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November 23, 2013

Getting Ready for the Big Game: A BG Group Preview

All over Arbitrationland, workers are coming off their shifts, feeding their children, walking their dogs, donning their Team Colors — making all final preparations for the Big Game, BG Group v Argentina, to be played December 2 at 10:00 a.m. US East Coast Time, at a neutral venue near Union Station in Washington, D.C. Rabid fans are clamoring for invitations to the best BG Case parties. Party hosts are stocking up on Beef Empanadas and Guinness.

Argentina has been on a bit of a winning streak in this long-standing rivalry, masterfully running the First Option(s) offense* with Kaplan, its star player, leading the way. (*Devotees of American football will know the “Read Option” offensive scheme, wherein the quarterback rebuts the presumption that running backs run and quarterbacks hand-off, by clearly and unmistakably doing just the opposite, after just enough fakery to convince defenders that the presumption will dictate the play). But many analysts say the First Option(s) scheme will falter in a game at this level. They say the presumption that courts not arbitrators decide whether an agreement to arbitrate a particular dispute exists doesn’t apply in the ITL (Investment Treaty League) and that the First Option(s) scheme reliably puts points on the scoreboard only in the CAL (Commercial Arbitration League). After all, the pundits tell us, the question of who decides (court or arbitrator) whether a pre-condition for arbitral proceedings has been fulfilled (or is impossible to perform, or is rendered inoperative) is not so arcane that treaty parties would likely not have thought about it when negotiating their BIT, and their thoughts on the subject likely were: (1) that Treaty interpretation issues are suited for Treaty law experts, i.e. Arbitrators; (2) on the UK side, that the issue shouldn’t be resolved in a possibly-biased Argentine court (Argentina being, in this deal, the presumed capital importer and risk exporter); and (3) on both sides, that the issue should not be resolved in a court at the seat of arbitration, since in the UNCITRAL Rules arbitration scenario the identity of that court is, at the Treaty-signing stage, a mystery, and will only be known once the arbitral tribunal (barring party agreement) in a given case selects the seat. It seems bizarre, the thinking goes, that either party would have expected either an initial arbitrability decision or a de novo review of the arbitral arbitrability decision in the courts of an unforeseeable State (which here turned out to be the US) in which neither party is domiciled. Besides, don’t the UNCITRAL Rules assign arbitrators power to decide issues of jurisdiction? And given that those issues involve international law and treaty interpretation, not state (in the sense of the US 50) contract law, isn’t that assignment on par with assignment of the merits to the arbitrators, in terms of the scope of judicial review?

So goes, in significant part, BG Group’s arguably formidable defense to Argentina’s First Option(s) scheme. But do not think that BG lacks firepower on offense. Its multi-talented quarterback, Howsam, could be a compelling performer in the December 2 showdown, perhaps reprising a play that scored points on this field in 2002:

“[F]or the law to assume an expectation [of the parties, about whether the court or arbitrator has primacy] that aligns (1) decisionmaker with (2) comparative expertise, will help better to secure a fair and expeditious resolution of the underlying controversy – a goal of arbitration systems and judicial systems alike.” 537 U.S. 79 at 85.

This may be the under-considered aspect of Howsam’s game that ultimately wins for BG. We can also expect BG Group to contest Argentina’s contention (given some credence by the amicus position of the US) that fulfillment of the Argentine litigation pre-condition is a matter of “consent” and that issues of “consent” involve a “substantive arbitrability” issue, for a court to decide de novo, of whether an agreement to arbitrate was formed. (The US amicus suggests a remand for the D.C. Circuit to address whether the litigation pre-condition in the BIT is or is not a matter of “consent” to arbitration). Expect BG Group to urge that every pre-condition to an arbitration involves “consent,” and if this were the measure of whether court or arbitrator decides, then players like Howsam and John Wiley (a BG Group stalwart from the early ’60s) are obsolete legends. After all, whether a time limit has passed (Howsam) or a grievance process has been completed (John Wiley) — matters held to be for arbitral determination — are equally matters of “consent” to arbitration.  Look for BG Group to say Argentina’s position on “consent” is only superficially plausible, and that this plausibility derives from the fact that the pre-condition here requires litigation and that generally (but not in this BIT) an agreement to litigate implies a refusal to arbitrate. Look for BG Group to counter that in fact the litigation pre-condition in this  BIT might as well be that the dispute shall be submitted to an association of French Michelin three-star chefs for 18 months, i.e. that it is more about the timing of arbitration than the willingness of Argentina to undertake it. That position has some appeal, but it may not be a clear winner, because placing this pre-condition on the “procedural” side of the boundary between “substantive” and “procedural” arbitrability does not especially help courts to solve future boundary disputes.  The “comparative expertise” principle of Howsam has more resonance, as it can furnish a convincing basis in existing precedent for different treatment in the US courts of investment arbitration as compared to commercial arbitration. That play ought to be the winner on December 2.

Arbitration Commentaries’ fearless forecast: BG Group 9, Argentina Nil. Enjoy the Game. And go easy on the Guinness.