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The US Supreme Court heard BG's appeal over Argentina. (Photo: AOC)
Timothy Nelson, a partner and international arbitration lawyer at Skadden, Arps, Slate, Meagher & Flom.
Tuesday, December 3, 2013
Special Reports

Supreme Court Hears Historic Argentina Case

In a case that has raised concern among arbitration lawyers, the US Supreme Court is reviewing a lower court decision over Argentina.


In a historic move, the US Supreme Court on Monday heard an appeal in a bilateral investment treaty. The case heard is UK-based BG’s appeal to reinstate a 2007 $185.3 million arbitration award from the International Chamber of Commerce International Court of Arbitration against Argentina that a Washington DC appeals court threw out in January 2012. (BG Group v. Argentina, U.S. Supreme Court, No. 12-138). 

"This is a historic case on multiple levels," says Timothy Nelson, an international arbitration lawyer at Skadden, Arps, Slate, Meagher & Flom. "This is the first time ever that the U.S. Supreme Court has had reason to interpret a Bilateral Investment Treaty between two states. There are literally thousands of such treaties calling for arbitration of investor-state disputes concerning expropriation or unfair treatment of private investment. Most of these treaties call for arbitration in the World Bank's ICSID system, and these awards are not reviewable by the courts. This treaty is unusual in that it sets another system (arbitration under the UNCITRAL rules) in which awards are subject to review in the courts where the arbitration took place."

Meanwhile, this is also the first time since the early 1980's case of Dames v. Regan that the U.S. Supreme Court has had reason to address an investor-state dispute, Nelson points out. That case involved an expropriation dispute against Iran. The current BG case is different in nature; it involves a series of currency and economic laws ('pesification') that severely impacted the value of investments in Argentina's utilities sector.

"Most people in the investor/state community took a dim view of the D.C. Circuit panel's decision because it not only adopted a legally questionable interpretation of the treaty as creating a strict 'gateway' pre-requisite that BG would need to litigate in the Argentine courts for 18 months, but because many feel the D.C. Circuit had no business asking that question in the first place,” he says. “The UNCITRAL tribunal had already addressed and answered the issue and ruled that compliance with the 18 month rule had been rendered futile by Argentine emergency legislation that had severely curtailed access to the Argentine courts. The leading Supreme Court case on 'gateway' issues, Howsam, indicates that once a basic agreement to arbitrate is established, the courts should leave certain 'procedural' issues to the arbitrators. This is consistent with the international law principle of 'kompetenz-kompetenz.' BG has argued cogently that the D.C. Circuit's decision is at variance with that principle."

The D.C. Circuit's dispositive holding on the treaty wording, which is barely a paragraph long, contrasts sharply with the detailed and thorough approach of the many arbitral tribunals that have addressed the same language in this or similar BIT's and have found the question to be far more complex and nuanced than the D.C. Circuit appears to have appreciated, Nelson says.

In Monday’s hearing, the lead 'interrogator' from the Bench was Justice Breyer, the author of some of the major recent majority opinions of the Court on arbitration (including Howsam's critical holdings on the "gateway" issue of who should decide the validity/effectiveness of an arbitration clause). He subjected Argentina's side to some very tough questioning and he seems to be skeptical of the overall Argentine position.

Justice Breyer got Argentina's counsel to admit that the only tribunal with ultimate power to decide a treaty dispute was the international arbitral tribunal appointed under the BIT. This is critical because it amounts to a concession that the Argentine courts never had any power to make a final substantive adjudication on the dispute, regardless of whether BG had taken the case to those courts and appears to fortify the BIT tribunal's conclusion that compliance with the 18 month rule was futile in the circumstances. Breyer seemed particularly skeptical of Argentina's argument that the BIT merely represented a 'conditional offer' of arbitration.

Justices Ginsberg and Scalia also seem actively engaged and themselves subjected Argentina's counsel to probing questions. At the same time the Chief Justice seemed to be asking some tough questions of BG's counsel, and was focusing on whether the involvement of a sovereign party meant that this case is distinguishable from Howsam.

Oral arguments and a decision in the case are due in the court's next term, which starts in October and ends in June 2014, according to Reuters.

"I hope that the justices will understand the critical and complex nature of the questions presented by the 18 month host state litigation rule and the perils in letting the courts (here, the D.C. Circuit) second-guess a prior jurisdictional ruling by the (more qualified) international arbitral tribunal,” he argues. “As BG correctly observed in its brief (quoting the Supreme Court), the question of 'gateway' jurisdiction sometimes presents seemingly 'arcane' issues. This issue might seem 'arcane' to some but, for the arbitral community, it matters [a lot] to us.”

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