WASHINGTON, D.C. - (Mealey's) A U.S. appeals court on
Jan. 17 vacated a district court's confirmation of a $185,285,485.85
arbitration award issued by a foreign tribunal against the Republic of
Argentina and in favor of an English distribution company, finding that the
arbitration panel failed to adhere to a precondition in the agreement between
parties that required the investor to first file a claim in an Argentine court
(Republic of Argentina v. BG Group PLC, No. 11-7021, D.C. Cir.; 2012
U.S. App. LEXIS 905; See February 2011, Page 7).
In the 1980s and 1990s, Argentina
experienced an economic reformation, which included entering into bilateral
investment treaties with various countries. Argentina
entered into the Agreement for the Promotion and Protection of Investments,
between Argentina and the United Kingdom
(referred to as BIT).
As part of the reformation, Argentina divided its gas
transportation and distribution industries into two transportation companies
and eight distribution companies. BG Group Plc, a U.K. company,
invested in MetroGAS, one of the distribution companies, through a consortium
of investors. In 2001, Argentina
began to suffer an economic crisis and enacted an emergency law in 2002 that
negatively affected BG Group's investment.
On April 25, 2003, BG Group filed arbitration proceedings against Argentina
pursuant to the United Nations Commission on International Trade Law (UNCITRAL)
arbitration rules. An arbitration panel issued an award of
$185,285,485.85 plus fees, costs and interest for the BG Group, finding that Argentina
breached the BIT.
Petition To Confirm
Argentina filed a petition
to vacate or modify the award in the U.S. District Court for the District of Columbia,
arguing that the arbitrators exceeded their authority by not taking into
consideration the terms of the agreement between parties, among other
BG Group cross-moved to confirm the award pursuant to the Federal Arbitration
Act and the Convention on the Recognition and Enforcement of Foreign Arbitral
Awards. The District Court denied Argentina's motion to vacate and
confirmed the award.
appealed to the District of Columbia U.S. Circuit Court of Appeals.
The appeals court said that the primary questions before
it were arbitrability and whether "when the United Kingdom and Argentina
executed the Treaty, did they, as contracting parties, intend that an investor
under the Treaty could seek arbitration without first fulfilling Article 8(1)'s
requirement that recourse initially be sought in a court of the contracting
party where the investment was made? That question raises the antecedent
question of whether the contracting parties intended the answer to be provided
by a court or an arbitrator."
The D.C. Circuit said that Argentina argued that the parties
agreed that the issue of arbitrability would be submitted to an
arbitrator only after the aggrieved party had first sought relief in an
Argentine court under Article 8(1) and (2) of the BIT. The court
said that an analysis of the BIT showed that Article 8(3) provided that
arbitration can be triggered only after an Argentine court had a chance to
review the issue first.
The appellate court said that the UNCITRAL Rules grant an
arbitrator the authority to review arbitrability issues. Once Article
8(3) is triggered, the appeals court said that the UNCITRAL Rules provide that
the parties agreed that an arbitrator would decide the issue of
arbitrability. However, the appeals court said that the UNCITRAL rules
are not triggered until an investor first seeks review of the issue, for
18 months, in a court of a contracting party where the investment was
"Accordingly, '[b]ecause we conclude that there can be
only one possible outcome on the [arbitrability question] before us,' Stolt-Nielsen,
130 S. Ct. at 1770 [Stolt-Nielsen S.A. v. Animalfeeds Int'l Corp., 130
S. Ct. 1758, 1773-74 (2010)], namely, that BG Group was required to commence a
lawsuit in Argentina's courts and wait eighteen months before filing for
arbitration pursuant to Article 8(3) if the dispute remained, we reverse the
orders denying the motion to vacate and granting the cross-motion to confirm
the Final Award, and we vacate the Final Award," Circuit Judge Judith W. Rogers
wrote for the court.
The case was heard by Chief Circuit Judge David B. Chief
Judge Sentelle and Circuit Judges Rogers and Karen LeCraft Henderson.
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