The U.S. Supreme Court has recently delivered an important decision about the parameters of arbitration under investment treaties. In BG Group PLC v. Republic of Argentina (No. 12–138. Argued December 2, 2013—Decided March 5, 2014), a majority of the justices (Breyer, J., delivered the opinion of the Court, in which Scalia, Thomas, Ginsburg, Alito and Kagan joined , and in which Sotomayor joined except for Part IV–A–1. Sotomayor filed an opinion concurring in part. Roberts, CJ, filed a dissenting opinion, in which Kennedy, J., joined) held that when reviewing investment arbitration provisions awards (in this case that of the UK- Argentina Bilateral Investment Treaty (BIT)), U.S. courts should interpret and apply "threshold" provisions concerning arbitration using the framework developed for interpreting similar provisions in ordinary contracts. Within that framework, any local litigation requirement (place of filing and waiting periods for example) is a matter for arbitrators primarily to interpret and apply, and courts should review their interpretation with deference.
The Court's syllabus is set out below.
SUPREME COURT OF THE UNITED STATES
BG GROUP PLC v. REPUBLIC OF ARGENTINA
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT
No. 12–138. Argued December 2, 2013—Decided March 5, 2014
An investment treaty (Treaty) between the United Kingdom and Argentina authorizes a party to submit a dispute “to the decision of the competent tribunal of the Contracting Party in whose territory the investment was made,” i.e., a local court, Art. 8(1); and permits arbitration, as relevant here, “where, after a period of eighteen months has elapsed from the moment when the dispute was submitted to [that] tribunal . . . , the said tribunal has not given its final decision,” Art. 8(2)(a)(i).
Petitioner BG Group plc, a British firm, belonged to a consortium with a majority interest in MetroGAS, an Argentine entity awarded an exclusive license to distribute natural gas in Buenos Aires. At the time of BG Group’s investment, Argentine law provided that gas “tariffs” would be calculated in U. S. dollars and would be set at levels sufficient to assure gas distribution firms a reasonable return. But Argentina later amended the law, changing (among other things) the calculation basis to pesos. MetroGAS’ profits soon became losses. Invoking Article 8, BG Group sought arbitration, which the parties sited in Washington, D. C. BG Group claimed that Argentina’s new laws and practices violated the Treaty, which forbids the “expropriation” of investments and requires each nation to give “fair and equitable treatment” to investors from the other. Argentina denied those claims, but also argued that the arbitrators lacked “jurisdiction” to hear the dispute because, as relevant here, BG Group had not complied with Article 8’s local litigation requirement. The arbitration panel concluded that it had jurisdiction, finding, among other things, that Argentina’s conduct (such as also enacting new laws that hindered recourse to its judiciary by firms in BG Group’s situation) had excused BG Group’s failure to comply with Article 8’s requirement.
On the merits, the panel found that Argentina had not expropriated BG Group’s investment but had denied BG Group “fair and equitable treatment.” It awarded damages to BG Group. Both sides sought review in federal district court: BG Group to confirm the award under the New York Convention and the Federal Arbitration Act (FAA), and Argentina to vacate the award, in part on the ground that the arbitrators lacked jurisdiction under the FAA. The District Court confirmed the award, but the Court of Appeals for the District of Columbia Circuit vacated. It found that the interpretation and application of Article 8’s requirement were matters for courts to decide de novo, i.e., without deference to the arbitrators’ views; that the circumstances did not excuse BG Group’s failure to comply with the requirement; and that BG Group had to commence a lawsuit in Argentina’s courts and wait 18 months before seeking arbitration. Thus, the court held, the arbitrators lacked authority to decide the dispute.
1. A court of the United States, in reviewing an arbitration award made under the Treaty, should interpret and apply “threshold” provisions concerning arbitration using the framework developed for interpreting similar provisions in ordinary contracts. Under that framework, the local litigation requirement is a matter for arbitrators primarily to interpret and apply. Courts should review their interpretation with deference. Pp. 6–17.
(a) Were the Treaty an ordinary contract, it would call for arbitrators primarily to interpret and to apply the local litigation provision. In an ordinary contract, the parties determine whether a particular matter is primarily for arbitrators or for courts to decide. See, e.g., Steelworkers v. Warrior & Gulf Nav. Co., 363 U. S. 574, 582. If the contract is silent on the matter of who is to decide a “threshold” question about arbitration, courts determine the parties’ intent using presumptions. That is, courts presume that the parties intended courts to decide disputes about “arbitrability,” e.g., Howsam v. Dean Witter Reynolds, Inc., 537 U. S. 79, 84, and arbitrators to decide disputes about the meaning and application of procedural preconditions for the use of arbitration, see id., at 86, including, e.g., claims of “waiver, delay, or a like defense to arbitrability,” Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U. S. 1, 25, and the satisfaction of, e.g., “ ‘time limits, notice, laches, [or] estoppel,’ ” Howsam, 537 U. S., at 85. The provision at issue is of the procedural variety. As its text and structure make clear, it determines when the contractual duty to arbitrate arises, not whether there is a contractual duty to arbitrate at all. Neither its language nor other language in Article 8 gives substantive weight to the local court’s determinations on the matters at issue between the parties. The litigation provision is thus a claims-processing rule. It is analogous to other procedural provisions found to be for arbitrators primarily to interpret and apply, see, e.g., ibid., and there is nothing in Article 8 or the Treaty to overcome the ordinary assumption. Pp. 7–9.
(b) The fact that the document at issue is a treaty does not make a critical difference to this analysis. A treaty is a contract between nations, and its interpretation normally is a matter of determining the parties’ intent. Air France v. Saks, 470 U. S. 392, 399. Where, as here, a federal court is asked to interpret that intent pursuant to a motion to vacate or confirm an award made under the Federal Arbitration Act, it should normally apply the presumptions supplied by American law. The presence of a condition of “consent” to arbitration in a treaty likely does not warrant abandoning, or increasing the complexity of, the ordinary intent-determining framework. See, e.g., Howsam, supra, at 83–85. But because this Treaty does not state that the local litigation requirement is a condition of consent, the Court need not resolve what the effect of any such language would be. The Court need not go beyond holding that in the absence of language in a treaty demonstrating that the parties intended a different delegation of authority, the ordinary interpretive framework applies. Pp. 10–13.
(c) The Treaty contains no evidence showing that the parties had an intent contrary to the ordinary presumptions about who should decide threshold arbitration issues. The text and structure of Article 8’s litigation requirement make clear that it is a procedural condition precedent to arbitration. Because the ordinary presumption applies and is not overcome, the interpretation and application of the provision are primarily for the arbitrators, and courts must review their decision with considerable deference. Pp. 13–17.
2. While Argentina is entitled to court review (under a properly deferential standard) of the arbitrators’ decision to excuse BG Group’s noncompliance with the litigation requirement, that review shows that the arbitrators’ determinations were lawful. Their conclusion that the litigation provision cannot be construed as an absolute impediment to arbitration, in all cases, lies well within their interpretative authority. Their factual findings that Argentina passed laws hindering recourse to the local judiciary by firms similar to BG Group are undisputed by Argentina and are accepted as valid. And their conclusion that Argentina’s actions made it “absurd and unreasonable” to read Article 8 to require an investor in BG Group’s position to bring its grievance in a domestic court, before arbitrating, is not barred by the Treaty. Pp. 17–19. 665 F. 3d 1363, reversed.