Case of the Day: Argentina v. BG Group

The Blogatory case of the day is Republic of Argentina v. BG Group, plc, Civ. A. No. 08-485 (D.D.C. Jan. 21, 2011), a decision on confirmation of an arbitral award under the Argentina-U.K. bilateral investment treaty. After the financial crisis of 2001, the Argentine government enacted emergency legislation that, according to BG Group, an investor in a formerly state-owned gas distribution company, expropriated BG’s investment and unfairly discriminated against BG. An arbitral tribunal sitting in New York and Washington rejected the claim of expropriation but found that Argentina had breached the BIT by “fundamentally modifying the investment regulatory framework” and “unilaterally withdrawing commitments which induced BG to make its investment in Argentina.” It awarded $185 million in damages.

Argentina sought to vacate or modify the award, and BG group filed a cross-motion seeking to confirm the award. In an earlier decision, the Court denied Argentina’s motion, rejecting the arguments that the tribunal had exceeded its authority under the BIT, that the tribunal had acted in manifest disregard of the law, that the tribunal was biased, and that the award was irrational.

The case of the day deals with BG’s cross-motion seeking recognition and enforcement of the award, and Argentina’s objections that the tribunal exceeded its powers and that the award was contrary to public policy.

On the issue of the tribunal exceeding its powers, Article V(1)(c) of the Convention permits the court to refuse recognition and enforcement if:

the award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced.

The court suggested, in a lengthy dictum, that Article V(1)(c) does not allow courts to refuse recognition and enforcement on grounds that the tribunal exceeded its authority. But the court avoided reaching a holding on that point because it had already ruled, in denying Argentina’s motion to vacate the award, that the tribunal had not exceeded its authority.

On the claim that the award violated US public policy, the Court emphasized the narrowness of the public policy exception and then dismissed Argentina’s arguments one by one. First, on the argument that Argentina had not agreed to arbitrate the dispute and that public policy only allows a party to be compelled to arbitrate if it has consented, the court noted that the tribunal had rejected Argentina’s argument about the scope of the agreement to arbitrate and held that it had to defer to the tribunal’s interpretation of the BIT. Second, on Argentina’s argument that the damages really belonged to the gas distribution company rather than to BG, and that BG was asserting a derivative claim contrary to public policy, the court held that BG was an intended third-party beneficiary of the BIT that was entitled to bring its claim under principles of American law. (The Court might instead have questioned whether Argentina’s argument on this point was in reality a challenge to the US’s “most basic notions of morality and justice,” as would be necessary to sustain a public policy argument). Third, the tribunal rejected on the merits Argentina’s argument that the award of damages was based on a flawed methodology and gave a windfall, though again, one might question whether the arguments, even if right on the merits, would have warranted the Court in invoking the public policy exception.

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