Argentina Wins Appeal in BG Group Metrogas Bankruptcy Case

Argentina won a U.S. appeals court decision throwing out a $185 million dollar award to BG Group Plc (BG/), which claimed the country’s freeze on natural gas prices caused the bankruptcy of a local gas distributor it controlled.

The U.S. Court of Appeals in Washington, overturning a lower court, ruled today that the arbitration panel that made the award exceeded its authority in even taking the dispute. BG Group should have sued first in Argentine courts and then waited 18 months for a result as required by a commercial treaty governing the case, the court said.

“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 three-judge panel said in an opinion written by Judge Judith Rogers.

Mark Todd, a spokesman for London-based BG Group, said the company is reviewing the decision.

BG Group, the U.K.’s third-largest oil and gas producer, initiated arbitration in the U.S. in 2003 over the gas-price freeze, which Argentina imposed following a sovereign debt default in December 2001.

It won the damage award in 2007 when the arbitration panel ruled Argentina had breached the treaty by enacting a law that hurt BG Group’s investment in Argentina’s Metrogas SA. (METR)

Investment Treaty

Under the Bilateral Investment Treaty between the U.K. and Argentina, which went into effect in 1993, disputes between contracting parties should be settled in the country where the investment was made, the judges said. Unsettled disputes may be submitted to international arbitration after 18 months from the time the issue was presented to the competent tribunal.

BG Group argued that customary international law didn’t require exhaustion of local remedies, according to the opinion.

Argentina sued BG in the U.S. seeking to vacate the arbitration award.

U.S. District Judge Reggie Walton had upheld the damages award Jan. 21, 2011.

The case is Republic of Argentina v. BG Group Plc, 08- cv-00485, U.S. District Court, District of Columbia (Washington).

To contact the reporter on this story: Sara Forden in Washington at sforden@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

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