The Republic of Iraq moved to compel arbitration of its lawsuit against BNP Paribas pursuant to an arbitration clause in a contract between the United Nations and BNP. The suit sought to recover damages stemming from BNP’s involvement in the alleged corruption of the United Nations Oil-for-Food program. BNP cross-moved to enjoin arbitration.
The court noted that a non-party to an arbitration agreement, such as the Republic, can compel arbitration only where state contract law renders the agreement enforceable at the non-party’s behest. The Republic argued that it was entitled to invoke the relevant arbitration agreement on the grounds that it was a third-party beneficiary to the contract between the United Nations and BNP.
The court held that it need not determine whether the Republic was a third-party beneficiary under New York law, which the parties agreed governed the dispute, because the arbitration agreement itself did not authorize the Republic to arbitrate claims against BNP. Rather, the agreement specified that only the parties to the contract had the right to arbitrate. The court found that the arbitration clause did not contain express language requiring any signatory to arbitrate claims against non-signatories, thus precluding Republic from doing so, even if it had third-party beneficiary status. See, e.g., Miness v. Ahuja, 713 F.Supp.2d 161, 164 (E.D.N.Y. 2010) (concluding that even if the defendants were third-party beneficiaries of a contract, they could not enforce an arbitration clause applying only to disputes arising between the contracting parties); H.I.G. Capital Mgmt., Inc. v. Ligator, 233 A.D.2d 270, 271 (1st Dep’t 1996) (“if a signatory to an agreement is to be required to arbitrate with a nonsignatory party, the agreement must so provide in express language”).
Click here to review the court’s decision, captioned The Republic of Iraq v. ABB AG, et al., No. 08-cv-5951 (S.D.N.Y. Mar. 3, 2011).
