24 MARKET COMMENTARY
INTERNATIONAL ARBITRATION 1/3LY
THESE T WO RECENT SUPREME COURT C A SES SUGGES T THAT THE UNI T ED S TAT ES CONT INUES TO BE A FAVOURABLE FORUM FOR ENFOR CEMENT OF INTERNAT IONAL ARBI TRAL AWARDS .
Despite Argentina’s and the Solicitor General’s admonition that the local litigation requirement was a condition to Argentina’s consent to arbitrate and, therefore, part of the arbitrability analysis for which no deference to the arbitrators’ ruling was due, themajority held that such an interpretation of the local litigation requirement as a condition to consent rather than a procedural preconditionwould be inconsistent with the Court’s case law interpreting similar provisions in ordinary contracts. The dissent, led by Chief Justice Roberts, argued that the condition precedent in this case was in reality an arbitrability issue because it related to the conditions under which Argentina had consented to deviate from the standard local litigation forumand accept arbitration against investors of the other party to the treaty. BG Group v. Argentina highlights the state of confusion in the jurisprudence when it comes to issues involving arbitrability. It seems to confirm that courts tend to take a pragmatic approach to questions of arbitrability, and reminds us that an overarching coherent doctrine on the issue is yet to be formed. The second case decided in the Spring of 2014was Republic of Argentina v. NML Capital Ltd. , No. 12-842, ___U.S. ___ (June 16, 2014). The case arose froma group of Argentina’s bondholders’ efforts to collect on Argentina’s defaulted bonds. Although NML v. Argentina did not implicate the New York Convention or arbitration directly, the case has potential implications in the context of enforcement of awards against sovereigns. The specific issue in NML v. Argentina was the scope of subpoenas served by the bondholders to U.S.-based banks seeking information about Argentina’s assets overseas. The bondholders’ subpoenas requested information about Argentina’s extraterritorial assets generally so that NML could identify property that was subject to execution, rather than allowing Argentina to decide what to disclose. Argentinamoved to quash the subpoenas on the grounds that it violated its sovereign immunity pursuant to the United States Foreign Sovereign Immunities Act (“FSIA”). The district court denied themotion and concluded that extraterritorial asset discovery did not offend Argentina’s sovereign immunity, reaffirming that it would serve as a “clearinghouse for information” in NML’s efforts to find and attach Argentina’s assets. The Court of Appeals for the Second Circuit affirmed the district court, holding that “because the Discovery Order involves discovery, not attachment of sovereign property, and because it is directed at third-party banks, not at Argentina itself, Argentina’s sovereign immunity is not infringed.” Argentina filed awrit of certiorari to the Supreme Court, whichwas granted on January 10, 2014. The Supreme Court affirmed the Second Circuit and held that the FSIA did not immunize sovereigns frompost-judgment discovery of a sovereign’s extraterritorial assets.
Writing for themajority, Justice Scalia held that the FSIA only covers propertywithin the United States and no provision in the FSIA immunizes a foreign-sovereign judgment debtor from post-judgment discovery of information concerning its extraterritorial assets. According to the majority, the FSIA did not prevent the bondholders fromseeking discovery about property of a sovereign outside the United States whichwould be otherwise immune to attachment if held in the United States. Justice Ginsburg, in dissent, argued against making all of a sovereign’s extraterritorial property subject to discovery in aid of execution, rather than only property used in connectionwith the sovereign’s commercial activity. Themajority’s expansive approach to discovery, in Justice Ginburg’s opinion, was at odds with Section 1602 of the FSIA. “A court in the United States has no warrant to indulge the assumption that, outside our country, the skymay be the limit for attaching a foreign sovereign’s property in order to execute a U. S. judgment against the foreign sovereign.” (Ginsburg, dissent at 2.) These two recent Supreme Court cases suggest that the United States continues to be a favorable forum for enforcement of international arbitral awards. In BG Group v. Argentina , the Supreme Court gave considerable deference to an arbitral award that had been rendered under an arbitration clause that contained a local litigation requirement that had not been fulfilled. In NML v. Argentina , the Supreme Court held that a sovereign’s overseas assets were subject to discovery without the limitations imposed by the FSIA.
1 “Courts presume that the parties intend courts, not arbitrators, to decide what we have called disputes about “arbitrability.” These include questions such as ‘whether the parties are bound by a given arbitration clause,’ or ‘whether an arbitration clause in a concededly binding contract applies to a particular type of controversy.’” (Op. at 2.)
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