## Facts

- BG Group PLC, a U.K. investor, held interests in Argentine gas-distribution businesses, including MetroGAS, under a U.K.–Argentina bilateral investment treaty (BIT).
- The BIT required a multi-step dispute process: investor–state disputes were to be brought in the host state’s courts, and arbitration could follow only if no final court ruling issued within 18 months or the dispute remained unresolved after a ruling.
- After Argentina’s economic crisis, it adopted emergency measures (including currency conversion measures and tariff freezes) that substantially reduced the revenues of gas-distribution firms.
- In 2003, BG Group initiated UNCITRAL arbitration seated in Washington, D.C., without first litigating in Argentine courts for 18 months.
- Argentina objected that the tribunal lacked authority because BG Group had not satisfied the BIT’s 18-month local-litigation requirement.
- The tribunal found it had jurisdiction, concluded Argentina had denied BG Group fair and equitable treatment, and awarded damages.
- Argentina sought vacatur or modification in federal district court; BG Group sought confirmation. The district court confirmed the award, and Argentina appealed.

## Issues

1. Whether the BIT’s 18-month local-litigation requirement was a condition precedent to Argentina’s consent to arbitrate and thus a “gateway” question of arbitrability for courts to decide.
2. Whether the arbitral tribunal exceeded its authority by proceeding to arbitration and issuing an award despite noncompliance with that requirement.

## Decision

- The D.C. Circuit reversed the district court’s confirmation order and vacated the arbitral award.
- The court held the 18-month local-litigation requirement was a condition precedent to arbitration and a threshold arbitrability issue presumptively for judicial determination.
- Because the treaty did not clearly and unmistakably delegate this gateway question to arbitrators, the tribunal lacked authority to excuse noncompliance and proceed.
- The court concluded the tribunal exceeded its authority by disregarding the treaty’s sequencing and relying on extra-treaty doctrines to bypass the local-litigation step.

## Legal Principles

- Courts presumptively decide “gateway” questions of arbitrability—conditions that must be satisfied before arbitration may proceed—unless the parties clearly and unmistakably delegate those questions to arbitrators.
- In investor–state arbitration based on a treaty, the state’s consent to arbitrate is defined by the treaty’s terms; failure to satisfy an express precondition to arbitration defeats consent as framed by the agreement.
- Even under highly deferential review of arbitral awards, a court may vacate an award where the tribunal acts beyond the authority conferred by the parties’ agreement.

## Conclusion

The D.C. Circuit treated the BIT’s 18-month local-litigation requirement as a court-decided condition precedent to Argentina’s consent to arbitrate and vacated the award because BG Group initiated arbitration without satisfying that treaty precondition and the tribunal was not empowered to excuse it.


Republic of Argentina v. BG Grp. PLC, 665 F.3d 1363 (D.C. Cir. 2012)