In a unanimous decision, the U.S. Supreme Court recently ruled that a non-signatory to an agreement requiring arbitration for disputes might be able to compel arbitration under state law equitable estoppel arguments. The decision held that the New York Convention (“Convention”) does not conflict with the enforcement of arbitration provisions in agreements by non-signatories under domestic-law equitable estoppel doctrines. See GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC, No. 18-1048, 2020 WL 2814297 (U.S. June 1, 2020). This decision aligns the U.S. with the majority of countries that have adjudicated the issue, which often arises in international construction disputes.
The case arose out of contracts for the construction of cold rolling mills at a steel manufacturing plant in Alabama. GE Energy, the subcontractor supplying the motors for the cold rolling mills, had moved to compel arbitration, relying on the arbitration provisions in the contracts between the contractor and the owner. The District Court originally compelled arbitration before the Eleventh Circuit Court of Appeals reversed. The Eleventh Circuit held that GE Energy could not rely on state-law equitable estoppel doctrines to enforce the arbitration agreement as a non-signatory, because, equitable estoppel conflicts with the signature requirement in Article II(2) of the Convention.
The Supreme Court reversed, holding that Article II(2) of the Convention, on which the Eleventh Circuit had based its decision, addressed only the recognition of arbitration agreements, and hence was not relevant to the issue. The Supreme Court concluded that Article II(3) of the Convention, which addresses recognition of an arbitration agreement, does not prohibit the application of domestic law. The Supreme Court also noted that in accordance with Chapter 2 of the Federal Arbitration Act (the “FAA”), the implementing legislation for the Convention, Chapter 1 of the FAA applies to actions and proceedings brought under the Convention. Chapter 1, Section 2, of the FAA allows state-law doctrines for enforcement of arbitration agreements, to the extent that they are not in conflict with the Convention. The Supreme Court found that these state-law doctrines include doctrines like equitable estoppel that authorize the enforcement of a contract by a non-signatory. Applying tools of treaty interpretation, the Court found that equitable estoppel doctrines do not conflict with the Convention.
The Court remanded for determination on whether GE Energy could enforce the arbitration clauses under principles of equitable estoppel, or which body of law governs that determination.
This decision provides important guidance for parties in international construction contracts.