Argument preview: Jurisdictional say-so in investor-state arbitrations
on Nov 20, 2013 at 2:14 pm
Diane Marie Amann is the Emily and Ernest Woodruff Chair in International Law at the University of Georgia School of Law.
Fallout from the 2000-2002 implosion of Argentina’s economy is destined to reach the Supreme Court on December 2, when the Justices will hear oral argument in BG Group PLC v. Republic of Argentina. The core issue – the extent to which a federal court may review arbitrators’ finding of jurisdiction – will be familiar to the Justices. But the issue has tended to surface in arbitrations between private parties. This case represents the Court’s first consideration of an investor-state dispute arising out of one of the thousands of bilateral investment treaties (BITs) that countries have entered in recent decades. Applying precedent to the facts in this record thus may prove a challenge.
At the center of this case is the D.C. Circuit’s unanimous holding that an arbitral panel acted without jurisdiction when it rendered a multi-million-dollar award in favor of a private investor and against a sovereign nation. That decision, which rested on the vacatur provision in Section 10(a) of the Federal Arbitration Act, turned on the court’s interpretation of a treaty: the Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Argentina for the Promotion and Protection of Investments, concluded in 1990 and in force since 1993. This Britain-Argentina pact is one of almost three thousand bilateral investment treaties to which nations are party – the United States alone belongs to nearly four dozen. Such treaties aim to encourage foreign direct investment by ensuring (among other protections) reciprocal fair treatment and safeguards against expropriation. To those ends, the treaties provide for arbitration of investment-related claims brought by an investor of one state directly against the other, host state.
About the time that the treaty under review entered into force, petitioner BG Group PLC, a British corporation, began investing in MetroGAS, a privatized company that distributed natural gas in Buenos Aires pursuant to a license linking the return on investment to U.S. currency and price indexing. By 1998, BG Group’s interest in MetroGAS was over forty-five percent. A few years later, Argentina’s economy crashed. The country enacted laws and issued decrees that broke the prior links to the currency and indices of the United States and set up a contract-renegotiation process, excluding from that process licensees that sought relief through courts or arbitration. The value of BG Group’s investment was greatly diminished, and the ensuing controversy implicated the Britain-Argentina treaty.
Article 8(1) of the treaty provides that disputes “shall be submitted, at the request of one of the Parties to the dispute, to the decision of the competent tribunal” where the investment was made – in this case, Argentina. Article 8(2) sets out the circumstances in which “disputes shall be submitted to international arbitration”: (1) “where, after a period of eighteen months has elapsed from the moment when the dispute was submitted to the competent tribunal … the said tribunal has not given its final decision”; and (2) “where the Contracting Party and the investor of the other Contracting Party have so agreed.”
In 2003, BG Group filed a notice of arbitration. In 2007, after an arbitration in the United States, a panel of three arbitrators issued a final award. The panel noted that BG Group had not submitted the dispute to a competent tribunal as contemplated in Article 8(2)(a) of the Britain-Argentina treaty, but it ruled that this did not strip jurisdiction to arbitrate. The panel reasoned that Argentina’s post-collapse measures had restricted BG Group’s access to courts or renegotiation, so that literal enforcement of the eighteen-month lapse clause would be, to quote Article 32(b) of the 1969 Vienna Convention on the Law of Treaties, “absurd or unreasonable.” On the merits of the dispute, the arbitrators ordered Argentina to pay BG Group more than $185 million in damages.
In 2012, the D.C. Circuit vacated the final award. The federal appellate court interpreted the eighteen-month lapse clause in the Britain-Argentina treaty to interpose “a temporal limitation” on arbitration, and it found the treaty “silent” on what should happen when that limitation is disregarded. Other clauses of the same treaty expressly committed certain questions to arbitrators. In the absence of a similar commitment respecting the lapse clause, the D.C. Circuit held, “arbitrability is an independent question of law for the court to decide.” The court then distinguished Supreme Court precedents that BG Group had invoked, such as John Wiley & Sons v. Livingston (1964), and further declined to privilege what the Court in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. (1985) had called the “emphatic federal policy in favor of arbitral dispute resolution.” Determining via de novo review that Article 8 of the Britain-Argentina treaty evidenced the parties’ “explicit” intent, the D.C. Circuit vacated the final award pursuant to Section 10(a) of the Federal Arbitration Act because of BG Group’s failure to file a lawsuit in Argentina and wait eighteen months before pursuing arbitration.
II. The briefing
BG Group endeavors to place the case in larger contexts – of arbitration as a whole, and of the many investment disputes spawned by Argentina’s economic crisis. The question presented alludes to all “disputes involving a multi-staged dispute resolution process”; moreover, BG Group’s brief cites multiple Supreme Court statements of a federal policy favoring arbitration, particularly in international commercial matters. The brief reports that Argentina’s post-collapse measures spawned more than thirty arbitrations like this one, and it alleges that in these matters Argentina has demonstrated “general disdain for the U.S. judiciary.”
Relying on the Court’s statements in Howsam v. Dean Witter Reynolds, Inc. (2002), as well as John Wiley, BG Group argues that the D.C. Circuit should have enforced a presumption that arbitrators should decide if a condition precedent to arbitration has been satisfied. That presumption makes sense, BG Group argues, given that arbitrators likely will possess greater expertise than federal courts in international law, arbitral jurisdiction, and investment-treaty interpretation. The court below misinterpreted the eighteen-month lapse clause in the Britain-Argentina treaty, BG Group contends; to be precise, it maintains that the clause “creates only a procedural opportunity for the Argentine courts,” and thus does not bar arbitration. A contrary conclusion would put U.S. courts “on a collision course with the international regime embodied in thousands of BITs,” warns the amicus brief filed by nineteen academics and practitioners. Also supporting BG Group’s request for reversal are two other amicus briefs, filed by the U.S. Council for International Business, and the American Arbitration Association. As an additional matter, BG Group discusses conduct in the record that it says shows that Argentina consented to arbitration.
Argentina’s brief tethers analysis to consent – that is, to the principle that parties must agree to arbitrate. It cites the Court’s judgment in First Options of Chicago, Inc. v. Kaplan (1995), as well as Howsam, for the proposition that, absent clear and unmistakable evidence of such an agreement, “the default presumption is that a court, not an arbitrator, has the final say.” Argentina, along with the eight practitioners and professors who filed an amicus brief supporting it, seek to undercut their opponents’ assertion that the ruling below is at odds with international arbitration practice. They state that many countries – including the United Kingdom, where BG Group is incorporated – permit independent judicial review of the existence of an arbitration agreement. Also supporting Argentina is the amicus brief filed by Ecuador, which lost a challenge to the arbitrability of a dispute with Chevron Corp. in a 2011 Second Circuit decision.
Argentina and its amici also contend that the D.C. Circuit’s ruling on arbitrability enforced the ordinary meaning of Article 8 of the Britain-Argentina treaty, as required by the primary treaty-interpretation rules set out in Article 31 of the Vienna Convention on the Law of Treaties. The arbitrators’ conclusion that literal enforcement of the eighteen-month lapse clause would be “absurd or unreasonable” was erroneous because it depended on supplementary means of interpretation, Argentina continues. Further contradicting BG Group’s brief, Argentina construes its own actions as objecting – not consenting – to arbitration. Arguing that it is not its own “conduct in the face of an historical economic collapse” that is at issue, but rather “BG’s deliberate decision to ignore the terms of Argentina’s consent to arbitrate,” Argentina urges the Court to affirm the decision below.
The amicus brief of the United States – which at the certiorari stage had recommended that the Court deny review – takes a tack different from that of either BG Group or Argentina. Reasoning that the presumptions articulated in First Options and Howsam pertained to arbitrations between private parties, the U.S. brief proposes a distinct rule for arbitrations like this one: In disputes between private investors and sovereign states, a court “should review de novo arbitral rulings on consent-based objections to arbitration, and review deferentially rulings on other objections.” Because the decision below failed to follow this rule, the federal government urges the Court to remand for further proceedings.
In its reply brief, BG Group reiterates that the Court’s precedents in Howsam and John Wiley, which enforced arbitrators’ findings on jurisdiction, mandate reversal. BG Group avers that the U.S. effort to distinguish those precedents is motivated by a desire to keep open “every possible avenue for appeal” lest the United States, in some future dispute bottomed on some other BIT, find itself in a position similar to that of Argentina.
The Supreme Court’s arbitration precedents have tended to limit judicial review to the ultimate question of arbitrability, leaving most other questions to the arbitrators themselves. A number of factors suggest that this formulation may prove difficult to apply in this case. This is the first case in which one of the litigants is a sovereign state – a state, moreover, that seeks relief pursuant to a bilateral investment treaty not unlike some BITs to which the United States belongs. Argentina and the United States argue that this factor alone requires a recalibration of precedent. It seems likely that the Court will weigh carefully that argument, as well as the litigants’ disagreement over whether affirmance of the ruling below would set the U.S. jurisprudence apart from that of other national judicial systems empowered to examine arbitral awards.
Additional questions seem likely to arise if the Court endorses independent, rather than deferential, review of the arbitrators’ final award. Article 8(2)(a) of the Britain-Argentina investment treaty calls for the filing of a lawsuit and an eighteen-month waiting period before the initiation of arbitration, but does not state the consequences of failure to comply. Resolution of that question implicates interpretive rules set out in the Vienna Convention on the Law of Treaties – a multilateral treaty to which the United States does not belong, though it accepts that those rules codify customary international law. What is more, Article 8(2) allows arbitration when the parties consent, and whether Argentina consented in this case appears bound up not only in factual determinations, but also, perhaps, in the interpretation of still another international instrument, the UNCITRAL Rules that governed the underlying arbitration.
In short, this case entails a multiplicity of issues and institutions. It would not be surprising if, at the upcoming oral argument, the Justices seem receptive to the federal government’s recommendation that the Court remand after outlining the contours for judicial review of investor-state arbitral awards.
[Disclosure: Goldstein & Russell, P.C., whose attorneys contribute to this blog in various capacities, serves as counsel to the petitioner in this case. The author of this post is not affiliated with that law firm.]