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June 11, 2010

US Court Rejects Motion to Vacate Investment Treaty Award

 

Investment treaty arbitration awards rarely find their way into the US courts for review, as the ICSID Rules under which many such arbitrations occur include their own appellate process (see, in particular, Rules 50 and 52-54 of the ICSID Arbitration Rules concerning annulment proceedings). The grounds for annulment under the ICSID Rules overlap substantially with the grounds to set aside an award under Chapter 1 of the Federal Arbitration Act, and so a set aside motion following denied of an annulment application would most likely be rejected based on collateral estoppel principles.

 

So on the rare occasion when an investment treaty award is the subject of a vacatur or confirmation decision of a US court, the occasion deserves appropriate notice even if no significant developments in the law emerge from the case.

 

In that context I report upon a decision this week by a US district court judge in Washington D.C., denying the Republic of Argentina’s motion to vacate a $185 million award against the Republic and in favor of a British investor, made in an ad hoc arbitration under the UNCITRAL Rules as provided in the Argentina-United Kingdom bilateral investment treaty. (Republic of Argentina v. BG Group PLC, 2010 U.S. Dist. LEXIS 56055 (D.D.C. June 7, 2010)).

 

Turning no new doctrinal ground but rejecting arguments advanced by Argentina, the Court held:

 

1. That an award made in the US between a UK investor and a foreign State falls under the New York Convention as an award “not considered as domestic” (Convention Art. I(1)) under US law, and thus supports federal court jurisdiction under Chapter Two of the FAA. Argentina urged that the US in adopting the Convention had declined to adopt the “not considered as domestic” branch, and cited the US reciprocity reservation that it would “apply the Convention, on the basis of reciprocity, to     the recognition and enforcement of only those awards made in the territory of another Contracting State.” The Court found that the purpose of this reservation was not to limit Convention jurisdiction in US courts to awards made abroad, but only to exclude Convention jurisdiction over awards made in States not members of the Convention. Further, the Court held, whereas FAA Section 202 treats as a non-domestic Award covered by the Convention a dispute between US parties that involves some reasonable relationship with a foreogn state, it would be “nonsensical” to conclude that arbitration awards made in the US beteeen two foreign parties are excluded from Convention coverage in the US.

 

2. That the ICC Court of International Arbitration (the agreed-upon appointing authority) did not exceed it powers in rejecting a challenge of Arbitrator Albert Jan van den Berg. In reaching this decision, the district court focused on the parties’ agreement investing powers in the ICC Court. But curiously the district court did not address whether Section 10(a)(4) of the FAA has any applicability to decisions of an appointing authority, not the arbitral tribunal that made the award.

 

3. That the Tribunal based its decisions allowing derivative claims and selecting the measure of damages from plausible constructions of the BIT and  resort to principles of international law, and therefore did not exceed its powers by — in words tsken from the Supreme Court’s recent Stolt-Nielsen decision — “dispensing its own brand of industrial justice.”