Keywords: FAA, preconditions, arbitration, Argentina, United Kingdom, bilateral investment treaty
On June 10, 2013 the Supreme Court granted certiorari in one case of interest to the business community:
Federal Arbitration Act—Preconditions to Arbitration
Under the Federal Arbitration Act, when parties to an arbitration agreement disagree about whether a particular dispute should be arbitrated, that threshold question of arbitrability is ordinarily decided by a court unless the agreement specifies that it should be resolved by the arbitrators. (By contrast, procedural questions about the arbitration itself are generally decided by the arbitrators.) Today, in BG Group PLC v. Argentina, No. 12-138, the Court granted certiorari to address whether a court or the arbitrators should decide whether the claimant has complied with a contractual precondition to bringing an arbitration.
In 1990, Argentina and the United Kingdom entered into a Bilateral Investment Treaty that provides protections to investors in each country who invest in the other country. Under the treaty, British investors challenging Argentina's compliance with the treaty may submit the dispute to arbitration if they complied with a litigation precondition—they first must submit the dispute to a "competent tribunal" in Argentina and give it 18 months to rule.
In 2001, Argentina suffered a severe economic crisis and enacted emergency legislation that dramatically changed the return that BG Group PLC, a British investor in an Argentine gas company, could expect from its investment. Argentina also adopted measures to penalize foreign investors who sought to challenge the emergency legislation in court. Contending that Argentina had violated the treaty, BG Group commenced arbitration without first having submitted the dispute to an Argentine court. The arbitral panel excused that choice, citing Argentina's penalties for engaging in litigation, and awarded BG Group $185 million, plus interest and attorneys' fees. A district court denied Argentina's request to vacate the award.
On appeal, the D.C. Circuit reversed the district court's decision, concluding that a court rather than the panel of arbitrators should decide whether BG Group had complied with the treaty's litigation precondition. In the D.C. Circuit's view, "the intent of the contracting parties controls whether the answer to the question of arbitrability is to be provided by a court or an arbitrator." 665 F.3d 1363, 1369 (D.C. Cir. 2012) (citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995)). The D.C. Circuit concluded that the treaty vested that authority in the courts. Reviewing the issue de novo, the court concluded that BG Group's decision not to comply with the litigation precondition required that the arbitral award be vacated.
In its petition for certiorari, BG Group contended that the D.C. Circuit's decision was contrary to decisions of the First, Sixth, Seventh, and Eighth Circuits holding that an arbitrator, not a court, must decide whether a precondition to arbitration in a multi-stage dispute-resolution process has been satisfied.
The decision in BG Group could have significant implications for both domestic and international arbitration, including the allocation of authority between courts and arbitrators in widely varying circumstances.
Absent extensions, which are likely, amicus briefs in support of the petitioner will be due on August 1, 2013, and amicus briefs in support of the respondent will be due on September 3, 2013.
Originally published June 10, 2013
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