Tuesday, March 11, 2014

Supreme Court Defers to Arbitrators in International Arbitration

Last week, in a 7-2 decision, the U.S. Supreme Court held that arbitrators should decide whether a precondition to arbitration has been satisfied, and courts should only review their interpretation with considerable deference. In reaching this conclusion, the majority interpreted a bilateral investment treaty as if it were an ordinary contract, where the language of the contract is silent and courts must decide the parties’ intentions. A provision requiring disputes to be submitted to local courts for an eighteen month period before initiating arbitration was not satisfied as a precondition; but arbitrators decided such failure did not impact their arbitral jurisdiction. In affirming a $185 million arbitration award against the Republic of Argentina, the Court reversed the finding of the Court of Appeals for the District Court of Columbia that the arbitration panel lacked jurisdiction over the dispute, finding that the arbitrators, and not a court, properly determined whether the treaty's conditions to arbitration had been satisfied. The Court held that the arbitrators had not “exceeded their powers” in deciding that they had jurisdiction. Courts are to presume that parties intend for procedural issues regarding arbitration to be decided by the arbitrator and for substantive issues to be decided by the courts. Thus, an arbitration panel's determination that it had jurisdiction over the the dispute cannot be disturbed. Justices Roberts and Kennedy dissented, reasoning that there is no express agreement to arbitrate between a host country and an investor. Justice Roberts stated. "It is no trifling matter for a sovereign nation to subject itself to suit by private parties; we do not presume that any country – including our own – takes that step lightly." See decision here-- BG Group PLC v. Republic of Argentina, 572 U.S. __ (2014) http://www.supremecourt.gov/opinions/13pdf/12-138_97be.pdf