BG Group plc won a major victory at the U.S. Supreme Court last month when the Court upheld an arbitration award requiring Argentina to pay BG Group more than $185 million. The case is yet another example of the deference that arbitration awards receive in U.S. courts.
BG Group initiated the underlying arbitration pursuant to an investment treaty between the United Kingdom and Argentina. The dispute resolution clause within the treaty includes a "local litigation requirement," meaning that a dispute must be brought before the courts in the country where the investment was made (here, Argentina) before arbitration is initiated. BG Group's claims centered on its stake in an Argentinean gas distribution company and measures the Argentinean government took during the 2001-02 economic crisis that devalued that stake.
BG Group filed its claims in arbitration without first going to the Argentinean courts. BG Group argued that Argentina had hindered BG Group's ability to bring the dispute before Argentinean courts, the arbitrators agreed, and issued their $185 million award in favor of BG Group. In other words, the arbitrators decided the threshold question of whether the local litigation requirement had been satisfied or whether BG Group was otherwise excused from complying with it.
The U.S. District Court for the District of Columbia confirmed the arbitration award, but the Court of Appeals for the District of Columbia reversed on the basis that the arbitrators' interpretation of the local litigation requirement was not entitled to deference and was to be reviewed de novo.
The Supreme Court disagreed with the Court of Appeals and ruled that, while courts presume that parties "intend courts, not arbitrators, to decide...disputes about arbitrability," courts presume that parties "intend arbitrators, not courts, to decide disputes about the meaning and application of particular procedural preconditions for the use of arbitration." See BG Group plc v. Republic of Argentina, 572 U.S. ____ (2014), at 7-8. The Court decided that the local litigation requirement fell into the latter category, largely because it determined when - not whether - a dispute was to be arbitrated. Therefore, the arbitrators' determination concerning the local litigation requirement was due a high degree of deference.
Applying such deference, the Supreme Court held that "the arbitrators' jurisdictional determinations are lawful." See BG Group plc v. Republic of Argentina, 572 U.S. ____ (2014), at 19. Accordingly, the decision of the Court of Appeals declaring the arbitration award invalid was reversed.