The US Supreme Court ruled on June 1, 2020(Monday) that the New York convention does not conflict with state law doctrines of equitable estoppel which allow non-signatories to an arbitration agreement to compel arbitration.

The case involved an American company (ThyssenKrupp Stainless USA) and a French company (F.L. Industries Inc.), which entered into three contacts, all of which imposed arbitration as the mechanism for dispute resolution between the parties. As Per these contracts, F.L. had to build cold rolling mills for ThyssenKrupp’s steel manufacturing plant.

F.L. then signed a subcontractor contract with another French company (GE Energy), whereby GE Energy was to supply F.L. with  motors for the cold mills. When GE Energy’s motors failed in 2015, Outokumpu Stainless USA, which had bought Thyssenkrupp’s plant, sued GE Energy.

Although it was not one of the parties who signed the three contracts requiring that disputes be resolved through arbitration, GE Energy tried to compel arbitration. The Supreme Court ruled that GE Energy was allowed to do so even though it was not a signatory to the contracts imposing arbitration.

The court explained that the New York Convention, a treaty that requires countries who have signed it to recognize and enforce arbitral awards issued in other such countries, is silent on  whether non-signatories can compel arbitration.

“ (1) The text of the New York Convention does not address whether non-signatories may enforce arbitration agreements under domestic doctrines such as equitable estoppel. The Convention is simply silent on the issue of non-signatory enforcement. This silence is dispositive because nothing in the Convention’s text could be read to conflict with the application of domestic equitable estoppel doctrines. Article II(3)—the only provision in the Convention addressing the enforcement of arbitration agreements—contains no exclusionary language; it does not state that arbitration agreements shall be enforced only in the identified circumstances. Given that the Convention was drafted against the backdrop of domestic law, it would be unnatural to read Article II(3) to displace domestic doctrines in the absence of such language. This interpretation is especially appropriate because Article II contemplates using domestic doctrines to fill gaps in the Convention.………………”(emphasis supplied)

“Cherry-picked generalizations from the negotiating and drafting history cannot be used to create a rule that finds no support in the treaty’s text. Here, to the extent that the Convention’s drafting history sheds any light on the treaty’s meaning, it shows only that the rafters sought to impose baseline requirements on contracting states so that signatories would “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.” Scherk v. Alberto-Culver Co., 417 U. S. 506, 520, n. 15. ” (emphasis supplied)

The court then proceeded to hold that when the convention is silent on the issue then the domestic laws can be used to fill in the gaps left by the convention; and, since the domestic doctrine of equitable estoppel allows non-signatories to compel arbitration in cases like this one, GE Energy can force Outokumpu to resolve their dispute in arbitration.

This principle is in stark contrast to the provisions under the Indian law of Arbitration which doesnot  leave any scope for accommodation for non-signatories to the arbitration agreement. Further there are no precedents of any such expansion and acceptance of the principle of “equitable estoppel” in interpreting the terms of arbitration agreement by the Indian Supreme Court. 

See the order