Argument analysis: “Intellectual whiplash” over final word on investor-state arbitrability

Diane Marie Amann is the Emily and Ernest Woodruff Chair in International Law at the University of Georgia School of Law.

Apparent in Monday’s oral argument in BG Group PLC v. Republic of Argentina were the matryoshka-doll complexities nested in the Supreme Court’s review of a 2012 federal appellate decision that overturned a 2007 arbitral award of $185 million to a British-chartered oil and gas company operating in Buenos Aires. The award had been made despite the fact that the investing company had not followed a Britain-Argentina investment treaty clause that contemplated the maintenance of a lawsuit in Argentina for eighteen months before the onset of the arbitration – an arbitration conducted under the rules of yet another entity, the U.N. Commission on International Trade Law (UNCITRAL).

“Your – your whole argument gives me intellectual whiplash,” Justice Anthony M. Kennedy said as the argument neared its end. Though directed at Jonathan Blackman, who argued on behalf of Argentina, the comment seemed also to allude to the cross-purposes evident in the Court’s earlier colloquies with the advocates for BG Group and the United States, which filed an amicus brief in the case.

On behalf of BG Group, Thomas Goldstein argued that arbitrators enjoy the final say on the effect of a failure to comply with the eighteen-month lapse clause in the bilateral investment treaty (BIT) at issue. The Washington-based arbitration panel in this case had deemed the question a procedural matter and excused noncompliance given the circumstances surrounding the dispute – as described in the argument preview, emergency measures that Argentina adopted after its economy collapsed in 2000. But the D.C. Circuit, exercising de novo review, vacated that decision after finding in Article 8 of the treaty an “explicit” intent to condition the availability of arbitration on compliance with the eighteen-month lapse clause. Goldstein argued that this result contravened Supreme Court precedents like Howsam v. Dean Witter Reynolds, Inc. (2002) and John Wiley & Sons v. Livingston (1964), which presumed that arbitrators should decide if a condition to arbitration has been met.

Chief Justice John G. Roberts, Jr. pushed back on Goldstein’s further contention that requiring an investor-state dispute to linger in the state’s court system for eighteen months “can’t have any effect on the case whatsoever.” Roberts pointed to analogous regimes mandated by Congress such as the 180-day waiting period for Equal Employment Opportunity Commission complaints. “And a lot of times nobody thinks that’s going to change anything,” Roberts said, “but you can understand Argentina or any other country saying, look, before we’re going to arbitrate, you know, try our courts, you may find – you may be surprised, right?”

Also arguing in favor of vacatur and remand was the United States, which is party to two treaties with similar conditional clauses: Article 11.18 of the 2011 United States-Korea Free Trade Agreement and Article 1121 of the 1992 North American Free Trade Agreement. Yet the Justices showed little interest in the government’s argument that the rulings in Howsam and John Wiley did not apply, so that in disputes between private investors and sovereign states, courts have final say over consent-based objections. “I don’t know what a consent-based objection is,” Justice Elena Kagan told Assistant to the Solicitor General Ginger D. Anders. Justice Stephen G. Breyer, author of the decision in Howsam, depicted the U.S.-proposed rule as a legal Athena that “has sprung, full blown, from someone’s brain, but is not well embedded in any law that I could yet find.”

Argentina’s counsel, Jonathan I. Blackman, put the issue of contract formation at the core of the case. He argued that because BG Group did not accept what he framed as Argentina’s offer to arbitrate after the dispute had been pending for eighteen months in a local court, no agreement to arbitrate ever was made. Blackman contended that the lapse clause appears in eight percent of all BITs – Goldstein set the figure at one percent – and in a higher percentage of those to which Britain is party. Reminding the court that private investors have no chance of arbitrating against states absent a treaty waiver of sovereign immunity, Blackman characterized the lapse clause as the countries’ “precondition on their respectively derogating from their sovereignty.” States, he added, intended that the precondition would be subject to de novo review by a court. Justice Kagan countered that if Howsam and John Wiley applied, the matter would rest within the domain of arbitrators. Blackman welcomed Chief Justice Roberts’s query in reply: “[I]s it something special about a sovereign’s agreement?”

The answer to that and other questions in BG Group – a matter that Justice Kennedy called “a close case” – now awaits the Court’s decision.

[Disclosure: Goldstein & Russell, P.C., whose attorneys contribute to this blog in various capacities, serves as counsel to the petitioner in this case. The author of this post is not affiliated with that law firm.]