Republic of Argentina v. AWG Group Ltd
894 F.3d 327
D.C. Cir.2018Background
- Argentina awarded a long-term water-service concession to a consortium (AASA) that included four foreign firms (AWG, Suez, Vivendi, Sociedad General de Aguas de Barcelona). Argentina also entered bilateral investment treaties promising fair and equitable treatment and arbitration rights.
- During Argentina’s economic crisis, emergency measures (peso devaluation and tariff freezes) reduced AASA’s revenues; AASA sought relief which Argentina refused and later terminated the contract for alleged contamination.
- Non-Argentine members of AASA initiated ICSID arbitration; a three‑member panel ultimately found Argentina breached the fair-treatment obligations and awarded damages (including lost future profits) to the claimants, including AWG.
- Argentina moved in federal court to vacate the award under the Federal Arbitration Act, asserting (1) “evident partiality” by arbitrator Gabrielle Kaufmann‑Kohler due to her service on UBS’s board while UBS held investments in two consortium members, and (2) that the panel exceeded its powers by rejecting Argentina’s necessity defense and awarding hypothetical future profits after lawful termination.
- The district court enforced the award; the D.C. Circuit affirmed, holding UBS’s passive investments were too trivial to trigger disclosure and that the panel did not exceed its authority warranting vacatur.
Issues
| Issue | Argentina's Argument | AWG's Argument | Held |
|---|---|---|---|
| Evident partiality under 9 U.S.C. § 10(a)(2) | Kaufmann‑Kohler should have disclosed board membership at UBS because UBS held >$2B in Suez and Vivendi, creating an appearance of bias | UBS’s investments were passive, trivial relative to UBS’s $3.6T assets; Kaufmann‑Kohler did not know and any interest was insignificant | Vacatur denied: under Commonwealth Coatings (White concurrence test) UBS’s passive holdings were trivial; no duty to disclose; no evident partiality |
| Arbitrator exceeded powers by rejecting Argentina’s necessity defense (§ 10(a)(4)) | Panel cursorily dismissed necessity and may have applied its own policy preferences rather than the agreed legal test | Arbitration panels need not provide detailed legal exposition; absence of extended explanation does not show departure from the agreement | Vacatur denied: no reason to think panel ignored the governing law or exceeded its powers; unexplained conclusions alone insufficient |
| Awarding future hypothetical profits after lawful termination | Damages improperly included profits through 2023 despite Argentina’s 2006 termination; panel disregarded risk of lawful termination | Panel reasonably assumed that but‑for the breach Argentina would have preserved the contract and granted relief; such awards fall within panel’s interpretive authority | Vacatur denied: compensation methodology falls within arbitrators’ permissible interpretation; courts won’t reweigh merits |
| Vacatur under New York Convention | Same grounds as under the FAA; should be vacated as violating public policy of fair adjudication | FAA provides at least as broad protection as Convention; FAA analysis controls | Vacatur denied under Convention for same reasons as FAA |
Key Cases Cited
- Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145 (1968) (failure to disclose substantial business relationship can constitute "evident partiality")
- Al‑Harbi v. Citibank, N.A., 85 F.3d 680 (D.C. Cir. 1996) (applies Commonwealth Coatings; challenger must show specific facts indicating improper motives; trivial relationships do not require vacatur)
- Hall St. Assocs. v. Mattel, Inc., 552 U.S. 576 (2008) (section 10 addresses egregious departures from parties’ arbitration agreement; review is limited)
- Stolt‑Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010) (courts defer to arbitrators’ reasonable contract-based interpretations; narrow grounds for vacatur)
- Oxford Health Plans LLC v. Sutter, 569 U.S. 564 (2013) (arbitral awards may be vacated only in very unusual circumstances; courts may uphold awards despite minimal reasoning)
- Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612 (2018) (Congressional policy strongly favors enforcing arbitration agreements)