INTERNATIONAL ARBITRATION 1/3LY
MARKET COMMENTARY 23
THE ENFOR CEMENT OF INT ERNAT IONAL ARBI TRAL AWARDS IN THE US : 2014 US SUPREME COURT RE V IEW
In 2014, the U.S. Supreme Court decided two cases that have important consequences for parties and arbitration practitioners seeking to enforce arbitration awards and arbitration agreements in the United States, particularly against sovereigns. Both cases arise in the aftermath of Argentina’s economic crisis in the early 2000s as a result of the end of the “Corralito,” which had pegged the Argentinean Peso to the U.S. Dollar (USD). THE STORY SO FAR In BG Group v. Republic of Argentina , No. 12-138, ___ U.S. ___ (March 5, 2014), the Supreme Court reversed a judgment of the U.S. Court of Appeals for the D.C. Circuit, which had refused to confirm an award against Argentina in the amount of USD 185million on the ground that the plaintiff had failed to fulfill a requirement present in the relevant treaty that it litigate in Argentina’s local courts for no less than 18months before resorting to arbitration. The arbitrators decided that they had jurisdiction to hear BG’s claimdespite BG’s failure to abide by this local litigation requirement. In support of that determination, the tribunal concluded that Argentina’s own conduct hadwaived or excused BG’s failure to complywith the local litigation requirement. On themerits, the arbitration panel found that Argentina had denied BG fair and equitable treatment. BG filed a petition to confirm the award, which the District Court granted. Argentina then appealed to the Court of Appeals for the D.C. Circuit. In framing the local litigation requirement as a condition to Argentina’s consent to arbitration, and consequently amatter of arbitrability, the Court of Appeals reviewed that decision of the arbitrators de novo and refused to confirm the award on the grounds that the consent was conditioned to resort to local litigation first. BG filed a petition for certiorari, whichwas granted by the Supreme Court on June 10, 2013. Writing for themajority, Justice Breyer reversed the Court of Appeals, and held that in reviewing arbitration awardsmade under a treaty, a court of the United States should interpret and apply “threshold” provisions concerning arbitration using the framework developed for interpreting similar provisions in ordinary contracts. The Court observed that under that framework, the local litigation requirement was amatter for the arbitrators to interpret and apply, and courts should review their interpretationwith deference. The Court went on to state that because a treaty is akin to an ordinary contract, rules of contract interpretation should apply. Consequently, courts should look into the intent of the parties in order to determine whether a court or the arbitrators should decide thematter. If the contract were silent on the issue, courts would determine whether the question is one of arbitrability 1 or one of procedural preconditions for the use of arbitration (also known as a “claims processing rule”). The Court held that disputes over formation of the parties’ arbitration agreement and its enforceability or applicability to their dispute arematters for a court to decide. On the other hand, disputes about themeaning and application of a particular procedural precondition are presumably for the arbitrators, not the courts, to decide.
BY IRENE GEE, SENIOR COUNSEL AT CLYDE & CO
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