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Courts presume that parties intend arbitrators, not courts, to decide disputes about the meaning and application of particular procedural preconditions for the use of arbitration. These procedural matters include claims of waiver, delay, or a like defense to arbitrability. And they include the satisfaction of prerequisites such as time limits, notice, laches, estoppel, and other conditions precedent to an obligation to arbitrate.
Article 8 of an investment treaty (Treaty) between the United Kingdom and Argentina authorized a party to submit a dispute to the decision of the competent tribunal of the Contracting Party in whose territory the investment was made. Petitioner BG Group plc, a British firm, belonged to a consortium with a majority interest in MetroGAS, an Argentine entity awarded an exclusive license to distribute natural gas in Buenos Aires. At the time of BG Group's investment, Argentine law provided that gas “tariffs” would be calculated in U. S. dollars and would be set at levels sufficient to assure gas distribution firms a reasonable return. The law was subsequently amended, changing the calculation basis to pesos. When MetroGAS incurred losses, petitioner invoked Article 8 to seek arbitration in Washington, D.C. Petitioner claimed that Argentina’s new laws and practices violated the Treaty. On the other hand, Argentina argued that the arbitrators lacked authority to excuse compliance with a requirement for local litigation prior to arbitration under a treaty. Moreover, Argentina contended that the arbitrators exceeded their authority in determining that the provision did not apply to the arbitration. The arbitration panel found that Argentina had not expropriated petitioner’s investment but had denied the latter “fair and equitable treatment.” The District Court confirmed the arbitral award, but the appellate court vacated, holding that the interpretation and application of Article 8’s requirement were matters for courts to decide de novo, i.e., without deference to the arbitrators’ views. The appellate court further held that the circumstances did not excuse petitioner’s failure to comply with the requirement, and that petitioner had to commence a lawsuit in Argentina’s courts and wait 18 months before seeking arbitration. Thus, the appellate court held that the arbitrators lacked authority to decide the dispute. The Supreme Court granted certiorari.
Did Article 8 of the Investment Treaty require judicial interpretation?
The U.S. Supreme Court reversed the judgment requiring judicial interpretation of the arbitration provision. The Court held that the local litigation requirement was a matter for the arbitrators primarily to interpret and apply, and the arbitrators' interpretation was entitled to judicial deference. Under the traditional standards for arbitration agreements, there was a presumption that the parties to the treaty intended the arbitrators to decide the non-substantive dispute about the interpretation and application of the procedural precondition for the use of arbitration, in the absence of a treaty provision to the contrary. The fact that the document at issue was a treaty rather than an ordinary contract made no significant difference since the treaty was in fact a contract between the foreign countries, and interpretation of the treaty was a matter of determining the countries' intent.