After a catastrophic turbine failure at an Algerian power plant, insurers acting as subrogees of the plant’s owner, Shariket Kahraba Hadjret En Nouss (the “Owner”) filed an action in Georgia’s state-wide business court against various General Electric entities that had provided services for the plant under contracts between the GE entities and the plant’s operator, SNC-Lavalin Contructeurs International Inc. (the “Operator”). The GE entities removed the case to federal court and moved to compel arbitration of the subrogees’ claims. The GE entities relied on the arbitration provision in a Services Contract between the Operator and one of the GE entities, arguing that the Owner was a third-party beneficiary of the Operator-GE contract. The district court compelled arbitration and held that the parties delegated questions about the arbitrability of specific claims to the arbitrator by incorporating into their agreement certain International Chamber of Commerce (“ICC”) rules. The Eleventh Circuit affirmed. Various Insurers v. Gen. Elec. Int’l, Inc., 2025 WL 837869 (11th Cir. March 18, 2025).
Judge Jordan’s opinion for the court began by noting that the parties and the district court agreed that federal common law governed the third-party beneficiary question, so the court would proceed under the same assumption without deciding that issue. Because the Services Contract arose out of a commercial relationship involving foreign parties, the arbitration agreement would fall under the New York Convention, implemented in Chapter 2 of the Federal Arbitration Act. The question to be decided was whether an agreement to arbitrate existed—more specifically, whether the arbitration agreement in the Services Contract applied to require arbitration by the plaintiffs as the Owner’s subrogees. And the answer to that question turned on whether the Owner was a third-party beneficiary of the Services Contract.
“The ‘test under federal common law for third-party beneficiary status is whether the contract reflects the express or implied intention of the parties to benefit the third party.’” In applying that test, courts have looked to Section 302 of the Restatement (Second) of Contracts. That section explains that a party is an intended beneficiary when “the performance of a promise will satisfy an obligation of the promisee to pay money to the beneficiary” or “the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.” Several substantive provisions of the Services Contract led the court to conclude that the Operator intended to give the Owner the benefit of GE’s promised performance. The Services Contract explicitly referenced the underlying agreement between the Operator and the Owner, including in a provision referring to “the operation and maintenance of the Power Station by the Operator in favor of the Project Owner.” The Services Contract provided that either the Operator or the Owner could decide on changes to a “Power Train Set,” and that the Owner could have access to certain reports prepared by GE. And the Services Contract authorized the Owner to make unilateral decisions in the event of an emergency. Based on this “collection of direct references and explicit rights,” the court held, the Owner “would be ‘reasonable in relying on the [Services Contract] as manifesting an intention to confer a right on [it],’” and was therefore a third-party beneficiary.
The court also affirmed the district court’s determination that the parties had delegated questions of arbitrability to the arbitrator. Citing its decision in Terminix Int’l Co., LP v. Palmer Ranch Ltd. P’ship, 432 F.3d 1327 (11th Cir. 2005), which held that the parties delegated questions of arbitrability to the arbitrator when they incorporated into their agreement American Arbitration Association rules giving the arbitrator that authority, the court held that the incorporation into the Services Contract of a similar ICC rule had the same effect.