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BG Group PLC v. Republic of Argentina

United States Supreme Court

March 5, 2014

BG GROUP PLC, PETITIONER
v.
REPUBLIC OF ARGENTINA

Argued December 2, 2013

ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT

[134 S.Ct. 1201] Syllabus [*]

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)(1).

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. 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.

Held:

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 [134 S.Ct. 1202] apply. Courts should review their interpretation with deference. Pp. 1206 – 1212, 188 L.Ed.2d, at 227-234.

(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, 80 S.Ct. 1347, 4 L.Ed.2d 1409. 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, 123 S.Ct. 588, 154 L.Ed.2d 491, and arbitrators to decide disputes about the meaning and application of procedural preconditions for the use of arbitration, see id., at 86, 123 S.Ct. 588, 154 L.Ed.2d 491, 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, 103 S.Ct. 927, 74 L.Ed.2d 765, and the satisfaction of, e.g., " 'time limits, notice, laches, [or] estoppel, ' " Howsam, 537 U.S., at 85, 123 S.Ct. 588, 154 L.Ed.2d 491. 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. 1206 – 1208, 188 L.Ed.2d, at 228-230.

(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, 105 S.Ct 1338, 84 L.Ed.2d 289. 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, 123 S.Ct. 588, 154 L.Ed.2d 491. 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. 1208-1210, 188 L.Ed.2d, at 230-232.

(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. 1209-1212, 188 L.Ed.2d, at 232-234.

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 [134 S.Ct. 1203] 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. 1212 -1213, 188 L.Ed.2d, at 234-235.

665 F.3d 1363, 398 U.S. App. D.C. 500, reversed.

Thomas Goldstein, Washington, DC, for Petitioner.

Ginger D. Anders, for the United States as amicus curiae, by special leave of the Court, supporting vacatur and remand.

Jonathan I. Blackman, New York, NY, for Respondent.

Alexander A. Yanos, Elliot Friedman, Julia A Lisztwan, Freshfields Bruckhaus, Deringer US LLP, New York, NY, Thomas C. Goldstein, Counsel of Record, Kevin K. Russell, Tejinder Singh, Goldstein & Russell, P.C., Washington, DC, for Petitioner.

Jonathan I. Blackman, Counsel of Record, Carmen Amalia Corrales, Carmine D. Boccuzzi, Jr., Cleary Gottlieb Steen &

Hamilton LLP, New York, NY, Matthew D. Slater, Teale Toweill, M. Veronica Ye-pez, Caroline Stanton, Cleary Gottlieb Steen & Hamilton LLP, Washington, DC, for Respondent.

BREYER, J., delivered the opinion of the Court, in which SCALIA, THOMAS, Ginsburg, Alito, and Kagan, JJ., joined, and in which So-TOMAYOR, J., joined except for Part IV-A-1. SOTOMAYOR, J., filed an opinion concurring in part. ROBERTS, C. J., filed a dissenting opinion, in which Kennedy, J., joined.

OPINION

BREYER JUSTICE

Article 8 of an investment treaty between the United Kingdom and Argentina contains a dispute-resolution provision, applicable to disputes between one of those nations and an investor from the other. See Agreement for the Promotion and Protection of Investments, Art. 8(2), Dec. 11, 1990, 1765 U. N. T. S. 38 (hereinafter Treaty). The provision authorizes either 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 it provides for arbitration

"(i) 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; [or]

"(ii) where the final decision of the aforementioned tribunal has been made but the Parties are still in dispute." Art. 8(2)(a).

The Treaty also entitles the parties to agree to proceed directly to arbitration. Art. 8(2)(b).

This case concerns the Treaty's arbitration clause, and of the Court specifically the local court litigation requirement set forth in Article 8(2)(a). The question before us is whether a court of the United States, in reviewing an arbitration award made under the Treaty, [134 S.Ct. 1204] should interpret and apply the local litigation requirement de novo, or with the deference that courts ordinarily owe arbitration decisions. That is to say, who-court or arbitrator-bears primary responsibility for interpreting and applying the local litigation requirement to an underlying controversy? In our view, the matter is for the arbitrators, and courts must review their determinations with deference.

I

A

In the early 1990's, the petitioner, BG Group plc, a British firm, belonged to a consortium that bought a majority interest in an Argentine entity called MetroGAS. MetroGAS was a gas distribution company created by Argentine law in 1992, as a result of the government's privatization of its state-owned gas utility. Argentina distributed the utility's assets to new, private companies, one of which was MetroGAS. It awarded MetroGAS a 35-year exclusive license to distribute natural gas in Buenos Aires, and it submitted a controlling interest in the company to international public tender. BG Group's consortium was the successful bidder.

At about the same time, Argentina enacted statutes providing that its regulators would calculate gas "tariffs" in U.S. dollars, and that those tariffs would be set at levels sufficient to assure gas distribution firms, such as MetroGAS, a reasonable return.

In 2001 and 2002, Argentina, faced with an economic crisis, enacted new laws. Those laws changed the basis for calculating gas tariffs from dollars to pesos, at a rate of one peso per dollar. The exchange rate at the time was roughly three pesos to the dollar. The result was that MetroGAS' profits were quickly transformed into losses. BG Group believed that these changes (and several others) violated the Treaty; Argentina believed the contrary.

B

In 2003, BG Group, invoking Article 8 of the Treaty, sought arbitration. The parties appointed arbitrators; they agreed to site the arbitration in Washington, D. C; and between 2004 and 2006, the arbitrators decided motions, received evidence, and conducted hearings. BG Group essentially claimed that Argentina's new laws and regulatory practices violated provisions in the Treaty forbidding the "expropriation" of investments and requiring that each nation give "fair and equitable treatment" to investors from the other. Argentina denied these claims, while also arguing that the arbitration tribunal lacked "jurisdiction" to hear the dispute. App. to Pet. for Cert. 143a-144a, 214a-218a, 224a-232a. According to Argentina, the arbitrators lacked jurisdiction because: (1) BG Group was not a Treaty-protected "investor"; (2) BG Group's interest in MetroGAS was not a Treaty-protected "investment"; and (3) BG Group initiated arbitration without first litigating its claims in Argentina's courts, despite Article 8's requirement. Id., at 143a-171a. In Argentina's view, "failure by BG to bring its grievance to Argentine courts for 18 months renders its claims in this arbitration inadmissible." Id., at 162a.

In late December 2007, the arbitration panel reached a final decision. It began by determining that it had "jurisdiction" to consider the merits of the dispute. In support of that determination, the tribunal concluded that BG Group was an "investor, " that its interest in MetroGAS amounted to a Treaty-protected "investment, " and that Argentina's own conduct had waived, or excused, BG Group's failure to comply with Article 8's local litigation [134 S.Ct. 1205] requirement. Id., at 99a, 145a, 161a, 171a. The panel pointed out that in 2002, the President of Argentina had issued a decree staying for 180 days the execution of its courts' final judgments (and injunctions) in suits claiming harm as a result of the new economic measures. Id., at 166a-167a. In addition, Argentina had established a "renegotiation process" for public service contracts, such as its contract with MetroGAS, to alleviate the negative impact of the new economic measures. Id., at 129a, 131a. But Argentina had simultaneously barred from participation in that "process" firms that were litigating against Argentina in court or in arbitration. Id., at 168a-171a. These measures, while not making litigation in Argentina's courts literally impossible, nonetheless "hindered" recourse "to the domestic judiciary" to the point where the Treaty implicitly excused compliance with the local litigation requirement. Id., at 165. Requiring a private party in such circumstances to seek relief in Argentina's courts for 18 months, the panel concluded, would lead to "absurd and unreasonable result[s]." Id., at 166a.

On the merits, the arbitration panel agreed with Argentina that it had not "expropriate[d]" BG Group's investment, but also found that Argentina had denied BG Group "fair and equitable treatment." Id., at 222a-223a, 240a-242a. It awarded BG Group $185 million in damages. Id., at 297a.

C

In March 2008, both sides filed petitions for review in the District Court for the District of Columbia. BG Group sought to confirm the award under the New York Convention and the Federal Arbitration Act. See Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Art. IV, June 10, 1958, 21 U.S.T. 2519, T.I.A.S. No. 6997 (New York Convention) (providing that a party may apply "for recognition and enforcement" of an arbitral award subject to the Convention); 9 U.S.C. §§204, 207 (providing that a party may move "for an order confirming [an arbitral] award" in a federal court of the "place designated in the agreement as the place of arbitration if such place is within the United States"). Argentina sought to vacate the award in part on the ground that the arbitrators lacked jurisdiction. See § 10(a)(4) (a federal court may vacate an arbitral award "where the arbitrators exceeded their powers").

The District Court denied Argentina's claims and confirmed the award. 764 F.Supp.2d 21 (D.D.C.2011); 715 F.Supp.2d 108 (D.D.C.2010). But the Court of Appeals for the District of Columbia Circuit reversed. 665 F.3d 1363, 398 U.S. App. D.C. 500 (2012). In the appeals court's view, the interpretation and application of Article 8's local litigation requirement was a matter for courts to decide de novo, i.e., without deference to the views of the arbitrators. The Court of Appeals then went on to hold that the circumstances did not excuse BG Group's failure to comply with the requirement. Rather, BG Group must "commence a lawsuit in Argentina's courts and wait eighteen months before filing for arbitration." Id., at 1373. Because BG Group had not done so, the arbitrators lacked authority to decide the dispute. And the appeals court ordered the award vacated. Ibid.

BG Group filed a petition for certiorari. Given the importance of the matter for international commercial arbitration, we granted the petition. See, e.g., K. Vandevelde, Bilateral Investment Treaties: History, Policy & Interpretation 430-432 (2010) (explaining that dispute-resolution mechanisms allowing for arbitration are a "critical element" of modern day bilateral investment treaties); C. Dugan, D. Wallace, N. Rubins, & B. Sabahi, Investor-State [134 S.Ct. 1206] Arbitration 51-52, 117-120 (2008) (referring to the large number of investment treaties that provide for arbitration, and explaining that some also impose prearbitration requirements such as waiting periods, amicable negotiations, or exhaustion of local remedies).

II

As we have said, the question before us is who-court or arbitrator-bears primary responsibility for interpreting and applying Article 8's local court litigation provision. Put in terms of standards of judicial review, should a United States court review the arbitrators' interpretation and application of the provision de novo, or with the deference that courts ordinarily show arbitral decisions on matters the parties have committed to arbitration? Compare, e.g., First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 942, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995) (example where a "court makes up its mind about [an issue] independently" because the parties did not agree it should be arbitrated), with Oxford Health Plans LLC v. Sutter, 569 U.S. __, __, 133 S.Ct, 2064, 2068, 186 L.Ed.2d 113 (2013) (example where a court defers to arbitrators because the parties '"bargained for'" arbitral resolution of the question (quoting Eastern Associated Coal Corp. v. Mine Workers, 531 U.S. 57, 62, 121 S.Ct. 462, 148 L.Ed.2d 354 (2000))). See also Hall Street Associates, L. L. C. v. Mattel, Inc., 552 U.S. 576, 588, 128 S.Ct. 1396, 170 L.Ed.2d 254 (2008) (on matters committed to arbitration, the Federal Arbitration Act provides for "just the limited review needed to maintain arbitration's essential virtue of resolving disputes straightaway" and to prevent it from becoming "merely a prelude to a more cumbersome and time-consuming judicial review process" (internal quotation marks omitted)); Eastern Associated Coal Corp., supra, at 62, 121 S.Ct. 462, 148 L.Ed.2d 354 (where parties send a matter to arbitration, a court will set aside the "arbitrator's interpretation of what their agreement means only in rare instances").

In answering the question, we shall initially treat the document before us as if it were an ordinary contract between private parties. Were that so, we conclude, the matter would be for the arbitrators. We then ask whether the fact that the document in question is a treaty makes a critical difference. We conclude that it does not.

III

Where ordinary contracts are at issue, it is up to the parties to 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, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960) ("[Arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit"). If the contract is silent on the matter of who primarily is to decide ...


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