United States Supreme Court Gives Deference To Arbitrators In Investment Treaty Cases

Author:Mr Baiju Vasani, Melissa Stear Gorsline, Charles T Kotuby Jr., James Egerton-Vernon and Michael C. Rooney
Profession:Jones Day

On March 5, the U.S. Supreme Court, in a 7 to 2 decision, ruled that an appellate court erred in setting aside a US$185 million arbitral award rendered under the UNCITRAL rules and pursuant to the United Kingdom-Argentina Bilateral Investment Treaty, and reinstated that award for UK investor, BG Group PLC. The majority opinion, authored by Justice Breyer, held that U.S. courts should review local litigation requirements in international investment treaties "with the deference that courts ordinarily owe arbitration decisions."1 Justice Breyer's holding viewed the local litigation rule as a procedural requirement rather than a substantive precondition to arbitration, thus allowing the arbitrators, rather than a national court, to decide its meaning and application. The Court's decision affects the role of U.S. courts in interpreting and enforcing arbitral awards rendered pursuant to investment treaties, and it extends a more general pro-arbitration trend in U.S. jurisprudence to cases filed against sovereign states.

BG Group PLC v. Republic of Argentina: The Investment Arbitration and the D.C. Courts

Argentina and the UK signed a Bilateral Investment Treaty ("BIT") on December 11, 1990, with the purpose of promoting and protecting foreign investment in the Argentine economy. Article 8(2) of the BIT provides that disputes under the Treaty between an investor and Argentina must first be submitted to a competent tribunal in the sovereign state where the investment was made. Subsequently, the dispute can go to international arbitration at one party's request if (i) a period of 18 months has elapsed since the dispute was presented to the tribunal and no decision has been made; or (ii) a final decision was made by the tribunal, but the parties still disagree. Article 8(3) of the BIT specifies that if a dispute goes to arbitration and the parties cannot agree on arbitration procedures, the Arbitration Rules of the United Nations Commission on International Trade Law ("UNCITRAL Rules") will govern.

BG Group held substantial shares of MetroGAS, a private Argentine gas transportation and distribution company. MetroGAS was granted a 35-year exclusive license to distribute gas in and around Buenos Aires. The tariffs on this license would be calculated in U.S. dollars and could be adjusted every six months for inflation based on the United States Product Price Index ("PPI"). Between 2001 and 2002, the Argentine economy collapsed. In response, the government enacted Emergency Law 25.561...

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