that courts, not arbitrators, decide whether parties agree to arbitration. Launching from the rule that arbitration is a matter of contract and construing the case as one in which the BIT’s litigation requirement preceded the existence of an agreement to arbitrate, the amici examine the cases of First Options and Howsam to determine that a court should ultimately decide the arbitrability issue in the case. According to the amici, the court of appeals correctly decided “that Argentina’s challenge to the arbitrators’ jurisdiction presented a question of substantive arbitrability for the courts to decide.” The amici add that several factors support the conclusion that the arbitrability issue in the case is substantive, including the idea that the BIT’s litigation requirement is independent from the merits of the dispute. Citing the current draft of the Restatement (Third) of the U.S. Law of International Commercial Arbitration for support, the amici also reject the petitioner’s contention that the BIT’s reference to UNCITRAL Rules constitutes clear and unmistakable evidence that the parties agreed to submit the arbitrability question to arbitration.

Martin Domb of Akerman LLP is counsel of record.

 -          Cynthia Galvez, CPR Legal Intern

 N.B. Petitioner BLG Group's Reply Brief, submitted on November 15, 2013 is available at http://bit.ly/1e9EiiR.