Supreme Court Holds That Arbitrators, Not Courts, Are To Interpret A Treaty’s Arbitration Prerequisite


The United States Supreme Court has held that arbitrators, not courts, bear the primary responsibility for interpreting and applying a local litigation requirement of an investment treaty between the United Kingdom and Argentina that operated as a condition precedent to arbitration. BG Group plc, a British firm that had invested in an Argentine entity, sought arbitration for a dispute arising out of that treaty. Argentina claimed that the arbitrators lacked jurisdiction over the dispute because BG Group had not complied with the treaty’s requirement that the dispute first be submitted to an Argentinean court for consideration. The arbitrators concluded that they had jurisdiction finding, in part, that Argentina’s conduct in enacting new laws that hindered recourse to its judiciary had excused BG Group’s failure to comply with the treaty’s local litigation requirement. The arbitrators then found in favor of BG Group and awarded it $185 million in damages.

After decisions by the federal district and appellate courts, both of which were reported here previously, the Supreme Court held that the treaty’s local litigation requirement was a procedural condition precedent to arbitration and that, absent a contrary intent reflected in the treaty itself, the interpretation and application of that procedural provision should be decided by the arbitrators and that decision should be reviewed with considerable deference. The fact that the document at issue was a treaty rather than an ordinary contract did not change the Court’s analysis, a position on which the dissent strongly disagreed. The Court concluded that the arbitrators’ jurisdictional determination was lawful and the judgment of the Court of Appeals to the contrary was therefore reversed. BG Group PLC v. Republic of Argentina, No. 12-138 (U.S. March 5, 2014).

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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