Global Case Reporter: GE Energy v. Outokumpu Stainless

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Correspondent: Jason Ruiz

PIE DE IMPRENTA: Juan Pablo Hernández (editor-in-chief), Guatemala, 18 July 2020.

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Global Case Reporter
GE Energy Power Conversion France SAS v. Outokumpu Stainless USA LLC

Court:  Supreme Court of the United States
Date: 1 June 2020
Identification: No. 18-1048

Available online here.

GCR ID: 20041

Factual Background

ThyssenKrupp Stainless USA, LLC, concluded three contracts with FL Industries, Inc, in virtue of which cold rolling mills would be constructed at ThyssenKrupp’s Alabama plant. FL Industries then concluded a subcontractor agreement with GE Energy Power Conversion France SAS for the motors necessary to power the mills. After the motors allegedly failed, Outokumpu Stainless USA, LLC, which acquired ThyssenKrupp’s plant, sued GE Energy before State courts. GE Energy invoked the arbitration agreement contained in the contracts concluded between ThyssenKrupp and FL Industries (which applied to any contract dispute between seller and buyer and defined “seller” as the Seller and any sub-contractors). The parties were then referred to arbitration. The court’s decision was reversed by the Eleventh Circuit, finding that only signatories could enforce arbitration agreements under the New York Convention. The issue was brought before the Supreme Court of the USA.

Arguments of the Parties

Outokumpu argued that the New York Convention’s drafting history establishes a “rule of consent” that “displace[s] varying local laws.” As a result, State doctrines of equitable estoppel could not be invoked to justify the enforcement of an arbitration agreement by a non-signatory.

GE Energy argued that the State law doctrine of equitable estoppel was applicable to enforce an arbitration agreement as a non-signatory.

Applicable Laws or Treaties

Convention on the Recognition and Enforcement of Arbitral Awards (New York, 1958)

The Federal Arbitration Act, US Code Title 9

Issue(s)

• Does the New York Convention prohibit the use of domestic law provisions when dealing with the enforcement of arbitration agreements?
• Does the New York Convention allow the enforcement of arbitration agreements by non-signatories?

Summary of the findings

Holding: Non-signatories are able to enforce arbitration agreements under the New York Convention, and the Convention does not prevent the application of domestic equitable estoppel doctrines.

Reasoning: The court resorted to treaty interpretation steps to clarify the NY Convention, based on the text of the convention, the drafting history and subsequent State practice.

• The Text of the Convention

The only article that deals with arbitration agreements is Article II of the Convention and it contains no special regulation on the applicability of domestic laws or the applicability of equitable estoppel to enforce arbitration agreement by non-signatories. As a result, the Court considered that the New York Convention is silent on the issue. This issue should then be treated as not covered by the Convention. The Court considered that, in this case, silence was dispositive, because the text of the Convention in no way implies a prohibition for relying on domestic law. On the contrary, when dealing with the enforcement and recognition of awards Article VII(1) of the NY Convention allows for the application of other more favorable regimes. 

In the case of Article II of the New York Convention, Article II(1) refers to disputes “capable of settlement by arbitration,” but it does not identify what disputes are arbitrable, leaving that matter to domestic law. In Article II(3) states that it does not apply to agreements that are “null and void, inoperative or incapable of being performed,” but it fails to define those terms. So the court concludes that the New York Convention requires courts to use domestic law to fill gaps.

• Drafting History

Outokumpu argued that the Convention’s drafting history establishes a “rule of consent” that “displace[s] varying local laws.” The Court disagreed, since the drafting history shows only that the drafters sought to impose “baseline requirements” on Contracting States.

According to the Court, “the delegates to the Convention voiced the frequent concern that courts of signatory countries (…) should not be permitted to decline enforcement of such agreements on the basis of parochial views of their desirability or in a  manner that would diminish the mutually binding nature of the agreements.”[1] However, the Court concluded that nothing in the drafting history suggests that the Convention sought to prevent Contracting States from applying domestic law that permits non-signatories to enforce arbitration agreements in additional circumstances.

• Subsequent State Practice

The Court relied on a Gary Born compilation of cases of various jurisdictions supporting the enforcement of arbitration agreements by non-signatories. Also, it discussed the Peruvian arbitration law (which expressly regulates the issue) and reviewed certain UN recommendations on the issue. However, the Court made certain reservations on the legal weight that could be given to UN recommendations for the purposes of treaty interpretation. Lastly, the Court pointed out that their interpretation aligns with the interpretation made by the executive of the US and that there was no reason to analyze the legal weight that should be given to the interpretations made by the executive or other US political branches.

The Court concluded that the State practice of other Contracting members supports the enforcement of arbitration agreements by non-signatories.

Justice Sotomayor Concurring Opinion:[2] “The foundational FAA principle [is] that arbitration is a matter of consent”. Therefore, the limit to enforcement by non-signatory doctrines should be found in whether the parties consented to arbitration or are being coerced to arbitrate. She argued that in the case at hand the Court’s opinion was consistent with that limitation, and thus she fully supported the Court’s conclusion.

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[1] Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974), Para. 570

[2] GE Energy v. Outokumpu , 590 US _ (2020), P.9