Law in Plain English: BG Group PLC v. Republic of Argentina

This is one in a series of posts designed to describe court decisions in plain English. For more detail and background on the legal issues, see the link to the case below. For similar posts, click here.

SCOTUSblog: BG Group PLC v. Republic of Argentina

Argument: Dec 2 2013 (Aud.)

Background: A bilateral investment treaty between the United Kingdom of Great Britain and Northern Ireland, and Argentina provides that disputes between an investor and the host State will be resolved in the host State's courts. If no final court ruling is forthcoming within eighteen months or the dispute is unresolved after a court ruling, the treaty provides that the dispute may be sent to arbitration. BG Group, PLC, a British corporation and investor in Argentina gas companies, invoked the arbitration clause without first filing a claim in the Argentine courts. The arbitration panel nonetheless ruled it had jurisdiction, found Argentina had violated the treaty, and awarded BG Group damages. The DC Circuit reversed, finding that the question of arbitrability is an independent question of law for the court to decide; and as a result, that BG Group was required to  file its lawsuit in Argentina's courts and wait eighteen months before filing for arbitration.

Issue: The question before the Court is whether, in disputes involving a multi-staged dispute resolution process, a court or the arbitrator determines whether a precondition to arbitration has been satisfied.

Holding: In a 7-2 decision, the Supreme Court ruled that a court of the United States, in reviewing an arbitration award made under the Treaty, should interpret and apply “threshold” provisions concerning arbitration using the framework developed for interpreting similar provisions in ordinary contracts. Under that framework, the local litigation requirement is a matter for arbitrators primarily to interpret and apply. Courts should review their interpretation with deference.

The Supreme Court's extreme deference to arbitration

In today's decision in Oxford Health Plans LLC v. Sutter, the Supreme Court defined the standard by which an award of arbitration must be challenged (all citations omitted):

“It is not enough . . . to show that the [arbitrator] committed an error—or even a serious error.” Because the parties “bargained for the arbitrator’s construction of their agreement,” an arbitral decision “even arguably construing or applying the contract” must stand, regardless of a court’s view of its (de)merits. Only if “the arbitrator act[s] outside the scope of his contractually delegated authority”—issuing an award that “simply reflect[s] [his] own notions of [economic] justice” rather than “draw[ing] its essence from the contract”—may a court overturn his determination. So the sole question for us is whether the arbitrator (even arguably) interpreted the parties’ contract, not whether he got its meaning right or wrong.

That's some extreme deference right there.