US courts limited judicial review of arbitral awards made pursuant to international investment treaties (U.S Supreme Court, BG Group PLC.V Republic of Argentina, March 5, 2014)

In BG Group PLC v. Republic of Argentina, the US Supreme Court faced its first-ever case involving arbitration requirements under an international investment treaty. The core issue of the litigation was the following: should an arbitrator or a judge decide whether an international treaty requires a private party to bring a commercial dispute before a judge prior to attempting arbitration? To answer this question, the US Supreme Court had to rule on the very foundation of the whole international investment arbitration system¹. It issued a divided opinion holding that, when reviewing an arbitration award made under an international treaty, US courts should interpret and apply « threshold » provisions concerning arbitration using the framework developed for interpreting similar provisions in ordinary contracts. Thus overturning an appellate ruling that a private investor’s failure to fulfill a treaty requirement had deprived arbitra- tors of jurisdiction, the Supreme Court reinstated a multimillion-dollar arbitral award against the Republic of Argentina.

FACTS AND BACKGROUNDS

In 2003, BG Group, invoking the Investment Treaty between United Kingdom and Argentina (UK-Argentina bilateral investment treaties²), sought arbitration, claiming that Argentina’s new laws and regulatory practices violated provisions in the Treaty forbidding the “expropriation” of investments and requiring that each nation give “fair and equitable treatment” to investors from the other.
According to Argentina, the arbitration tribunal lacked jurisdiction among others because BG Group initiated arbitration without first litigating its claims in Argentina’s courts, despite the Treaty requirement³. Washington, D.C.-based arbitrators awarded BG Group $185 million in damages and held that Argentina’s own conduct had waived, or excused, BG Group’s failure to comply with the local litigation requirement⁴. While the U.S. District Court for the District of Columbia confirmed the arbitral award, the D.C Circuit reversed. The issue of whether deferential or de novo review was appropriate amounted to a question of “who – court or arbitrator – bears primary responsibility for interpreting” the treaty provision⁵

IN MATTER OF ARBITRATION, UNLESS EXPRESSLY STATED OTHERWISE, AN INTERNATIONAL TREATY MUST BE INTERPRETED AS IF IT WERE AN ORDINARY CONTRACT

The Court ruled 7-2 against Argentina, concluding that the task of interpreting the Treaty’s local litigation provision fell to the arbitrator, and courts should give deference to the arbitrator’s findings. To reach this solution, the Court followed a two-step ap- proach, “initially treat[ing] the document before [them] as if it were an ordinary contract between private parties” and then examining “whether the fact that the document in question is a treaty makes a critical difference.” After recalling that under ordinary contract law, whether a party has satisfied a precondition to arbitration is a procedural matter left for arbitrators, the Majority opinion held that a treaty per se made no critical difference to the analysis. It further ruled that the text contained no evidence that the parties intended to bypass ordinary contract presumptions or to set aside the “ordinary inter- pretive framework”; thus adopting a “[h]ighly [d]eferen- tial” standard of review. One can interpret this opinion as providing that no less than a private party, a nation-state which wants to assure that courts rather than arbitrators have the last word on whether it consented to arbitration, must say so explicitly⁶. This point is all the more important that the opinion rebuffed a treaty interpretation proffered by the United States – which had briefed and argued the case as an amicus⁷ that such intent might be implicit in the bilateral investment treaty at issue. Therefore, despite the importance of this opinion, the latter may not extend to U.S. treaties that, unlike the Britain-Argentina treaty, contain explicit conditions⁸. Yet, whether in some future cases the Supreme Court will enforce such express provisions remains an open question. However, if it seems too radical to argue that “the Majo- rity Opinion is legally inaccurate and politically unsustai- nable”, it can reasonably be suggested that the Supreme Court decision, in this particular litigation, protected US investor’s interest on cost of unnecessary systematic disturbance to the evolution of whole⁹.

Nicolas MASSON

¹Treaty versus Contract: Comments on US Supreme Court’s Opinion on BG Group Plc. Petitioner v. Republic of Argentina, Peng Wang, 20 March, 2014

²One of the thousands of BITs that countries have concluded in the last quarter-century

³Article 8 of the Treaty provided that an investor has to first attempt to resolve its dispute before a “competent tribunal” in Argentina for at least eighteen months

⁴BG Group Plc. V the Republic of Argentina, UNCITRAL, Final Award, 24

⁵December 2007. Formal seat of arbitration: Washington D.C

⁶According to the opinion for the Court by Justice Stephen G. Breyer

⁷A party that is not involved in a particular litigation but that is allowed by the court to advise it on a matter of law directly affecting the litigation

⁸The U.S.-Korea agreement, the North American Free Trade Agreement, to which the United States belongs along with Mexico and Canada, and the U.S. Model Bilateral Investment Treaty

⁹Treaty versus Contract: Comments on US Supreme Court’s Opinion on BG Group Plc. Petitioner v. Republic of Argentina, Peng Wang, 20 March, 2014