On March 5, 2014, the U.S. Supreme Court decided BG Group v. Republic of Argentina, No. 12–138. The Court held that arbitrators—not the courts—have primary authority to determine whether parties have satisfied (or are excused from, as the case may be) preconditions to arbitration found in an international treaty. The Court relied upon familiar contract interpretation principles as well as familiar rules regarding the split in responsibilities between arbitration panels and courts.
BG Group plc, a British entity, participated in a consortium that owned a majority interest in an Argentine gas distribution company, MetroGAS. MetroGAS came into existence in the 1990s under Argentine law, as a result of the government's privatization of its state-owned gas utility. Argentine statutes provided that regulators would set gas tariffs to provide gas distribution firms a reasonable return. The gas statues also mandated that the tariffs be calculated in U.S. dollars. Argentina later fell on hard times and changed the laws to peg tariffs to pesos instead of dollars, in a one peso to one dollar ratio, although a peso has about one-third the value of a dollar. MetroGAS' profits turned to losses. BG Group then invoked arbitration under an international investment treaty to which Argentina was a party, despite a treaty provision calling for local litigation before arbitration. After excusing BG Group's failure to comply with the litigation precondition, the arbitration panel awarded BG Group $185 million in damages. In its petition for review to the District Court for the District of Columbia, Argentina sought to vacate the award on the basis that the panel lacked jurisdiction. The district court confirmed the award, but the Court of Appeals for the District of Columbia reversed, holding that the interpretation and application of the treaty's pre-arbitration litigation condition should be determined by the courts de novo.
In a 7-2 decision, the Supreme Court held that the arbitration panel, not the courts, had the authority to resolve disputes regarding the application of the litigation precondition. Relying on standard contract principles, the court explained that courts presume parties to an arbitration agreement intend for courts to decide the threshold issue of arbitrability, but for arbitrators to decide disputes about procedural preconditions to arbitration, including claims of waiver, delay, and the like. Finding that the treaty provision in question was just such a procedural condition precedent to arbitration, the Court determined that reviewing courts had to give considerable deference to the arbitrators' decision to excuse BG Group from complying with the litigation precondition and that de novo review was inappropriate. The Court analyzed whether the fact the contract in question was a treaty should change the basic contract analysis and found that it did not: "As a general matter, a treaty is a contract, though between nations. Its interpretation normally is, like a contract's interpretation, a matter of determining the parties' intent."
Justice Breyer, joined by Justices Scalia, Thomas, Ginsburg, Alito, and Kagan, delivered the opinion for the Court. Justice Sotomayor filed an opinion concurring in part. Chief Justice Roberts, joined by Justice Kennedy, dissented.