Supreme Court Holds That Courts Must Defer To Arbitrators In First Case Addressing International Investment Treaty Arbitration

On March 5, 2014, the United States Supreme Court decided BG Group, PLC v. Republic of Argentina, the first case in which the Court addressed an international investment treaty arbitration (a case between a private investor and a sovereign nation). In a 7-2 decision, the Court reversed a prior decision of the United States Court of Appeals for the D.C. Circuit, and reinstated a $185.3 million award against Argentina. The Court held that the D.C. Circuit was not entitled to substitute its judgment for that of the arbitrators as to whether BG Group was required to sue Argentina in Argentinean court prior to filing for arbitration. The case's implications go far beyond investment treaty arbitration, as the holdings apply in large part to all arbitrations. In particular, the Court emphasized the deference due to arbitrators and clarified further the distinctions between the role of courts and of arbitrators in deciding when a dispute is arbitrable. This is yet another pro-arbitration opinion handed down by the Supreme Court. Practitioners and clients wanting to enforce their arbitration clauses and avoid court altogether have yet another case from the Supreme Court that they can rely on.

BG Group arose from Argentina's economic crisis in the early 2000s. BG Group (a United Kingdom firm) was part of a consortium that owned a majority interest in MetroGAS, a company which held a 35-year exclusive license to distribute gas in Buenos Aires. Prior to the economic crisis, Argentina's regulators were charged with setting gas "tariffs" in U.S. dollars such that MetroGAS (and its owners) would receive a reasonable return on investments. When the economic crisis struck in 2000-01, however, Argentina enacted emergency measures that provided gas tariffs would be calculated in Argentinean pesos. Given the collapse of the peso, "MetroGAS's profits were quickly transformed to losses."

BG Group subsequently initiated an arbitration under the U.K.-Argentina Bilateral Investment Treaty (BIT), which covers disputes between U.K. investors in Argentina and the Argentinean government, alleging that Argentina had expropriated BG Group's investment in MetroGAS by enacting the emergency measures. An arbitral tribunal was convened in Washington, D.C. under the United Nations Commission on International Trade Law (UNCITRAL Rules). Argentina argued that the tribunal lacked jurisdiction because the U.K.-Argentina BIT required BG Group to file a lawsuit in Argentina and...