Supreme Court Permits Non-signatory to Enforce International Commercial Arbitration Agreement

The US Supreme Court recently permitted a party that did not sign an arbitration agreement to enforce it in GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC.

With contracts including arbitration clauses, ThyssenKrupp hired F.L. Industries to perform construction on ThyssenKrupp’s Alabama steel plant. F.L. Industries then subcontracted with GE Energy to provide motors for the project. Later, ThyssenKrupp sold the plant to Outokumpu Stainless USA, LLC. Outokumpu alleged breach by GE Energy because the motors failed. Outokumpu and its insurers sued GE Energy in Alabama state court.

GE Energy removed the case to federal court under 9 U.S.C. § 205, which allows removal if a case “relates to an arbitration agreement . . . falling under the Convention” on the Recognition and Enforcement of Foreign Arbitral Awards, aka the New York Convention.

GE Energy then moved to dismiss the case and compel arbitration, relying on the arbitration clauses in ThyssenKrupp’s contracts with F. L. Industries. The district court granted the motion, but the Eleventh Circuit reversed, holding that the New York Convention only requires courts to enforce an arbitration agreement if asked to do so by the parties that actually signed the agreement, but GE Energy (a nonsignatory) was not such a party. The Eleventh Circuit stated: “GE Energy is undeniably not a signatory to the Contracts . . . [p]rivate parties—here Outokumpu and Fives—cannot contract around the Convention’s requirement that the parties actually sign an agreement to arbitrate their disputes in order to compel arbitration. Accordingly, we hold that, to compel arbitration, the Convention requires that the arbitration agreement be signed by the parties before the Court or their privities.” 902 F.3d 1316, 1326 (11th Cir. 2018) (citations omitted).

The US Supreme Court rejected the Eleventh Circuit’s interpretation of the New York Convention, and unanimously held that the Convention does not conflict with domestic equitable estoppel doctrines that sometimes permit the enforcement of arbitration agreements by non-signatories.  The Supreme Court held that these domestic state-law principles apply to an international arbitration agreement under the domestic (Chapter 1) portion of the Federal Arbitration Act because Chapter 1 applies to actions that are governed by the Convention as long as Chapter 1 does not conflict with the Convention. The Court concluded that Chapter 1’s allowance of equitable estoppel did not conflict with the Convention because the Convention is silent on enforcement by a non-signatory. A wide variety of courts have interpreted FAA Chapter 1 to allow enforcement of arbitration agreements through various state-law  principles like “assumption, piercing the corporate veil, alter ego . . .” In Arthur Andersen LLP v. Carlisle, the Supreme Court held Chapter 1 allows “a nonsignatory to rely on state-law equitable estoppel doctrines to enforce an arbitration agreement.” 556 U.S. 624, 631–32 (2009). Equitable estoppel “allows a nonsignatory to a written agreement containing an arbitration clause to compel arbitration where a signatory to the written agreement must rely on the terms of that agreement in asserting its claims against the non-signatory.”

Justice Thomas’s opinion for the Court in GE Energy reasoned that the New York Convention’s silence on these doctrines for non-signatories to enforce arbitration agreements is dispositive because nothing in the Convention can be read to otherwise prohibit the application of these domestic doctrines. The Court went on to find that nothing in the Convention suggests that it prevents contracting states from applying domestic law that permits non-signatories to enforce arbitration agreements in additional circumstances.

The Supreme Court remanded the issue of whether GE Energy could enforce the arbitration clauses under principles of equitable estoppel or which body of law governs that interpretation to the Court of Appeals.

Further commentary on this GE Energy Power case is available in The National Law Review, The American Bar Association, Willamette University College of Law, Jurist, JD Supra, and Lexology.

International Arbitration Program at the World Bank

Three leading international arbitral institutions annually co-sponsor a joint colloquium. Leaders of  the International Centre for Settlement of Investment Disputes (ICSID), the Int'l Chamber of Commerce International Court of Arbitration, and the American Arbitration Association's International Centre for Dispute Resolution will discuss priorities and trends at their respective institutions, in Washington, DC, December 7, 2018.

Other sessions will address practical challenges faced by practitioners—i.e. ethical dilemmas, media scrutiny, compliance with awards—and offer guidance from experts in the field on how to manage these effectively.

Arbitration in Israel

Newsletter of the Israeli Institute of Commercial Arbitration

Arbitration Rules Changed by International Chamber of Commerce

The Revised Rules of the International Chamber of Commerce "will apply from 1 March 2017. They provide that expedited procedure rules will automatically apply to all arbitrations with amounts in dispute below US$2 million and to cases involving higher amounts on an opt-in basis." The ICC explains "Under the Expedited Procedure Rules, the ICC Court will normally appoint a sole arbitrator, irrespective of any contrary term of the arbitration agreement. Awards must be made in six months from the case management conference, with extensions granted only in limited and justified circumstances."

International Arbitration Essay Contest with Cash Prizes

McGill University in Montreal,Canada, will award the Nappert Prize in International Arbitration and $4000 Can. for a paper on commercial or investment arbitration.

California's (Lack of?) International Commercial Arbitration

A new paper by Giorgio Sassine, Stockholm University, is entitled “California Must Become More Favorable to International Commercial Arbitration: An Article on Why it Has Not, How it Can Change so that it is, and Why it Should.” 

It argues California should allow foreign lawyers to represent clients in arbitration in California and its failure to do so leads foreign lawyers to draft arbitration clauses that steer arbitration away from California and to places such as New York, Paris, Geneva, or Singapore.

International Arbitration Culture and Global Governance

Queens University Law Professor Joshua Karton wrote a book entitled The Culture of International Arbitration and The Evolution of Contract Law.    His recent paper International Arbitration Culture and Global Governance includes these interesting points:

"For International Commercial Arbitration to constitute global governance, as opposed to merely disconnected resolutions of individual cross-border disputes according to national laws, there are at least two prerequisites. First, legal rules must be formulated at the global level and apply regardless of the nationality and public or private status of the parties. Second, there must be a functional consistency in arbitral decision-making; a consistent adjudicative approach, such that 'like cases are treated alike,' is a hallmark of the rule of law. In the radically decentralized ICA system, where there is no central administrative body, no appellate hierarchy, and no common sets of procedural or substantive rules, consistency appears to be a tall order. Can there be global governance without a global governor?"

Class Arbitration and Class Waivers in International and Investment Arbitration

University of Missouri Law Professor Stacy Strong does a lot of good writing on international arbitration and has been especially attentive to class actions and other mass adjudication procedures.  Her book, "Class, Mass, and Collective Arbitration in National and International Law", is here.

Her current paper, "Limits of Autonomy in International Investment Arbitration: Are Contractual Waivers of Mass Procedures Enforceable?" is here.  It discusses such mass adjudication procedures in investment arbitration and contractual waivers of such procedures.

Increasing Legalism in International Commercial Arbitration

A new paper by University of Missouri Law Professor Stacy Strong discusses the causes of increasing legalism in international commercial arbitration and the attendant increase in the time and money costs of the process.  Possible causes of increased legalism include increased use of U.S. litigation tactics, changes to the nature of the underlying transactions, and changes in arbitration law  relating to non-signatories, regulatory concerns and choice of law.