The Supreme Court issued its decision earlier today in BG Group plc v. Republic of Argentina, No. 12-138 (click here for a copy of the decision; click here to see my prior blog post regarding the Supreme Court’s grant of cert in this case). The bilateral investment treaty at issue provided for arbitration of a dispute between an investor and a state if 18 months had elapsed since the dispute had been submitted to a local court and the court had not given its final decision (the “local litigation requirement”). In a 7-2 decision, the Court held that arbitrators, not courts, should primarily decide whether this local litigation requirement has been satisfied.
The Court’s decision contains a discussion of substantive vs. procedural arbitrability. As explained by the Court, there is a narrow category of disputes that are presumptively for a court to decide, such as whether the parties are bound by an arbitration agreement, or whether an arbitration agreement applies to a particular controversy. However, there is a presumption that arbitrators, not courts, should decide disputes about the meaning and application of particular procedural preconditions for arbitration. The majority of Justices found that the local litigation requirement at issue operated as a procedural condition precedent to arbitration, and as a procedural requirement, it was for the arbitrator to decide. The majority also explained that the local litigation requirement was analogous to mandatory pre-arbitration grievance procedures, which are requirements that arbitrators, not courts, should interpret and apply.
Chief Justice Roberts and Justice Kennedy filed a dissenting opinion, finding that the local litigation requirement is a condition to the formation of an arbitration agreement between an investor and a state under the treaty provisions, not simply a matter of performing an already-existing arbitration agreement. Because the dissenters viewed the local litigation requirement as involving a question of contract formation, the dissenters believed a court should decide whether this requirement had been satisfied.
This case does not involve class action arbitration, but I believe the different opinions from the BG Group case can be important for class action arbitration. An open issue in class action arbitration is whether a court or an arbitrator should decide whether an arbitration agreement provides for class arbitration. Some Justices will likely find this issue to be procedural in nature, and hence, for an arbitrator to decide. However, I expect conservative Justices to frame this issue as involving contract formation and whether absent parties agreed to class arbitration, and hence, this issue is for a court to resolve. If the Court ever grants cert regarding this class arbitration issue, the parties will have to look closely at the different opinions from this BG Group case.