D.C. Circuit Vacates $185 Million Arbitration Award Against Argentina

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).  

(Opinion available.  Document #05-120131-039Z.)

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).

Arbitration Award

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 arguments. 

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.   

Argentina 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 made.  

"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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