BG Group, PLC v. Republic of Argentina
188 L. Ed. 2d 220, 2014 U.S. LEXIS 1785, 134 S. Ct. 1198 (2014)
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Rule of Law:
When an arbitration agreement in an international treaty contains a procedural precondition for arbitration, such as a local litigation requirement, it is presumptively for the arbitrator, not a court, to interpret and apply that provision. A court should review the arbitrator's decision on such a procedural matter with deference, not de novo.
Facts:
- In the early 1990s, BG Group plc, a British company, acquired a majority interest in MetroGAS, an Argentine gas distribution company.
- At the time, Argentine law stipulated that gas tariffs would be calculated in U.S. dollars to ensure a reasonable rate of return for investors.
- In 2001-2002, amid a severe economic crisis, Argentina enacted new laws that de-linked tariffs from the U.S. dollar and converted them to pesos at a one-to-one rate, drastically reducing MetroGAS's revenue.
- In response to the crisis, Argentina's president issued a decree staying the execution of final court judgments related to the new economic measures for 180 days.
- Argentina also established a contract renegotiation process but barred any company from participating if it was pursuing legal action against the government in court or through arbitration.
- Believing these actions violated a UK-Argentina investment treaty, BG Group initiated arbitration without first litigating its claims for 18 months in Argentine courts, as specified in the treaty's dispute resolution clause.
Procedural Posture:
- BG Group initiated arbitration proceedings against the Republic of Argentina in Washington, D.C., under the UK-Argentina bilateral investment treaty.
- The arbitral tribunal determined it had jurisdiction and issued a final award of $185 million in damages to BG Group.
- BG Group filed a petition in the U.S. District Court for the District of Columbia to confirm the arbitral award.
- Argentina filed a cross-petition in the same court to vacate the award, arguing the arbitrators exceeded their powers by hearing the dispute when BG Group had not complied with the local litigation requirement.
- The District Court denied Argentina's petition and confirmed the award for BG Group.
- Argentina, as appellant, appealed to the U.S. Court of Appeals for the D.C. Circuit, with BG Group as appellee.
- The Court of Appeals reversed the District Court, holding that compliance with the local litigation requirement was a question of arbitrability for a court to review de novo, and vacated the award.
- The U.S. Supreme Court granted BG Group's petition for a writ of certiorari.
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Issue:
Does a court conduct a de novo review of an arbitral tribunal's interpretation of a treaty provision requiring an investor to litigate in a local court for 18 months before initiating arbitration, or should the court defer to the arbitrator's interpretation?
Opinions:
Majority - Justice Breyer
No. A court should not conduct a de novo review but should instead apply a deferential standard to the arbitrator's interpretation of the treaty's local litigation provision. The provision is a procedural precondition to arbitration, the interpretation of which is presumptively a matter for the arbitrator. The Court distinguishes between gateway 'questions of arbitrability' (e.g., whether an agreement to arbitrate exists or covers a certain dispute), which are for courts to decide, and procedural preconditions (e.g., time limits, notice requirements, or other claims-processing rules), which are for arbitrators. The treaty's requirement to litigate locally for 18 months is a procedural condition that governs when the duty to arbitrate arises, not whether it exists. The fact that the agreement is a treaty between sovereigns does not alter this framework. Applying this deferential standard, the arbitrators did not exceed their powers in finding that Argentina's own actions hindered access to its courts, thereby excusing BG Group's noncompliance.
Concurring - Justice Sotomayor
I agree with the majority that the local litigation requirement is a procedural precondition for the arbitrators to interpret. I write separately to emphasize that the Court's opinion does not decide how to interpret treaties that explicitly label a requirement as a 'condition of consent' to arbitration. Had the treaty used such express language, it might well present a 'question of arbitrability' for a court to decide de novo, as consent is the cornerstone of arbitration. Because this treaty lacks such explicit language, the majority's framework and conclusion are correct for this case.
Dissenting - Chief Justice Roberts
Yes. A court should decide de novo whether the local litigation requirement was satisfied. The majority errs by treating a treaty between two sovereigns as an ordinary contract between private parties. The treaty provision is not a procedural rule within an existing agreement between BG Group and Argentina; rather, it is a unilateral standing offer by Argentina to investors. An investor accepts this offer and forms an arbitration agreement only by complying with the offer's terms, including the condition of first litigating in local courts. Whether an arbitration agreement was formed is the most fundamental 'question of arbitrability' and is for a court, not an arbitrator, to decide. A sovereign's consent to international arbitration is a significant waiver of immunity, and conditions on that consent must be treated as formative requirements.
Analysis:
This decision reinforces the distinction between substantive 'questions of arbitrability' for courts and procedural matters for arbitrators, extending this domestic law principle firmly into the realm of international investment treaties. It establishes a strong presumption that pre-arbitration requirements, such as exhaustion of local remedies, are procedural matters for arbitrators to resolve. This holding enhances the authority of arbitral tribunals and promotes the efficiency of international arbitration by limiting the grounds for judicial intervention. However, it may also concern sovereign nations who viewed such clauses as critical, court-enforced gateways to limit their consent to be sued by foreign investors.
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