Journal of International

Arbitration
 Published by Kluwer Law International
P.O. Box 316
2400 AH Alphen aan den Rijn
The Netherlands

Sold and distributed in North, Central and South Sold and distributed in all other countries
America by Aspen Publishers, Inc. by Turpin Distribution
7201 McKinney Circle Pegasus Drive
Frederick, MD 21704 Stratton Business Park, Biggleswade
United States of America Bedfordshire SG18 8TQ
United Kingdom

ISSN 0255-8106
© 2015, Kluwer Law International

This journal should be cited as (2015) 32 J. Int. Arb. 2

The Journal of International Arbitration is published six times per year.

Subscription prices for 2015 [Volume 32, Numbers 1 through 6] including postage and handling:
Print subscription prices: EUR 929/USD 1239/GBP 684
Online subscription prices: EUR 861/USD 1148/GBP 633

This journal is also available online at www.kluwerlawonline.com.

Sample copies and other information are available at www.kluwerlaw.com.
For further information please contact our sales department at +31 (0) 172 641562 or at
sales@kluwerlaw.com.

For Marketing Opportunities please contact marketing@kluwerlaw.com.

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system,
or transmitted in any form or by any means, mechanical, photocopying,
recording or otherwise, without prior written permission of the publishers.

Permission to use this content must be obtained from the copyright owner.
Please apply to: Permissions Department, Wolters Kluwer Legal, 76 Ninth Avenue, 7th floor,
New York, NY 10011, United States of America.
E-mail: permissions@kluwerlaw.com. Website: www.kluwerlaw.com.

The Journal of International Arbitration is indexed/abstracted in the European Legal Journals Index.

Printed on acid-free paper

General Editor Dr. Michael J. Moser Author Guide

Notes and Current Developments Editor Dominique Hascher [A] Aim of the Journal

Assistant Editor Friven Yeoh Since its 1984 launch, the Journal of International Arbitration has established itself as
a thought provoking, ground breaking journal aimed at the specific requirements of
those involved in international arbitration. Each issue contains in depth investiga-
Advisory Board Dominique Brown-Berset tions of the most important current issues in international arbitration, focusing on
Professor Dr. Bernard Hanotiau business, investment, and economic disputes between private corporations, State
Michael Hwang S.C. controlled entities, and States. The new Notes and Current Developments sections
Professor Dr. Gabrielle Kaufmann-Kohler contain concise and critical commentary on new developments. The journal’s
Dr. Wolfgang Kühn worldwide coverage and bimonthly circulation give it even more immediacy as a
Toby Landau Q.C. forum for original thinking, penetrating analysis and lively discussion of interna-
Ramon Mullerat tional arbitration issues from around the globe.
Dr. Horacio A. Grigera Naón
Lucy Reed [B] Contact Details
Samir A. Saleh
Audley Sheppard Manuscripts as well as questions should be submitted to the Editor at
Abby Cohen Smutny EditorJOIA@kluwerlaw.com.
Dorothy Udeme Ufot
V.V. Veeder Q.C.
[C] Submission Guidelines

[1] Final versions of manuscripts should be sent electronically via email, in

All correspondence should be addressed to:
Dr. Michael J. Moser
Journal of International Arbitration
c/o Hong Kong International Arbitration Centre
38th Floor, Two Exchange Square, 8 Connaught Place, Hong Kong S.A.R., China
Tel: +852 3512 2398, Fax: +852 2877 0884, Email: editorjoia@kluwerlaw.com
For subscription queries please see copyright page overleaf.
© Kluwer Law International
All rights reserved
Word format; they must not have been published or submitted for publica-
tion elsewhere.
[2] The front page should include the author’s name and email address, as well
as an article title.
[3] The article should contain an abstract of about 200 words.
[4] Heading levels should be clearly indicated.
[5] The first footnote should include a brief biographical note with the author’s
current affiliation.
[6] Special attention should be paid to quotations, footnotes, and references.
All citations and quotations must be verified before submission of the man-
script. The accuracy of the contribution is the responsibility of the author.
The journal has adopted the Association of Legal Writing Directors
(ALWD) legal citation style to ensure uniformity. Citations should not
appear in the text but in the footnotes. Footnotes should be numbered
consecutively, using the footnote function in Word so that if any footnotes
are added or deleted the others are automatically renumbered.
[7] For guidance on style, see the House Style Guide available on this website:
http://www.kluwerlaw.com/ContactUs/
[D] Review Process

ISSN 0255-8106 Mode of citation: 32 J.Int.Arb. 2 [1] After review by the Editor, manuscripts may be returned to authors with
suggestions related to substance and/or style.
[2] The author will also receive PDF proofs of the article, and any corrections
should be returned within the scheduled dates.

[E] Publication Process

[1] For accepted articles, authors will be expected to execute a Consent to

Publish form.
[2] Each author of an accepted article will receive a free hard copy of the
journal issue in which the article is published, plus an electronic version of
the article.
 Analysis of the Decision Rendered by the U.S.
Supreme Court in Re BG Group plc v. Republic of
Argentina: Do All Roads Lead to Rome?

Valerio DE OLIVEIRA MAZZUOLI & Diego Luis ALONSO MASSA*

This article aims to analyze the decision rendered by the U.S. Supreme Court on March 5,
2014, in Re BG Group plc v. Republic of Argentina, whereby Argentina was ordered to pay the
British company BG Group the amount of United States Dollar (USD) 185.3 million in
damages as a result of Argentina’s decision to impose a freeze on gas prices in 2002.This article
discusses the merits of such a decision focusing, in particular, on the fact that basic norms
concerning general international law, and more specifically, the law of treaties, have not been
taken into account in reaching a decision on a matter involving an investment arbitration
provided for in a bilateral investment treaty (BIT). Furthermore, it seems that extremely
different legal institutions, such as international contracts (in the case at hand, an international
arbitration agreement) and international treaties have been merged into one thing by asserting
that they stand on an equal footing, while in fact they are diametrically opposed legal
instruments.

1 INTRODUCTION
On March 5, 2014, the Supreme Court of the United States decided, by seven
votes to two, that Argentina had to pay the British corporation engaged in the
exploration and distribution of natural gas, BG Group, the sum of United States
Dollar (USD) 185.3 million in damages as a result of the Argentine Government’s
decision to impose a freeze on gas prices in 2002. It is noteworthy that this

*
Valerio de Oliveira MAZZUOLI, Adjunct Professor of Public International Law, School of Law, Federal
University of Mato Grosso, UFMT (Brazil). Post-doctoral Fellow in Juridical and Political Sciences
(Classical University of Lisbon, Portugal). Ph.D. Holder summa cum laude in International Law (Federal
University of Rio Grande do Sul, UFRGS (Brazil). LLM Holder in International Law (State
University of São Paulo, UNESP, Brazil). Member of the Brazilian Society of International Law and
the Brazilian Association of Democratic Constitutionalists. Attorney-at-law and Legal Adviser. Diego
Luis Alonso MASSA, Attorney-at-law (University of Buenos Aires, Argentina). LLM Holder in
International Relations (specialization in Transnational Arbitration Law, Institut de Hautes Études
Internationales, University of Geneva, Switzerland). Legal adviser on International Arbitration and
Intellectual Property. International Organization Officer, International Labour Organization, OIT
(Geneva, Switzerland), former Legal Officer at UNCITRAL, United Nations (Vienna, Austria),World
Trade Organization (Geneva, Switzerland). Specialization in Intellectual Property Law, University
Austral (Buenos Aires). Specialization in International Business Law, University of Buenos Aires.

de Oliveira Mazzuoli, Valerio & Alonso Massa, Diego Luis. ‘Analysis of the Decision Rendered by the
U.S. Supreme Court in Re BG Group plc v. Republic of Argentina: Do All Roads Lead to Rome?’. Journal of
International Arbitration 32, no. 2 (2015): 215–236.
© 2015 Kluwer Law International BV, The Netherlands
216 JOURNAL OF INTERNATIONAL ARBITRATION

decision rendered by the U.S. Supreme Court has not gone unnoticed, either in
the field of public international law or in that of transnational arbitration law.
Therefore, a detailed analysis of this controversy will be carried out here,
especially with regard to the legal grounds upon which the Supreme Court relied
in order to render its decision, so that progress can be made in the debate
concerning what rights and obligations of states and private parties should be
recognized, when interpreting a provision contained in a bilateral investment treaty
(BIT) concluded between two states.

1.1 THE DISPUTE

In 2003, BG Group considered that the enactment by the Argentine Government

of a set of laws and regulations violated the provisions contained in a BIT
concluded between the Government of the United Kingdom of Great Britain and
Northern Ireland and the Government of the Republic of Argentina for the
promotion and protection of investments (hereinafter “the Treaty”),1 causing a
direct material injury to that corporation. In particular, BG Group argued that the
new Argentine legislation violated the Treaty provisions governing the
“expropriation” of investments and requiring each state to accord “fair and
equitable treatment” to investors of the Contracting State.2
That very same year, BG Group instituted international arbitration
proceedings in order to obtain compensation for the damages that the enactment
of Argentine legislation imposing a freeze on gas prices would have caused to the
company. Subsequently, the parties appointed arbitrators and agreed on the city of
Washington, D.C., as place of arbitration.
Although Argentina argued that BG Group initiated arbitration proceedings
without first complying with the local litigation requirement, that is, first
instituting legal proceedings before an Argentine competent court, the fact is that
when BG Group in 2003 initiated arbitration proceedings on the basis of Article 8
of the Treaty, Argentina itself agreed to participate in the appointment of arbitrator
procedure and the selection of the place of arbitration (Washington, D.C.).
In 2007, the court rendered a final award, ruling that the Argentina’s actions
(acceptance of the appointment of arbitrators, etc.) amounted to a waiver of the

1
See U.N.T.S. 46 (1994).
2
See Art. (2)(2): “Investments of investors of each Contracting Party shall at all times be accorded fair
and equitable treatment and shall enjoy protection and constant security in the territory of the other
Contracting Party. Neither Contracting Party shall in any way impair by unreasonable or
discriminatory measures the management, maintenance, use, enjoyment, or disposal of investments in
its territory of investors of the other Contracting Party. Each Contracting Party shall observe any
obligation it may have entered into with regard to investments of investors of the other Contracting
Party.”
 BG GROUP PLC V. REPUBLIC OF ARGENTINA 217

local litigation requirement set forth in the Treaty, which provided that only after
compliance with that requirement (and after the expiration of an eighteen-month
waiting period since the institution of legal proceedings) could an international
arbitration be initiated.This is so because Article 8(2)(b) of the Treaty provides for
an exception to the obligation to initiate legal proceedings before the competent
courts of the contracting party (the host state) in whose territory the investment
was made, where the contracting party and the investor of the other contracting
party decide (explicitly or tacitly) to have recourse to arbitration, which was
precisely what happened in the case under review. Thus, the tribunal concluded
that it would be “absurd” and “unreasonable”3 to force a party, under such
circumstances, to initiate legal proceedings before the courts of the host state, and
only institute arbitration after the expiration of an eighteen-month period from
the initiation of the legal proceedings.
On the merits, the arbitral tribunal ordered Argentina to pay the British
company BG Group the sum of USD 185.3 million as compensation for damages.
In March 2008, both parties (BG Group and the Republic of Argentina)
submitted motions before the Court of the District of Columbia: BG Group to
confirm the arbitration award on the basis of the Convention on the Recognition
and Enforcement of Foreign Arbitral Awards (New York, June 10, 1958), and the
Federal Arbitration Act (FAA); and Argentina to vacate the arbitration award on
the grounds that the arbitrators lacked jurisdiction to hear the dispute.
The Court of the District of Columbia upheld the claim of BG Group and
rejected the request of Argentina, thus confirming the validity of the arbitration
award. The Republic of Argentina lodged an appeal against that decision before
the Court of Appeals for the District of Columbia Circuit, which, in turn, reversed
the decision of the District Court, and thus set aside the arbitral award in question.
The Court of Appeals held that the argument put forward by Argentina was valid
to the effect that BG Group should have first filed a complaint with the
competent Argentine courts (and it should have waited eighteen months from the
commencement of such proceedings), because only then, could it have validly
initiated international arbitration proceedings. Accordingly, the Court of Appeals
vacated the award.
However, BG Group disagreed with the decision of the Court of Appeals and
filed a petition for certiorari. Subsequently, the U.S. Supreme Court granted said
petition “[g]iven the importance of the matter for international commercial
3
See BG Group Plc. (Claimant) and Republic of Argentina (Respondent), Final Award (Dec. 24, 2007),
at 50, para. 147: “As a matter of treaty interpretation, however,Art. 8(2)(a)(i) cannot be construed as an
absolute impediment to arbitration.Where recourse to the domestic judiciary is unilaterally prevented
or hindered by the host State, any such interpretation would lead to the kind of absurd and
unreasonable result proscribed by Article 32 of the Vienna Convention allowing the State to
unilaterally elude arbitration, which has been the engine of the transition from a politicized system of
diplomatic protection to one of direct investor-State adjudication.”
218 JOURNAL OF INTERNATIONAL ARBITRATION

arbitration.”4 According to the reasoning of the Opinion of the Court “the

question before us is who—court or arbitrator—bears primary responsibility for
interpreting and applying Article 8’s local court litigation provision.”5 However,
that approach was put into question, to a certain extent, by the dissenting Opinion
delivered by Justice Roberts (and Justice Kennedy), as it depicted the analysis of
the question at issue as a problem concerning the determination of whether the
Court was faced with an unilateral standing offer to arbitrate provided under a BIT
or with a simple question of arbitrability (according to the American conception
of this term).6
Finally, it should be noted that (although this remark is not capable of
bringing its influence to bear on the content of the present article) after the final
decision rendered by the U.S. Supreme Court, Argentina filed the latest petition
for a writ of certiorari in August, asking the Court to consider “whether a federal
court with jurisdiction to vacate an arbitral award under the FAA may do so on
the grounds that the arbitrators acted with manifest disregard of the law that is,
that the arbitrators correctly stated the applicable law, but proceeded to disregard
it.” However, BG Group argued that the question presented by the petition was
not decided by the lower courts and that the Court rarely addresses a legal
question without the benefit of a prior decision on the issue, and that the instant
case did not warrant the Court’s review. Subsequently, on November 3, 2014, the
U.S. Supreme Court denied Argentina’s petition, without explanation, the arbitral
award being confirmed in its entirety.

1.2 SUBJECT MATTER OF THE STUDY

As noted in most of the comments concerning the judgment under analysis, the
U.S. Supreme Court seems to take a favorable stance on international arbitration

4
See BG Group Plc. v. Republic of Argentina, no. 12-138, 572 U.S. (Mar. 5, 2014), Opinion of the Court, p.
5: “Given the importance of the matter for international commercial arbitration, we granted the
petition.”
5
Ibid., at 6.
6
It is well known that the notion of arbitrability in U.S. law has specific characteristics of its own, which
clearly differentiates it from the meaning commonly given to that term in continental European law,
and most legal systems. While there is a general understanding that arbitrability is primarily a
condition of validity of the arbitration agreement, in U.S. law the term arbitrability has been given a
much wider scope of application. Indeed, in that legal framework, the concept of arbitrability includes
determining whether the parties agreed to arbitrate, whether the parties are bound by an arbitration
agreement (i.e. what the persons bound by an arbitration agreement are), also called “substantive
arbitrability” as well as the satisfaction of “prerequisites or other conditions precedent to an obligation
to arbitrate,” which is also known as “procedural arbitrability.” Finally, it should be highlighted that the
American notion of arbitrability also includes the material scope of an arbitration agreement (i.e.,
what matters may be submitted to arbitration), where this conception of arbitrability finally finds a
common denominator with the notion of arbitrability of most legal systems.
 BG GROUP PLC V. REPUBLIC OF ARGENTINA 219

by rejecting the arguments put forward by Argentina to the effect that the
arbitrators have exceeded the limits of their powers by asserting they had
jurisdiction to hear the arbitration case instituted by BG Group, with the latter not
having complied first with the local litigation requirement.
Thus, according to the opinion of most legal scholars, the decision of the U.S.
Supreme Court would mark an important milestone in favor of arbitration,
including international investment arbitration, and would also constitute an
interpretation that would help clarify certain issues concerning arbitrability7 and
reaffirm the principle of Kompetenz-Kompetenz in U.S. law. Indeed, in their
opinion, this ruling suggests that the incorporation of the United Nations
Commission on International Trade Law (UNCITRAL) Arbitration Rules into
Article 8(2)(b) and (3)(a)(b) of the BIT between the United Kingdom and
Argentina8 strengthens the principle that arbitrators can rule upon issues relating
to their own jurisdiction. However, as discussed below, the incorporation of the
said Rules relates to another assumption, which has nothing to do with the case
reviewed by the U.S. Supreme Court, because those Rules will apply only if the
host state and the investor expressly agree to resort to arbitration, which is not
exactly what happened in this case. Finally, we cannot fail to note that the entire
interpretation carried out by the U.S. Supreme Court is based mainly upon
domestic arbitration case law, without taking into account international arbitration
case law, and more specifically, international investment arbitration case law,
especially when the main reason put forward by the Court to accept the case was
“the importance of the matter for international commercial arbitration.”9
While we welcome any court decision whereby a clear stance in favor of
arbitration is taken, perhaps by the tacit application of the transnational arbitration
law principle10 called favor arbitrandum,11 it should also be underlined that this
7
Indeed, the Supreme Court takes the opportunity offered by this case to point out once again that
questions concerning procedural arbitrability are for arbitrators to decide, with courts being unable to
review arbitrators’ decisions de novo, and questions concerning substantive arbitrability are for the
courts to decide, to avoid forcing unwilling parties to arbitrate a matter they reasonably would have
thought a judge would decide.
8
See BG Group Plc. v. Republic of Argentina, supra n. 4, Opinion of the Court, at 14: “And the Treaty itself
authorizes the use of international arbitration associations, the rules of which provide that arbitrators
shall have the authority to interpret provisions of this kind. Art. 8(3) (providing that the parties may
refer a dispute to the International Centre for the Settlement of Investment Disputes (ICSID) or to
arbitrators appointed pursuant to the arbitration rules of the United Nations Commission on
International Trade Law (UNCITRAL)); accord, UNCITRAL Arbitration Rules, art. 2(3)(1) (rev.
2010 ed.) (‘[A]rbitral tribunal shall have the power to rule on its own jurisdiction’); ICSID
Convention, Regulations and Rules, Art. 41(1) (2006 ed.), (‘Tribunal shall be the judge of its own
competence’).”
9
See BG Group Plc. v. Republic of Argentina, supra n. 4, at 5.
10
This article is based on the premise that the existence of a transnational legal order exists detached
from the national legal and international legal orders, since any digression, regardless of how brief it
could be, on this issue, would go well beyond the scope of this article.
11
Thus, the most important guiding principle of international arbitration that has developed in recent
decades is the principle of favor arbitrandum, which is simply the extrapolation of a solid scholarly,
220 JOURNAL OF INTERNATIONAL ARBITRATION

should not be done at any cost, especially if such a stance brings about the
non-application of clear-cut and precise rules of public international law, in
general, and the law of treaties, in particular. Indeed, the analysis carried out by the
U.S. Supreme Court omits any reference whatsoever to the rules governing the
interpretation of treaties under the 1969 Vienna Convention on the Law of
Treaties.12 Therefore, that lack of interest in applying rules of public international
law to a field of law such as investment arbitration, which is the common area par
excellence in which the international and transnational legal orders are inextricably
intertwined, could be viewed as neither contributing to strengthening the
interplay that must exist between these,13 nor to harmonizing transnational
arbitration rules, including of course investment arbitration law. This could be
considered to be contrary to the efforts made by judges of different states and
arbitrators from the various legal systems and a number of international
organizations to harmonize and/or standardize international trade rules, including,
for instance, the UNCITRAL Rules on Transparency in Treaty-based
Investor-State Arbitration.14
The purpose of this article is to show that a stance that favors arbitration at all
costs to the detriment of the rules of general international law may end up having
a negative impact on the international and/or transnational legal orders, under
which sovereign states and private parties interact.Therefore, we aim, to the extent
possible, and given the limited length of this article, to analyze the decision

jurisprudential, and normative trend at a transnational level in favour of extending the limits which
arbitration as a method of conflict resolution par excellence may be faced with. See, in this regard,
Bernard Hanotiau, L’arbitrabilité et la favour arbitrandum: un réexamen, n. 4, oct.-dez. 1994, Journal de
droit international, p. 899: “Par l’effet d’une politique générale de faveur envers l’arbitrage, l’ordre public
recule et la compétence de l’arbitre s’affirme. Toute l’évolution du droit de l’arbitrage international
moderne tend en effet à reconnaître la compétence de l’arbitre dans les domaines touchant à l’ordre
public. Le principe devient la validité de la convention d’arbitrage et l’exception la nullité pour
contrariété à l’ordre public.”
12
With regard to the interpretation of treaties according to the 1969 Vienna Convention, see Valerio de
Oliveira Mazzuoli, Direito dos tratados, at 263–81 (2nd ed. revised, updated and extended, Forense,
2014).
13
In this regard, see Emmanuel Gaillard, L’ordre juridique arbitral: réalité, utilité et spécificité, vol. 55, at 906,
McGill Law Journal, Conférence commémorative John E.C. Brierley, 2010: “le droit international et le
droit de l’arbitrage ont aujourd’hui un territoire commun, celui de la protection d’investissements
internationaux, qu’elle soit ou non fondée sur un traité . . . Les relations privées relevant des
transactions internationales (y compris celles qui impliquent l’État agissant en tant que commerçant
ou en tant que contrepartie d’un investisseur opérant sur son territoire) ont le même besoin que les
relations entre États d’être appréhendées par une vision dépassant la perspective de chaque droit
interne ou se contentant de constater la dispersion des solutions des ordres juridiques nationaux.
Plutôt que dans une logique de concurrence, l’ordre juridique arbitral et l’ordre juridique
international devraient pouvoir s’articuler dans une logique de complémentarité.”
14
See UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration, recently adopted
by UNCITRAL (effective date Apr. 1, 2014), available at www.uncitral.org/uncitral/en/uncitral_
texts/arbitration/2014Transparency.html.
 BG GROUP PLC V. REPUBLIC OF ARGENTINA 221

rendered by the Supreme Court from the broadest possible perspective,

encompassing both public international law and transnational arbitration law, so
that the benefits and the disadvantages of focusing only on one aspect of the great
variety of rules pertaining to the national, international, and transnational legal
orders involved in this case can be properly weighed.
Indeed, we will seek to demonstrate that the question upon which the
Supreme Court should have focused most of its attention neither revolves around
the arbitrability of the dispute nor the application of the Kompetenz-Kompetenz
principle, but rather the determination of the exact legal nature, from a general
international law perspective, of an arbitration provision set forth in a BIT. In this
regard, we largely share the views expressed in the dissenting Opinion (see below),
while we will also try to further this line of thought by analyzing different
scenarios that will allow us to ascertain whether such an arbitration provision,
where it is subject to certain conditions as in the case under consideration,
constitutes an arbitration agreement or not.
Ultimately, the question this article will attempt to answer is whether the
conflicting positions stated in the Opinion of the Court and the dissenting
Opinion can be reconciled.

2 ANALYSIS OF THE GROUNDS OF THE OPINION OF COURT

Before turning to the analysis of the grounds upon which the Supreme Court
relied to render its decision, reference should be made to the text of Article 8(1)(2)
of the Treaty concluded on December 11, 1990, between the Government of
United Kingdom of Great Britain and Northern Ireland and the Government of
the Republic of Argentina15 for the promotion and protection of investments,
which is the provision around which the controversy between BG Group and
Argentina revolved.The said provision reads as follows:
Article 8: Settlement of Disputes between an Investor and the Host State
(1) Disputes with regard to an investment which arise within the terms of this
Agreement between an investor of one Contracting Party and the other Contracting
Party, which have not been amicably settled shall be submitted, at the request of one
of the Parties to the dispute, to the decision of the competent tribunal of the
Contracting Party in whose territory the investment was made.
(2) The aforementioned disputes shall be submitted to international arbitration in the
following cases:
(a) if one of the Parties so requests, in any of the following circumstances:
(i) where, after a period of eighteen months has elapsed from the moment
when the dispute was submitted to the competent tribunal of the

15
Supra n. 1.
222 JOURNAL OF INTERNATIONAL ARBITRATION

Contracting Party in whose territory the investment was made, the said
tribunal has not given its final decision;
(ii) where the final decision of the aforementioned tribunal has been made but
the Parties are still in dispute;
(b) Where the Contracting Party and the investor of the other Contracting Party
have so agreed.

It should be noted once again, that the above-mentioned provision forms part
of an international treaty between two sovereign states (the United Kingdom and
Argentina). This means that the Court does not have before it an international
instrument entered into by two private parties, but rather concluded by two legal
entities governed by public law. Furthermore, every single aspect relating to the
construction of such a clause should be based upon the rules concerning the
interpretation of treaties contained in the 1969 Vienna Convention on the Law of
Treaties (Articles 31–33), which are also applicable in the Unites States although it
has not ratified the Convention, given that treaty provisions are deemed customary
rules of international law crystallized into provisions of a conventional nature.16
As it stems from the wording of the provision at hand, disputes arising out of
an investment made by an investor of one contracting party (in this case, the BG
Group, a company incorporated in the United Kingdom) and the other
contracting party (Argentina), can only be referred to international arbitration, at
the request of one of the parties, where (i) after a period of eighteen months has
elapsed from the moment when the dispute was submitted to the competent
tribunal of the contracting party in whose territory the investment was made, the
said tribunal has not given its final decision; or (ii) where the final decision of the
aforementioned tribunal has been made but the parties are still in dispute (Article
8(2)(a)(i)(ii)). However, Article 8(2)(b) of the Treaty provides for an exception to
compliance with the local litigation requirement: where the contracting party and
the investor of the other contracting party have agreed to refer the dispute to
arbitration, in which case, the local litigation requirement set forth in Article
8(2)(a)(i) would no longer have to be complied with.
These are, therefore, the legal premises freely established by the United
Kingdom and Argentina in the Treaty concluded on December 11, 1990, that the
U.S. Supreme Court had to analyze in order to render its decision dated March 5,
2014 in Re BG Group plc v. Republic of Argentina.
Once these preliminary matters have been clearly ascertained, we can then
move forward to analyze the ruling handed down by the U.S. Supreme Court,
with its strengths and weaknesses, especially, in the light of the great importance

16
In this regard, see de Oliveira Mazzuoli, Direito dos tratados, supra n. 12, at 41.
 BG GROUP PLC V. REPUBLIC OF ARGENTINA 223

that international arbitration has taken on during the last decades as a method of
dispute resolution between states and private parties.

2.1 SUBJECT MATTER OF THE RULING: ARBITRATION AGREEMENT OR

INTERNATIONAL TREATY?

It should be highlighted that the Opinion of the Court was delivered by Justice
Breyer, and the grounds stated therein will be analyzed herein below. Justice Brayer
presented the issue to be ruled upon in the following terms:
In answering the question, we shall initially treat the document before us as if it were an
ordinary contract between private parties.Were that so, we conclude, the matter would be
for the arbitrators.We then ask whether the fact that the document in question is a treaty
makes a critical difference.We conclude that it does not.
First and foremost, it should be underscored that it is hard to understand the
reasons why the majority based its reasoning on the assumption that an
international treaty stands on the same legal footing as a contract entered into by
private parties.Thus, it is evident that when a thought process relies upon a wrong
premise, the conclusion that will be drawn (a detail that Justice Roberts, in his
dissenting Opinion,17 did not overlook) will also be completely wrong.Where the
Court had before it a contract between private parties, arbitrators would have
jurisdiction to rule upon the matter at hand, as it was indeed the case, rejecting the
need to first commence legal proceedings before a competent Argentine tribunal,
so that afterwards arbitration proceedings can be instituted.That is why the Court
of Appeals for the District of Columbia Circuit could not have reversed the
decision rendered by the federal district court that had confirmed the award,
whereby Argentina had been ordered to pay BG Group USD 185.3 million.18
However, as it was not a contract, but rather, an genuine international treaty in
force between two sovereign states which the Court had before it, the conclusion
that would have to be drawn should be completely the opposite: the decision
rendered by the Court of Appeals reversing the ruling issued by the federal district
court should be valid; given that the award was not confirmed by the federal court
on the basis of the 1958 New York Convention and the FAA, Argentina would not
be obliged to comply with the award, unless BG Group instituted legal
proceedings before a competent Argentine court, and upon expiration of an

17
See BG Group plc. v. Republic of Argentina , supra n. 4, Roberts, C.J., dissenting, at 1–2.
18
See BG Group Plc. v. Republic of Argentina, supra n. 4, Opinion of the Court, at 14: “The interpretation
and application of the local litigation provision is primarily for the arbitrators. Reviewing courts
cannot review their decision de novo. Rather, they must do so with considerable deference.”
224 JOURNAL OF INTERNATIONAL ARBITRATION

eighteen-month period from the moment when the dispute was submitted to the
Argentine court, initiated new international arbitral proceedings.
It should be underlined that BG Group was only able to initiate an arbitration
proceeding in order to seek compensation for damages because two sovereign
states, namely the United Kingdom and Argentina, have conferred such a
prerogative upon it as a result of being a company incorporated in one of the
contracting parties (in this case, the United Kingdom). A priori, the possibility to
have recourse to arbitration would not have existed had those two sovereign states
not concluded the Treaty concerned.
It was not at all necessary for the U.S. Supreme Court to rule upon the matter
at hand relying on the ground that the document it had before it would be treated
as though “it were” an agreement between private parties. It would have sufficed
to prove that Article 8(2)(b) of the Treaty authorizes a contracting party and an
investor of the other contracting party to agree (expressly or tacitly) to resort to
arbitration, which was what happened in this case, taking into account that BG
Group requested the institution of arbitration proceedings in 2003 and Argentina,
at least tacitly, accepted this request by taking part in the procedure for the
appointment of arbitrators and by agreeing that Washington, D.C. would be the
place of arbitration. Thus, Argentina, in our view, “failed to enforce” the local
litigation requirement provided for in Article 8(2)(a)(i)(ii).
Nor was it necessary to make reference to certain arguments based upon
scholarly writings, which in fact did not apply to the case, as the issue revolved
around a treaty between sovereign states rather than a contract between private
parties, in the sense that compliance with mechanisms of a procedural nature
contained in an arbitration agreement (or in a BIT) does not typically constitute a
claims-processing rule, and that clauses of that nature create a considerable burden
to the party seeking arbitration with low chances of reaching a settlement of the
dispute. Moreover, it should be highlighted that the parties must comply with the
provisions of a treaty, there being no need to argue that they do not constitute a
mechanism of a procedural nature or that such clauses create a considerable burden
to the party seeking arbitration, etc. The issue should be emphasized once again:
the agreement concluded between the United Kingdom and Argentina is not an
arbitration agreement, but an international treaty between two sovereign states,
which provisions are binding, among other rules, under the first part of Article 27
of the 1969 Vienna Convention on the Law of Treaties.19

19
See Art. 27, first part: “A party may not invoke the provisions of its internal law as justification for its
failure to perform a treaty.”
 BG GROUP PLC V. REPUBLIC OF ARGENTINA 225

2.2 APPLICATION OF PRESUMPTIONS SUPPLIED BY CASE LAW BASED UPON

MUNICIPAL LAW TO AN INTERNATIONAL TREATY?

Another criticism that can be made of the U.S. Supreme Court decision relates to
the application by that Court of legal presumptions based upon case law, applying
municipal law in order to rule upon matters concerning an international treaty. This
is often the case in a number of countries, although it cannot be the general case
law of a Supreme Court. Indeed, issues related to the law of treaties must be
decided in accordance with public international law, and in particular, with
the rules set forth in the 1969 Vienna Convention on the Law of Treaties. Despite
the fact that the said Convention has not yet been ratified, this Convention can
all the same be invoked as a rule of customary law on treaties, as admitted by the
State Department of the United States.20
However, Justice Breyer, disagreed and proceeded to apply the presumptions
supplied by the domestic legal framework of the United States, although the
question at issue concerned an international treaty, by stating that:
Where, as here, a federal court is asked to interpret that intent pursuant to a motion to
vacate or confirm an award made under the Federal Arbitration Act, it should normally apply
the presumptions supplied by American law. (emphasis added)
It should be recalled that when the parties applied to confirm the award (BG
Group) and to set it aside (Argentina), they also based their arguments upon the
Convention on the Recognition and Enforcement of Foreign Arbitral Awards
(New York, June 10, 1958), which appeared to be of less value than the FAA, even
though it is by means of that Convention that a national tribunal is authorized to
apply domestic law to rule upon issues concerning the arbitrability of the dispute.
It is evident that, as stated by Justice Roberts, the Supreme Court ended up in
the wrong place after starting down the wrong road. In this case, the wrong road is
represented by the assertion that the document the Court had before it should be
analyzed as if it were a contract between private parties, and the wrong place at
which it ends up lies in the conclusion that a BIT is a contract but concluded
between nations. It follows that the statement contained in the Opinion of the
Court based upon Sullivan v. Kidd, 254 US 433 (1921), to the effect that “treaties
are to be interpreted upon the principles which govern the interpretation of
contracts in writing between individuals” is meaningless; if that were so, there
would not be a whole section, section 3 of Part III of the 1969 Vienna
Convention on the Law of Treaties, dealing with the “Interpretation of Treaties”
(Articles 31–33).

20
On this issue, see the information available in U.S. Department of State, Diplomacy in Action, available
at www.state.gov/s/l/treaty/faqs/70139.htm.
226 JOURNAL OF INTERNATIONAL ARBITRATION

In this vein, it should be emphasized that the Court decided to reject the
argument put forward by Argentina to the effect that the arbitrators exceeded their
powers by ruling that the Executive Power Decree, whereby a stay of judicial
proceeding for 180 days had been set out, necessarily led to an “absurd and
unreasonable” result, and consequently, that situation excused BG Group’s failure
to comply with the local litigation requirement. Indeed, the Court held that:
We would not necessarily characterize these actions as rendering a domestic court-
exhaustion requirement “absurd and unreasonable,” but at the same time we cannot say
that the arbitrators’ conclusions are barred by the Treaty. The arbitrators did not “stra[y]
from interpretation and application of the agreement” or otherwise “effectively ‘dispens[e]’
their own brand of . . . justice.” Stolt-Nielsen S.A. v. Animal Feeds Int’l Corp., 559 U.S. 662,
671 (2010) (providing that it is only when an arbitrator engages in such activity that “his
decision may be unenforceable” (quoting Major League Baseball Players Assn. v. Garvey, 532
U.S. 504, 509 (2001) (per curiam)).
However, it should be underscored that the Supreme Court contradicted itself
when it upheld the decision of the arbitral tribunal, which in turn, was based upon
Article 32 of the 1969 Vienna Convention, on the basis of precedents supplied by
American case law, where neither the interpretation of a treaty nor that of rules of
immediate application (lois de police) of a sovereign state were at stake. Moreover, it
should also be noted that neither the arbitral tribunal nor the Supreme Court
cited Article 32(b) of the 1969 Vienna Convention in a correct manner, probably
inadvertently, or perhaps due to the fact that its correct citation could probably
have undermined the soundness of their arguments. Indeed, the arbitrators applied
Article 32(b) of the 1969 Vienna Convention, omitting to mention the term
(adverb) “manifestly” which qualifies the terms (adjectives) “absurd” or
“unreasonable.”21 It might be wondered whether such failure to mention the said
adverb distorted the spirit of the provision under review. The introduction of the
term “manifestly” presupposes that the judge or, where appropriate, the arbitrator
analyzing the provision in question must only carry out a brief and formal analysis
of the issue in order to conclude that a particular interpretation of a treaty
provision will lead to an “absurd or unreasonable” result. Conversely, the
elimination of the adverb “manifestly” brings about the need to carry out a deeper
analysis of the issue, which was what in fact happened in the framework of the
award.The arbitrators conducted a detailed examination of the implications of the
implementation of Executive Power Decree No. 214/2002 in order to arrive at
the conclusion that said Decree, which had been conceived to limit access to the
Argentine courts for a 180-day period, would lead to an absurd and unreasonable
result. Nevertheless, it could also be argued that the stay of court proceedings for
21
For further details on the interpretation of Art. 32 of the 1969 Vienna Convention on the Law of
Treaties, see de Oliveira Mazzuoli, Direito dos tratados, supra n. 12, at 269–72.
 BG GROUP PLC V. REPUBLIC OF ARGENTINA 227

180 days, under a framework of a much longer period as provided for in Article
8(2)(a)(I) of the BIT between the United Kingdom and Argentina, which spans
over eighteen months, does not lead to a “manifestly” absurd and unreasonable
result, particularly as that involves the interpretation of emergency regulations
issued by the host state. In any case, it is important to note the implications
entailed by the omission of the adverb “manifestly” in the interpretation of the
question at hand, as this is a central element to unravel the true legal nature of the
local litigation requirement. However, not only did the Supreme Court disregard
this omission, it actively supported it, thereby turning a blind eye to the
importance of conducting a correct interpretation of the rules of the 1969 Vienna
Convention concerning the interpretation of treaties, which could be described, at
the very least, as paradoxical.

2.3 CONSIDERATIONS ON THE IMPACT OF THE STRENGTHENING OF THE

KOMPETENZ-KOMPETENZ PRINCIPLE

As previously stated, in the opinion of some scholarly writers, the U.S. Supreme
Court through its decision has helped to strengthen, albeit indirectly, the
Kompetenz-Kompetenz principle in the framework of U.S. law. Indeed, the
strengthening of that principle would supposedly occur as a result of the majority
Opinion, according to which the incorporation of the UNCITRAL Arbitration
Rules into the Treaty would imply that arbitrators have jurisdiction to rule upon
questions similar to those under review in this case, namely, the consequences of
failure by an investor to comply with the local litigation requirement set forth in
Article 8(2)(a)(I) of the Treaty. In this regard, the Supreme Court held that:
And the Treaty itself authorizes the use of international arbitration associations, the rules of
which provide that arbitrators shall have the authority to interpret provisions of this kind.
Art. 8(3) (providing that the parties may refer a dispute to the International Centre for the
Settlement of Investment Disputes (ICSID) or to arbitrators appointed pursuant to the
arbitration rules of the United Nations Commission on International Trade Law
(UNCITRAL)); accord, UNCITRAL Arbitration Rules, Art. 23(1) (rev. 2010 ed.)
(“[A]rbitral tribunal shall have the power to rule on its own jurisdiction”); ICSID
Convention, Regulations and Rules, Art. 41(1) (2006 ed.) (“Tribunal shall be the judge of
its own competence”). Cf. Howsam . . . at 85 (giving weight to the parties’ incorporation
of the National Association of Securities Dealers’ Code of Arbitration into their contract,
which provided for similar arbitral authority, as evidence that they intended arbitrators to
“interpret and apply the NASD time limit rule”).
The reference made by the Supreme Court to Article 8(3) of the Treaty does
not, however, help to clarify the question at issue. It should be noted that the
aforementioned provision is closely related to Article 8(2)(b) of the Treaty, which
provided that parties can resort to arbitration in the event that they have so agreed.
228 JOURNAL OF INTERNATIONAL ARBITRATION

Nevertheless, the parties have not entered into any arbitration agreement. Thus,
this clause is not applicable, and its analysis would seem not to shed light on the
resolution of the real question at hand. On the contrary, the analysis carried out by
the Supreme Court on the legal consequences resulting from the incorporation by
reference of UNCITRAL Arbitration Rules serves the Court’s purpose to
reinforce their decision not to deviate from the usual assumptions concerning
(domestic) arbitration set out in U.S. federal case law, such as, the Howsam case.
Therefore, it follows that the alleged strengthening of the Kompetenz-Kompetenz
principle would have a limited scope of application, covering only domestic
arbitration cases, which is not objectionable at all, but seems to matter very little to
the resolution of an investment arbitration case between a sovereign state and a
private party of another state. In this regard, it is noteworthy to mention that there
exist a number of American decisions on the issue of the incorporation of
arbitration rules and their legal consequences, so that the Court may have
overlooked the analysis of that issue, which does not seem to be relevant to the
case at hand.22

2.4 CONDITION ON CONSENT: MANIFEST DISREGARD FOR THE APPLICATION OF THE

1969 VIENNA CONVENTION RULES ON INTERPRETATION OF TREATIES

The 1969 Vienna Convention on the Law of Treaties is one of the few treaties in
the world that has legal force, either as a treaty or as an international custom
crystallized in a conventional norm, even for those states which have not yet
ratified it.23
The United States signed the 1969 Vienna Convention on April 24, 1970, but
has not yet ratified.24 Article 18(a) of the Convention provides that “[a] State is
obliged to refrain from acts which would defeat the object and purpose of a treaty
when: (a) it has signed the treaty or has exchanged instruments constituting the
treaty subject to ratification.” This means that upon the signature of a treaty, a

22
Virtually every circuit to have considered the issue has determined that incorporation of the American
Arbitration Association (AAA) Arbitration Rules constitutes clear and unmistakable evidence that the
parties agreed to arbitrate arbitrability. See Petrofac, Inc. v. DynMcDermott Petroleum Operations Co., 687
F.3d 671, 675 (5th Cir. 2012); Fallo v. High-Tech Inst., 559 F.3d 874, 878 (8th Cir. 2009); Qualcomm Inc.
v. Nokia Corp., 466 F.3d 1366, 1373 (Fed. Cir. 2006); Terminix Int’l Co. v. Palmer Ranch LP, 432 F.3d
1327, 1332 (11th Cir. 2005); Contec Corp. v. Remote Solution Co., 398 F.3d 205, 208 (2d Cir. 2005).
Only one circuit has concluded otherwise. See Riley Mfg. Co. v. Anchor Glass Container Corp., 157 F.3d
775, 777, n. 1, 780 (10th Cir. 1998). The AAA rules contain a jurisdictional provision similar to Art.
21(1) of the 1976 UNCITRAL Rules and almost identical to Art. 23(1) of the 2010 UNCITRAL
Rules.
23
See de Oliveira Mazzuoli, Direito dos tratados, supra n. 12, at 41.
24
See Vienna Convention on the Law of Treaties, Status as at Sep. 20, 2014, available at https://
treaties.un.org.
 BG GROUP PLC V. REPUBLIC OF ARGENTINA 229

signatory state becomes bound to comply with a number of obligations as from

the moment of its signing and that of its future ratification. This is an obligation
that domestic courts must be aware of, although unfortunately, it seems that this is
not always the case. This argument suggests that when ruling upon a legal issue
related to an international treaty the domestic law of a given state cannot prevail
over the provisions on the Law of Treaties, recognized by the international
community as a whole, as those set out in the 1969 Vienna Convention on the
Law of Treaties.
This manifest disregard of the rules of treaty interpretation set out in the 1969
Vienna Convention might work against the interests of any Supreme Court when
faced with a question concerning a BIT. It is clear that domestic legislation has
been not designed to resolve issues revolving around the interpretation of
conventional law, taking into account, among other things, that rules set forth by
the international community as a whole are of a much more democratic and
participatory nature, especially as regards the 1969 Vienna Convention, which
represents, in many respects, international custom crystallized into international
rules.
In our view, the argument put forward by the U.S. Supreme Court, that “[t]he
litigation provision is consequently a purely procedural requirement—a
claims-processing rule that governs when the arbitration may begin, but not
whether it may occur or what its substantive outcome will be on the issues in
dispute,”25 according to which the interpretation of such requirements are for
arbitrators, not for judges, cannot be adequate.
The question should not have been resolved on the basis of the finding that
the local litigation requirement was a “purely procedural requirement condition,”
because when such a condition is set forth in a treaty, it becomes also essentially
binding on the contracting states. The question that arises in this context is the
following: in accordance with Article 8(2)(b) of the Treaty, when the parties agree
to resort to arbitration, does it mean that the local litigation requirement provided
for in Article 8(1) becomes moot? If this is so, it could be submitted that was
exactly what happened between Argentina and BG Group: indeed, when the latter
initiated arbitration proceedings in 2003, Argentina had consented to it, so much
so that it participated in the appointment procedure of arbitrators and in the
selection of Washington, D.C., as the place of arbitration, thereby waiving its right
to require BG Group to first comply with the local litigation requirement.
As can be seen, in the context of the decision at hand, determining whether a
condition is of a “purely procedural nature” or not could even be considered as an
unimportant issue. In this line of thought, it could be wondered what purpose

25
See BG Group Plc. v. Republic of Argentina, supra n. 4, at 9.
230 JOURNAL OF INTERNATIONAL ARBITRATION

there would be in classifying the pre-arbitration requirement as a condition of a

procedural nature. It is clearly evident that the provisions of a treaty between the
contracting parties are binding upon both of them.26 The Court does not note
that the treaty itself provides the solution to the problem, if the express provision set
forth in Article 8(2)(b) were taken into consideration.To our knowledge, it would
have sufficed to construe the investment treaty in the light of Article 31(1) of the
1969 Vienna Convention, which sets forth that “[a] treaty shall be interpreted in
good faith in accordance with the ordinary meaning to be given to the terms of
the treaty in their context and in the light of its object and purpose.”Therefore, if
the object and purpose of the treaty between the United Kingdom and Argentina
was “to create favourable conditions for greater investments by investors of one
State in the territory of the other State,”27 it seems apparent that the contracting
state may waive the general clause on admissibility contained in Article 8(1) of the
BIT when a contracting state and “the investor of the other Contracting Party
have so agreed” (Article 8(2)(b)).
Ultimately, the question at hand, if the BIT between the United Kingdom
and Argentina is adequately interpreted, should be resolved as follows: by virtue of
Article 8(2)(b) a contracting party and an investor of the other contracting party
can agree spontaneously (expressly or impliedly) to refer a dispute to arbitration,
without the need to comply with the local litigation requirement as a condition of
admissibility for arbitration, pursuant to the transnational principle of favor
arbitrandum. By doing so, the contracting party and an investor of the other
contracting parties undertake to grant in favor of arbitrators the powers to
adjudicate the dispute at hand.
While the U.S. Supreme Court has arrived, by coincidence, at the same
conclusion, the road taken was not the correct one from a strictly legal standpoint.
It might be wondered then: do all roads lead to Rome? The answer would be in
the affirmative, but we cannot fail to note that some roads are legally correct while
others not. A court should focus not only on reaching a fair solution, but also on
doing so on the basis of a legally correct reasoning. In the instant case, it would
have sufficed to read and correctly construe the crystal-clear Article 8(2)(b) of the
Treaty between the United Kingdom and Argentina to reach, in our view, the
right solution.

26
See 1969 Vienna Convention on the Law of Treaties,Art. 27.
27
See the Agreement concluded between the Government of the United Kingdom of Great Britain and
Northern Ireland and the Government of the Republic of Argentina for the Promotion and
Protection of Investments, supra n. 1.
 BG GROUP PLC V. REPUBLIC OF ARGENTINA 231

3 REASONED ANALYSIS OF THE OPINION OF THE COURT

Judge Roberts, president of the U.S. Supreme Court, gave a dissenting Opinion,
with which Justice Kennedy concurred. It is thus advisable to analyze that
Opinion taking into consideration the criticism expressed therein with respect to
the Opinion of the Court. Although the dissenting Opinion relied on a more
appropriate reasoning than that of the majority, we consider that the dissenting
Opinion only travelled “half the road,” as outlined below.

3.1 REASONED ANALYSIS OF THE OPINION OF THE COURT

The dissenting Opinion, as mentioned above, put forward more solid arguments,
in our view, than those stated by the majority, especially because Justice Roberts
fully understood that the document that the Supreme Court had before it was a
treaty between sovereign states, rather than an arbitration agreement, all the more
since investors are not even parties to the international instrument concerned (as
indeed they could not be a party to it, because said instrument constitutes a
conventional juridical act concluded by states). In fact, the first paragraphs of the
dissenting Opinion contain an ironic statement about the decision that was
reached by the majority, by underlining that:
The “document before us,” of course, is nothing of the sort [that is, an ordinary contract
between private parties]. It is instead a treaty between two sovereign nations: the United
Kingdom and Argentina. No investor is a party to the agreement ... It should come as no
surprise that, after starting down the wrong road, the majority ends up at the wrong
place.28
The observation, as noted above, is relevant. Indeed, it is hard to understand
the reasons why the majority of the U.S. Supreme Court understood the
instrument as a contract. As stated before, it would have been enough to read the
instrument to come to the conclusion that said instrument constituted a
conventional juridical act, i.e., an international investment treaty, whose Article 8
sets forth the possibility to resort to arbitration, provided that certain conditions
are met. Consequently, it is on the basis of this premise that the Supreme Court
should have ruled upon the matter at hand, and not on the basis of the discordant
conception that that instrument was a contract between private parties, which
should be construed in accordance with the domestic rules of that country.

28
See BG Group Plc. v. Republic of Argentina, supra n. 4, Roberts, C.J., dissenting, at 1.
232 JOURNAL OF INTERNATIONAL ARBITRATION

3.2 THOUGHTS AND CRITICISMS CONCERNING THE EXCESSIVE TERMINOLOGICAL

OPINION OF THE COURT
FORMALISM OF THE

In another vein, it should be observed that the opinion delivered by the majority
revolves around whether Article 8(2)(a)(i) constitutes a condition on consent that
must be met before the claimant can resort to arbitration or whether it is a
procedural condition (a claims-processing rule). So, this “characterization” of the
dispute as concerning a “claims-processing rule” only serves the purpose of
applying precedents supplied by American case law, establishing that when it
comes to a “condition on consent,” this is a matter for judges to decide, and when
it is a “procedural condition” (i.e., a “claims-processing rule”) then it is for
arbitrators to rule upon, in the first place. This is the reason why the majority
concludes that in order for the dispute to be deemed a condition on consent,
parties29 should have explicitly used the term “consent,”30 and given the absence
of that word, the Court decided that it is a question of a purely procedural nature
that is to be ruled upon, in the first place, by arbitrators.
However, Judge Roberts, in his dissenting Opinion, noted this issue by stating
that “there is no reason to think that such a clear statement should be required, for
we generally do not require ‘talismanic words’ in treaties.”31
It is apparent from the foregoing explanation that the attention of the
majority seems more focused on ensuring that the legal relations arising from an
international treaty fall within the presumption supplied by U.S. case law on

29
Regarding the use of the term “Parties” in Art. (8)(2)(a)(i) and (ii), a small digression should be made.
It should be noted that the term “Parties” is used instead of the term “Contracting Party” as in Art.
(8)(2)(b). This is because, in the first case, there exists no arbitration agreement but only a “unilateral
standing offer” (according to the terms used by Justice Roberts in his dissenting Opinion) that both
states make in favour of a “determinable” legal entity of the host state. Therefore, it would make no
sense to refer specifically to the term “consent” in that phase prior to the formation of the agreement,
as there is only an offer, it being understood that the arbitration agreement will only be perfected
once the offeree consents to the initial offer on the same terms on which it was made. It is
noteworthy that Art. (8)(2)(b) contains the term “Contracting Party” and investor, as the scenario
outlined in the framework of that provision relates to the actual possibility that the host state and the
(determinable) investor agree to resort to arbitration.Therefore, the presumption supplied by U.S. law
case does not correspond exactly to the situation foreseen by the contracting parties in Art. (8)(2)(a)(i).
30
See BG Group plc. v. Republic of Argentina, supra n. 4, Syllabus, at 3: “But because this Treaty does not
state that the local litigation requirement is a condition of consent, the Court need not resolve what
the effect of any such language would be.The Court need not go beyond holding that in the absence
of language in a treaty demonstrating that the parties intended a different delegation of authority, the
ordinary interpretive framework applies. (pp. 10–13) . . . The Treaty contains no evidence showing
that the parties had an intent contrary to the ordinary presumptions about who should decide
threshold arbitration issues.The text and structure of Article 8’s litigation requirement make clear that
it is a procedural condition precedent to arbitration.”
31
See BG Group plc. v. Republic of Argentina, supra n. 4, Roberts, C.J., dissenting, at 6: “But there is no
reason to think that such a clear statement should be required, for we generally do not require
‘talismanic words’ in treaties. Medellín v.Texas, 552 U.S. 491, 521 (2008).”
 BG GROUP PLC V. REPUBLIC OF ARGENTINA 233

arbitration, than on analyzing the issue from a transnational or truly international

perspective as warranted by the case at hand.

3.3 A HALFWAY DECISION?

The dissenting Opinion, in its turn, did not carry out an exhaustive analysis of
Article 8(2)(b) of the Treaty. Indeed, this provision allows the investor of a
contracting state and the other contracting state to agree to have recourse to
arbitration, regardless of the compliance by the investor of the local litigation
requirement, that is, without having to wait eighteen months from the moment
when the dispute was submitted to the competent tribunal of the contracting
party in whose territory the investment was made.
According to the dissenting Opinion, this could only be possible if consent to
arbitrate is demonstrated by “a specific agreement.”32 However, when analyzed in
more detail, the conclusion can be drawn that this is not so, as Article 8(2)(b)
simply provides that resort may be had to arbitration “where the Contracting Party
and the investor of the other Contracting Parties have so agreed.” It could further
be asked whether that agreement should take a specific form in order to be valid.
Nevertheless, the provision under analysis only makes reference to an agreement
between the parties, which can take the form of an express or tacit agreement.
As can be observed, the reasoning behind the dissenting Opinion with regard
to the understanding that the dispute at hand concerns a treaty between sovereign
states rather than an arbitration agreement between private parties was correct. In
fact, the Treaty allows for a “concession” regarding the possibility of resorting to
arbitration under the conditions set forth therein, namely, when local remedies
have been exhausted, or when the parties (the investor and the state in whose
territory the investment was made) have agreed to submit the dispute to
arbitration (which is indeed what happened in this case).
Given that the dissenting Opinion does perceive the real difficulty posed by
Article 8(2)(b) of the Treaty, the conclusion is made that “the issue is for a court,
not an arbitrator,” to decide, which in our view is also incorrect. Therefore, the
dissenting Opinion, despite having substantially improved its reasoning in
comparison with that of the majority, and having reached a better understanding
of the legal issues at stake in the dispute, can be said to have travelled only “half the
road.” Indeed, the right thing would have been to interpret that the power to
resort to arbitration derived from the will of the parties, that is, the investor and
the state in whose territory the investment was made, as stated in Article 8(2)(b) of
the Treaty. Although Argentina, as noted above, has argued that the arbitral tribunal

32
BG Group plc. v. Republic of Argentina , supra n. 4, Roberts, C.J., dissenting, at 5.
234 JOURNAL OF INTERNATIONAL ARBITRATION

lacked jurisdiction, the fact remains that said state was in agreement to resort to
arbitration in 2003, and even took part in the appointment of arbitrator procedure
and the selection of the place of arbitration (Washington, D.C.), which would
indicate that Argentina did accept, albeit tacitly, that the investor relied on the
powers foreseen in Article 8(2)(b) of the Treaty.

4 GROUNDS DECOUPLED FROM INTERNATIONAL AND

TRANSNATIONAL RULES:AN AUTHORIZED CONTRADITIO IN
TERMINIS?
As discussed throughout this article, the grounds upon which the ruling under
analysis is based (both those stated in the Opinion of the Court and, to a certain
extent, those put forward by the dissenting Opinion) are flawed. Indeed, the
assertion that an alleged arbitration agreement should be treated on the same
footing as an international treaty is nothing but a contradiction in itself. This
contradiction seems to be a result of the U.S. Supreme Court’s desire to bring the
case within the framework established by the First Options and Howsam line of
cases.

4.1 COMPLEMENTARITY OF PUBLIC INTERNATIONAL LAW AND TRANSNATIONAL

ARBITRATION LAW

No one could ignore the fact that the interplay between the international legal
order and the transnational legal order has in recent times been gaining increasing
visibility and acceptance. This is particularly true for the type of disputes such as
the one in the case under analysis. Indeed, the dispute decided by the U.S.
Supreme Court originated as a result of a motion to set aside the award submitted
by the losing party and a petition to confirm it filed by the winning party. The
award concerned was a final award handed down by an ad hoc tribunal under the
UNCITRAL Arbitration Rules in the framework of a dispute that arose from
investment made under a BIT.Therefore, the interplay of multiple legal systems in
the context of this series of decisions and appeals becomes all the more clear.
Indeed, the interplay of the three legal systems is more than evident. More
than evident should also be the harmonized application of those principles arising
from said legal systems which constitute a common ground where rules of general
international law, rules of the law of treaties (the 1969 Vienna Convention), rules
of transnational arbitration and, to some extent, procedural rules of municipal law
(where the award was made and appeals were lodged) converge. Nevertheless, in
this case the rules of domestic law have prevailed over international and
transnational rules, which in fact, would have been the most appropriate rules to
 BG GROUP PLC V. REPUBLIC OF ARGENTINA 235

resolve the question in a correct manner. These rules, in addition to having been
conceived to elucidate cases such as the one at hand, also involve an extrapolation
of general principles of law stemming from a large number of national legal
systems, including those of the contracting parties. Thus, the disregard for their
application to the instant case also undermined the reasoning of the Court, which
despite arriving at the right decision, opened the door for other lower courts to
replicate the dynamics underlying its reasoning to apply it in similar cases, at the
risk that they might reach the wrong decision.

4.2 EXPECTATIONS OF THE PARTIES: WHAT IS THEIR ROLE IN THE FRAMEWORK OF

ABIT?

In another line of thought, attention will now be focused on an essential element

of any arbitration agreement, be it domestic or international, that is, the expectations
of the parties. As a first step, it should be ascertained whether that element, which
plays a crucial role in the context of an arbitration proceeding between natural or
legal persons, is also important to help construe Article 8(2)(a)(i) of the Treaty
between the United Kingdom and Argentina in a correct manner.
According to the reasoning of the dissenting Opinion, to which we fully
adhere with regard to this particular issue, it would appear that such expectations
could not have a very important role to play, as an arbitration agreement has not
yet been perfected. Therefore, the phrase “expectations of the parties” in this
particular case should be replaced with the expression “expectations of the
contracting parties,” namely, the United Kingdom and Argentina. Following this
line of reasoning, the precedents cited in the Opinion of the Court33 may have
been relevant, had the dispute dealt with an issue concerning Article 8(2)(b),
whereby it was indeed provided that the parties to an arbitration agreement (i.e., a
contracting party and an investor of the other contracting party) have agreed to
resort to arbitration. However, as even the U.S. Solicitor General pointed out in
the Brief for United States as Amicus Curiae (p. 25) submitted to the Supreme
Court, “the local litigation provision may be ‘a condition on the State’s consent to
enter into an arbitration agreement.’”34
Nevertheless, the holding of the majority rejecting the Opinion of the
Solicitor General, on the grounds that “[a]s a general matter, a treaty is a contract,
though between nations [so that] its interpretation normally is like a contract’s
interpretation, a matter of determining the parties’ intent” (emphasis added),35

33
See BG Group plc. v. Republic of Argentina, supra n. 4, Opinion of the Court, at 10; Air France v. Saks, 470
U.S. 392, 399 (1985); Wright v. Henkel, 190 U.S. 40, 57 (1903).
34
Ibid.
35
Ibid.
236 JOURNAL OF INTERNATIONAL ARBITRATION

would not be of great help to interpret Article 8(2)(i), around which the dispute
under analysis revolves, given that, in the context of the above article the term
“parties” means the contracting parties (the United Kingdom and Argentina). The
reason behind this is that Article 8(2)(i) simply provides for a unilateral standing offer
in favor of “determinable” parties (i.e., the investors of the two sovereign states).
This offer could only result in the completion of an arbitration agreement, once
accepted by a determinable investor who has complied with the requirements or
conditions set out therein. Therefore, the expectations of the parties in this context
cannot serve as a basis for interpreting an article contained in a BIT, and most
especially when the ultimate goal of clarifying the intent and/or expectations of
the parties involved the interpretation of an agreement (in this case, an arbitration
agreement) that has never become enforceable.

5 CONCLUSION
The decision rendered by the U.S. Supreme Court on March 5, 2014 in Re BG
Group plc v. Republic of Argentina was correct: the arbitration between BG Group
and Argentina was declared valid, thereby confirming that Argentina is under the
obligation to pay USD 185.3 million in favor of BG Group. Nevertheless, as
shown throughout this article, the rationale relied upon by the Supreme Court in
support of its decision is completely erroneous. Indeed, that decision, in addition
to having confused a contract with an international treaty, on the one hand, and
domestic law with international law, on the other, was also based upon grounds
that are fully decoupled from the principles and rules governing current
international and transnational law, so that the fact that the decision is ultimately
“correct” was nothing but a mere coincidence.
So, do all roads lead to Rome? In the case of BG Group plc v. Republic of
Argentina, the path taken by the U.S. Supreme Court led to the expected result, but
in a confusing and wrong manner, except for, in part, the dissenting Opinion
delivered by Justice Roberts.Thus, it should be underscored that several roads may
lead to Rome, although some of them are correct from a strictly legal point of
view and others are not. A court must make its best efforts to arrive at the correct
solution basing its reasoning upon the right grounds from a strictly legal
viewpoint, especially when the court concerned is the Supreme Court of a
country.
General Editor Dr. Michael J. Moser Author Guide

Notes and Current Developments Editor Dominique Hascher [A] Aim of the Journal

Assistant Editor Friven Yeoh Since its 1984 launch, the Journal of International Arbitration has established itself as
a thought provoking, ground breaking journal aimed at the specific requirements of
those involved in international arbitration. Each issue contains in depth investiga-
Advisory Board Dominique Brown-Berset tions of the most important current issues in international arbitration, focusing on
Professor Dr. Bernard Hanotiau business, investment, and economic disputes between private corporations, State
Michael Hwang S.C. controlled entities, and States. The new Notes and Current Developments sections
Professor Dr. Gabrielle Kaufmann-Kohler contain concise and critical commentary on new developments. The journal’s
Dr. Wolfgang Kühn worldwide coverage and bimonthly circulation give it even more immediacy as a
Toby Landau Q.C. forum for original thinking, penetrating analysis and lively discussion of interna-
Ramon Mullerat tional arbitration issues from around the globe.
Dr. Horacio A. Grigera Naón
Lucy Reed [B] Contact Details
Samir A. Saleh
Audley Sheppard Manuscripts as well as questions should be submitted to the Editor at
Abby Cohen Smutny EditorJOIA@kluwerlaw.com.
Dorothy Udeme Ufot
V.V. Veeder Q.C.
[C] Submission Guidelines

[1] Final versions of manuscripts should be sent electronically via email, in

All correspondence should be addressed to:
Dr. Michael J. Moser
Journal of International Arbitration
c/o Hong Kong International Arbitration Centre
38th Floor, Two Exchange Square, 8 Connaught Place, Hong Kong S.A.R., China
Tel: +852 3512 2398, Fax: +852 2877 0884, Email: editorjoia@kluwerlaw.com
For subscription queries please see copyright page overleaf.
© Kluwer Law International
All rights reserved
Word format; they must not have been published or submitted for publica-
tion elsewhere.
[2] The front page should include the author’s name and email address, as well
as an article title.
[3] The article should contain an abstract of about 200 words.
[4] Heading levels should be clearly indicated.
[5] The first footnote should include a brief biographical note with the author’s
current affiliation.
[6] Special attention should be paid to quotations, footnotes, and references.
All citations and quotations must be verified before submission of the man-
script. The accuracy of the contribution is the responsibility of the author.
The journal has adopted the Association of Legal Writing Directors
(ALWD) legal citation style to ensure uniformity. Citations should not
appear in the text but in the footnotes. Footnotes should be numbered
consecutively, using the footnote function in Word so that if any footnotes
are added or deleted the others are automatically renumbered.
[7] For guidance on style, see the House Style Guide available on this website:
http://www.kluwerlaw.com/ContactUs/
[D] Review Process

ISSN 0255-8106 Mode of citation: 32 J.Int.Arb. 2 [1] After review by the Editor, manuscripts may be returned to authors with
suggestions related to substance and/or style.
[2] The author will also receive PDF proofs of the article, and any corrections
should be returned within the scheduled dates.

[E] Publication Process

[1] For accepted articles, authors will be expected to execute a Consent to

Publish form.
[2] Each author of an accepted article will receive a free hard copy of the
journal issue in which the article is published, plus an electronic version of
the article.