by Andrew Flake
For all of its many advantages, arbitration, we might say, is not for everyone — and in particular, not for those who have not agreed by contract to be there. This is the fundamental principle that arbitration is a creature of contract, that arbitration rights arise by agreement.
In the international context, we find it codified in the New York Convention’s requirement that, to compel arbitration, there must be an agreement in writing providing for arbitration — usually, as one would expect, signed by the parties in arbitration.
But there are exceptions. In very limited instances, courts can determine that a non-signatory can either invoke rights under an arbitration clause, on its own initiative, or force a party who has not itself signed to arbitrate. In a dispute decided this week under the Rules of Arbitration of the International Chamber of Commerce (ICC), the Eleventh Circuit applied one of these exceptions: for third-party beneficiaries (TPBs).
The dispute concerned a catastrophic turbine failure at the Hadjret En Nouss Power Plant in Algeria. To begin with, a review of the key players will be helpful to understand the Eleventh Circuit’s application of the TPB exception:
- Shariket Kahraba Hadjret En Nouss (“SKH”) – The power plant owner, jointly owned by the Algerian government (49%) and Algerian Utilities International Ltd. (51%)
- SNC-Lavalin Contructeurs International Inc. (“SNC”) – Plant operator with a 51% stake in SKH
- Various General Electric entities – Including GE International, GE Company, GE Power Services Engineering, and GE Power (for simplicity “GE”)
- Various insurers and reinsurers – Acting as subrogees of SKH after paying insurance claims out to SKH. Th
SNC, the plant operator, had the services contract and arbitration agreement with GE, not SKH, even though SKH owned the plant and was the party damaged by the turbine failure.
After the turbine failure, the insurers sued the GE entities in Georgia state court. GE removed the case to federal court and moved to compel arbitration under the New York Convention based on an ICCC arbitration clause in the Services Contract between SNC and GE International.
The core legal question was whether SKH (and by extension, its insurers as subrogees) could be bound by an arbitration clause in a contract to which they weren’t signatories. The Eleventh Circuit affirmed the district court’s ruling that:
- SKH was an intended third-party beneficiary of the Services Contract
- As a third-party beneficiary, SKH was bound by the arbitration clause
- The arbitrator should determine which claims are subject to arbitration under ICC rules
The court’s analysis of whether SKH was a TPB hinged on specific language in the Services Contract that gave SKH direct rights to control aspects of the work and act unilaterally in emergencies, demonstrating the parties’ intent to benefit SKH. And as the Eleventh Circuit explained the exception, a “third-party beneficiary of a contract containing an arbitration clause can be subject to that clause and compelled to arbitrate on the demand of a signatory.”
While there is nothing ground-breaking about applying the TPB exception itself, there are two points to draw out that I think will be helpful to the reader. The first is simply that for choice of law, depending on the case TPB status can be determined under either federal common law or applicable state law. In Various Insurers, the Eleventh Circuit did not itself make that election; it applied federal common law, which draws on the Restatement (2nd) approach, because both parties briefed the issue that way.
But TPB status could well have been determined under state law, and readers will recall that in 2020’s GE Energy Power Conversion France SAS v. Outokumpu Stainless USA, LLC, the Supreme Court clarified that traditional state-law contract principles regarding who can enforce an arbitration agreement apply even in the international context in cases governed by the New York Convention.
The second point to draw out is that more is required to join a non-party under the TPB exception, at least where, like SKH and its insurers, they did not want to be in arbitration. This difference — between a non-signatory who wants to be in arbitration, and one who does not, is important. It implicates consent. If GE had, for example, initially sued SKH in court on claims grounded in the SNC Services Agreement, as a third-party beneficiary, SKH could have itself moved to compel arbitration.
Here, the reverse was true, meaning that SKH brought the suit in state court, and even though it was not a signatory, it was compelled to arbitrate. This result was not simply a function of the fact that SKH was a “third-party beneficiary of a contract containing an arbitration clause;” it is that SKH (or its insurers) initiated an action based on the provisions of the same contract.
If we review the First Circuit case cited by the Eleventh Circuit, and the cases cited in that one in turn, and so on, we find the common denominator where these non-signatories are compelled to arbitrate is that they filed the initial action. Conceptually, for courts that have considered these exceptions, for non-signatories over time, including the doctrine of equitable estoppel, that affirmative action by the non-signatory — taking advantage of the contract with the arbitration clause — supplies an extra ingredient of fairness to the result of requiring arbitration.
As a concluding note on this case, while it was only a matter of time, it is the first Eleventh Circuit opinion I found that confirms incorporating the ICC Rules into their agreement represents a “clear decision by the parties to delegate the issue of arbitrability to the arbitrator.” It applies Terminix Int’l Co., LP v. Palmer Ranch Ltd. P’ship, 432 F.3d 1327 (11th Cir. 2005) to reach the same result the Court did under AAA’s Commercial Rules.
Previously, the only other case so holding, at least that I located, was a 2013 district court decision in the circuit. So Various Insurers is a good cite to hold onto for international practitioners. ABF
[The opinion is Various Insurers v. GE Int’l, Inc., No. 23-11211, ___ F. 4th ___, 2025 U.S. App. LEXIS 6285 (11th Cir. Mar. 18, 2025) ]