Majority Opinion Distinguishes Between Who Decides Arbitrability Of Claims And Who Decides Claims-Processing Requirements

    On February 26, 2014, I posted that it was time to watch for a decision in BG Group, PLC v. Republic of Argentina,__ S.Ct. __ , 2014 WL 838424.  The case was decided on March 5, 2014.

     Following an economic crisis in Argentina, and a freeze of gas prices, BG Group, PLC had taken a financial battering.  Claiming that a 1993 treaty between Argentina and Britain had been violated by an expropriation of investments, BG Group sought arbitration and obtained a $185M arbitration award.  Eventually the award was thrown out by the federal appeals court in Washington, D.C., because BG Group had failed to comply with a prelitigation condition providing that it first file suit in an Argentine court and wait 18 months before submitting the matter to international arbitration. 

     However, BG Group has been placed in a Catch-22 situation, because conduct by the Argentine government interfered with BG Group’s judicial remedy by suspending Argentine courts’ ability to enter final judgments.

     The issue before the Supreme Court was whether a court or an arbitrator had the responsibility to interpet and apply the procedural condition precedent to arbitration.  Where a contract is silent about the delegation of authority to decide threshold issues of arbitrability, then those issues are typically decided by the court, rather than by the arbitrator.

     Here, however, the Supreme Court held that the issue was not the threshold issue of arbitrability, and whether there was a contractual duty to arbitrate at all, but rather when the contractual duty to arbitrate arose.  The Supreme Court analogized the procedural condition precedent provision to a claims-processing requirement – and thus, one that could be addressed by the arbitrator.  Therefore, deferring to the arbitrator, the Supreme Court reversed the federal appeals court.

     Interestingly, there were three separate opinions in the case, and the break was not along predictable political fault lines.

     Justices Roberts and Kennedy dissented.  They were puzzled that the majority treated the treaty between two sovereign nations as simply an ordinary contract between two private parties.  Additionally, as no investor was a party to the agreement, they questioned whether Argentina had consented to arbitrate with the private investor.

     Justice Sotomayor filed an opinion concurring in part:  “In light of . . . many indicators that Argentina and the Untied Kingdom did not intend the local litigation requirement to be a condition on their consent to arbitrate, and on the understanding that the Court does not pass on the weight courts should attach to a treaty’s use of the term ‘consent,’ I concur in the Court’s opinion.”