Factual Background
Litigation ensued after a catastrophic turbine failure at the Hadjret En Nouss Power Plant (the “Plant”) in Tipaza, Algeria. Various insurers, reinsurers, and retrocessionaires (collectively, the “Insurers”) initiated litigation as subrogees of the plant owner, Shariket Kahraba Hadjret En Nouss (“SKH”). SNC-Lavalin Constructeurs International Inc. (“SNC”) had operated the Plant on behalf of SKH, and had entered a Services Contract and various other contracts with General Electric International, Inc. and other GE entities (collectively, “GE”). All of those contracts contained arbitration provisions.
The Insurers filed their lawsuit in Georgia state business court and GE removed it to federal court. Following removal, GE moved the district court to compel arbitration pursuant to the arbitration provision in the Services Contract based on SKH’s purported status as a third-party beneficiary of that agreement. The district court granted the motion. On appeal, the Eleventh Circuit considered whether the district court had correctly ruled that the insurers’ subrogor, SKH, was a third-party beneficiary of the Services Contract, and whether the district court correctly left the arbitrability of each claim to the arbitrator.
The Decision of the Eleventh Circuit
The Eleventh Circuit explained that, under the New York Convention, a party seeking to enforce an arbitration provision may move to compel arbitration “in accordance with the agreement.” If four prerequisites are met, and none of the Convention’s affirmative defenses apply, then the “district court must order arbitration[.]” The only prerequisite at issue in this case was whether there existed an agreement to arbitrate. Here, the dispute was not whether the Services Contract contained an arbitration provision—it did—but whether that provision bound SKH as a third-party beneficiary (and therefore the Insurers, who were SKH’s subrogees).
The court first made clear that a third-party beneficiary of a contract containing an arbitration clause could be subject to that clause and compelled to arbitrate on the demand of a signatory. It then employed the test for third-party beneficiary status: whether the contract reflects the express or implied intention of the parties to benefit the third party. In this case, the court considered whether the circumstances indicated that the parties to the Services Contract intended to give SKH “the benefit of the promised performance.”
The court determined that they did. The Services Contract provided that SNC was responsible for operating and maintaining the power station pursuant to an operation and maintenance contract entered into with SKH. The Services Contract also stated circumstances granting SKH power to make changes to the “supply of Parts and the execution of services by the Service Provider.” Finally, the Services Contract allowed SKH to act unilaterally in certain circumstances, such as in an event of an emergency. The court thus concluded that, “[b]ecause ‘the circumstances indicate that the promisee [GE] intend[ed] to give [SKH] the benefit of the promised performance’ of the Services Contract,” the district court was correct to grant the motion to compel arbitration.
The court then turned to the question of who should determine which, if any, of the Insurers’ claims were subject to arbitration. Here, the Services Contract incorporated the Conciliation and Arbitration Rules of the International Chamber of Commerce (the “ICC Rules“). Article 6(4) of the ICC Rules provides that the arbitrator shall determine whether and to what extent arbitration shall proceed. The court read this as a delegation of questions of arbitrability to the arbitrator. The court therefore affirmed the district court’s ruling that the arbitrator should decide which, if any, of the Insurers’ claims were subject to arbitration under the Services Contract.
This article was originally published in the North America Newsletter.
