U.S. Supreme Court Rules on International Investment Arbitration

On March 5, 2014, the United States Supreme Court in BG Group plc v. Republic of Argentina held that the local litigation provision found in the U.K/Argentina Bilateral Investment Treaty (requiring parties to submit a dispute to local courts before proceeding to arbitration) is “procedural” in nature, giving primary jurisdiction to the arbitrators to determine whether the arbitration could proceed despite the fact that the Claimant had not submitted the dispute to the local court in Argentina. The Court held that it did not make a “critical difference” that the document in question was a Treaty; and that the issue could be analyzed as if the Treaty were an ordinary contract. If the arbitration provision in a contract is silent on a “threshold” question (such as whether the parties have agreed to arbitrate), it is presumed that the parties intended the courts to decide arbitrability, and that the arbitrators decide disputes concerning procedural aspects. The local court provision in the Treaty determined when the contractual duty to arbitrate arose — which the Court held was procedural in nature and thus falling under the arbitrators’ jurisdiction – rather than whether there was a contractual duty to arbitrate at all, which would have fallen under the court’s jurisdiction. It should be noted that Justice Roberts, joined by Justice Kennedy, wrote a vigorous dissent, arguing that there was a fundamental difference between a Treaty and an ordinary contract, and that the arbitrators should not have determined the issue.


BG Group plc v. Republic of Argentina