Argentine Investment Issue Heads to High Court

WASHINGTON (CN) - The Supreme Court said Monday that it will decide whether an arbitrator denied Argentina courts a chance to resolve an energy investor's claims.

BG Group, a U.K.-based investor in Argentina gas companies, filed a notice of arbitration against the South American country in 2003 over an executive order that diminished the value of its investment.

Argentina's economy had collapsed about a year earlier, causing the country to enact a controversial emergency law that terminated the 1:1 currency parity between the Argentine peso and the U.S. dollar. Emergency law 25,561 also converted dollar-based adjustment clauses in agreements to peso-based adjustment clauses, barred inflation adjustments based on foreign price indices and converted dollar-based tariffs into peso-based tariffs at a rate of one peso to one U.S. dollar.

BG Group, which owned a 54.67 percent interest in Gas Argentino, said these changes hurt its investment. Gas Argentino owned 70 percent of MetroGas, one of eight distribution companies under the state-owned Gas del Estado.

In March 2002, Argentina stayed for 180 days the compliance with injunctions and execution of final judgments in lawsuits brought on account of the Emergency Law's effect on the financial system.

Though the U.K.'s bilateral investment treaty with Argentina compels BG Group to resolve any dispute with the country in Argentine courts, the treaty also says that arbitration is the next step if no final court ruling is forthcoming within 18 months or if a court ruling failed to resolve the dispute.

BG Group said it could bypass the court process based on estimates that it would take six years to resolve its claim in the Argentine courts.

An arbitral panel in Washington, D.C., concluded, however, that it had jurisdiction because Argentina's emergency decrees restricted access to its courts.

Finding that Argentina had excluded any licensee with a grievance from the renegotiation process, the panel said a literal reading of the treaty would produce an "absurd and unreasonable result."

The panel's 2007 final award said Argentina had violated Article 2 of the Treaty because it failed to provide fair and equitable treatment to investments. Finding that Argentina had induced BG Group to invest in Gas Argentino in the early 1990s, the panel said Argentina "violated the principles of stability and predictability inherent to the standard of fair and equitable treatment" by dismantling the regulatory scheme that induced the investment.

It said the violation was exacerbated by the exclusion of licensees seeking relief in an arbitral or other forum from the renegotiation process.

BG Group was entitled to $185 million, excluding interest, cost and attorneys' fees, for the loss in its investment, the panel concluded.

Though a federal judge refused to vacate the award, and instead granted BG Group enforcement, a three-judge panel of the D.C. Circuit reversed in January 2012.

"Where, as here, the result of the arbitral award was to ignore the terms of the treaty and shift the risk that the Argentine courts might not resolve BG Group's claim within eighteen months pursuant to Article 8(2) of the treaty, the arbitral panel rendered a decision wholly based on outside legal sources and without regard to the contracting parties' agreement establishing a precondition to arbitration," the decision stated.

The U.S. Supreme Court granted BG Group a writ of certiorari on Monday. Per its custom, it did not make any statement on the order. It did, however, grant leave to file briefs as amicus curiae to four entities: the American Arbitration Association; the Professors and Practitioners of Arbitration Law; the AWG Group Ltd.; and the U.S. Council for International Business.

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