BG Group PLC v. Republic of Argentina, No. 12–138, 572 U.S. ____ (2014) [click for opinion]
Petitioner brought a successful claim for arbitration under the bilateral investment treaty between the United Kingdom and the Republic of Argentina (the "BIT"), and sought to confirm the award in the federal district court for the District of Columbia. Respondent sought to set aside the award on the ground that the arbitration tribunal lacked jurisdiction. The district court confirmed the award but the Court of Appeals reversed, holding that the question of jurisdiction should be viewed de novo, and that Petitioner had not met jurisdictional preconditions necessary to form a valid arbitration agreement. Petitioner appealed to the Supreme Court, which reversed the Court of Appeals and confirmed the arbitration award.
The BIT in this case authorizes an investor of one party to submit any dispute with the other party to the local courts of that party. Furthermore, the BIT allows that investor to bring the dispute to international arbitration 18 months after the claim is brought to the local courts, or after those courts make a final decision. Respondent argued that the Petitioner had never submitted the dispute to its local courts and that, therefore, it had not consented to arbitration of that dispute. Petitioner admitted that it had not brought its case to the local courts, but argued this was only due to laws enacted by Respondent that had hindered its right to bring such a case. The arbitrators found that, under the circumstances, the Petitioner did not need to meet the local court litigation requirement to bring an arbitration to local courts before arbitration.
The Supreme Court first addressed the question whether the local court litigation requirement was a condition precedent to arbitration in an already-binding arbitration agreement, or whether it was a substantive condition on Argentina's consent to arbitration -- i.e. that no valid arbitration agreement existed until the provision had been fulfilled. In the former situation, the question of whether the precondition had been met was a question of procedure, and the arbitration tribunal's finding on that point would be reviewed with considerable deference. In the latter situation, whether the precondition was met was a question of jurisdiction, to be reviewed de novo by the courts.
The Supreme Court held that in this case the local court litigation requirement was a "purely procedural requirement" to commencing arbitration contained in a valid arbitration agreement and therefore gave deference to the tribunal's finding that it had jurisdiction, notwithstanding the fact that Petitioner had not met that requirement. The Court then addressed that finding and held that the tribunal did not "stray from interpretation and application " of the underlying arbitration agreement or otherwise "effectively dispense [its] own brand of . . . justice" and therefore there was no basis to ignore its determination that it had jurisdiction. It consequently reversed the Court of Appeals decision to set aside the award based on the fact that the tribunal did not have jurisdiction.
Chief Justice Roberts and Justice Kennedy dissented, arguing that the local court litigation requirement was a condition precedent to the formation of the arbitration agreement and that because the condition had not been met, the arbitration tribunal had no jurisdiction over the dispute, and therefore their award should be set aside.