A. Legislation, Trends and Tendencies
International arbitration in Sweden continues to be governed by the Swedish Arbitration Act (SFS 1999:116), to which no legislative amendment was made in 2015. However, a new Arbitration Act is expected to enter into force on 1 July 2016.
A.2 Trends and Tendencies
In February 2014, a parliamentary committee was appointed by the Swedish government to review and modernize the Swedish Arbitration Act. The committee addressed several issues identified as requiring attention, including, among others, the need for specific provisions in the Arbitration Act for multiparty disputes, measures to further enhance efficient court procedures in challenge proceedings, the possibility of conducting set-aside proceedings in English, and potential new provisions for determining the substantive law of the dispute. The committee also picked up on a number of problems identified by the SCC, by active arbitrators and in legal literature, among others. One of the main objectives in the work has been to further adapt the Swedish Arbitration Act to international standards within the field.
On 27 April 2015, the committee released its report proposing new provisions on multiparty disputes and applicable substantive law, as well as the introduction of set-aside proceedings in English. The possibility of using English in set-aside proceedings is recommended to be made available to parties that have conducted arbitral proceedings in English. However, the court would continue to render its decisions in Swedish.
Although the Swedish arbitration community’s reaction to the report has been mainly positive, the possibility of using the English language in set-aside proceedings has sparked debate. The extent to which the committee’s proposals will be incorporated in the new Arbitration Act remains to be seen. The new legislation is expected to enter into force on 1 July 2016.
B.1 The Tribunal’s Mandate
The Svea Court of Appeal annulled an award in its entirety on the grounds that the tribunal had exceeded its mandate.4 The court concluded that a “Joint Summary of Legal Grounds” (“Summary”) filed by the parties provided the framework for the tribunal. Hence, the tribunal’s mandate was limited to the grounds and legal facts stated in it. By examining factual circumstances and legal facts that had not been invoked in the Summary, the tribunal had exceeded its mandate.
In the arbitral award, the tribunal settled a dispute between First National Petroleum Corporation (FNP) and OAO Tyummeneftegas (TNG). The dispute concerned a joint venture agreement governing the exploitation of an oil field. In the arbitral proceedings, FNP alleged that TNG had violated that joint venture agreement and claimed damages for breach of contract. The tribunal concluded that TNG had breached the agreement based on the fact that TNG had misled FNP regarding the oil reserves. However, in the Summary, FNP only invoked the fact that TNG had made misinterpretations about the oil flows.
The position in Swedish doctrine has been that an arbitration award must be annulled partially or in its entirety insofar as the arbitrators have exceeded their mandate. The Svea Court of Appeal introduces the concept that where the tribunal has exceeded its mandate, and it is unclear which part of the award the excess of mandate pertains to, the award is to be annulled in its entirety. Previously, this concept has only been debated in doctrine.
B.2 Arbitration Law, EU Competition Law and Eco-Swiss Doctrine
The Supreme Court rejected the appellant’s challenge to an award and held that the tribunal’s award was not contrary to mandatory EU competition rules and should not be set aside on public policy grounds.5 The Supreme Court considered that as courts have to be restrictive when finding an award invalid, an award is invalid only if it is clearly incompatible with basic principles of Swedish law or public policy.6 Furthermore, the Supreme Court did not find it necessary to request a preliminary judgment from the ECJ because the EU rules that were at issue were not open to interpretation.
The challenged award ordered the appellant to pay damages due to abuse of its monopoly position. The appellant asserted that the tribunal had misinterpreted EU competition rules, which constitute public policy under the so-called Eco-Swiss doctrine. According to this doctrine, EU competition rules are part of public policy, which means that they may serve as grounds for setting aside an arbitral award.
This judgment is important, as it sheds light on the relationship between arbitration law and EU competition rules and the scope of the so called Eco-Swiss doctrine.
B.3 Notice of Arbitration via Email
The appellant submitted new evidence in the Supreme Court that established that the respondent had received proper notice of arbitration via email.7 In view of the new evidence and contrary to the decision of the appellate court, the Supreme Court found that the respondent had received proper notice of arbitration. The respondent’s claim that he did not use email and had not received the emails regarding the arbitration proceedings did not prevent recognition and enforcement of the arbitral award.
The Appellate Court had held the award unenforceable, as it was not clear that the respondent had received proper notice of the arbitration and was therefore able to present his case. The appellant’s new evidence showed that the notice of arbitration, as well as other documents pertaining to the arbitration, had been sent to an email address that the respondent had used and contained the respondent’s name.
Section 54 (2) of the Swedish Arbitration Act provides that a foreign arbitration award cannot be enforced against a party who has not been given proper notice of the arbitration or, for other reasons, was unable to present its case. The Supreme Court’s ruling in the present case means that the requirement may be fulfilled via email.
C. Costs in International Arbitration
C.1 Allocation of Costs
The Swedish Arbitration Act Section 42 governs the allocation of costs. According to the Act, the arbitrators have the discretion to allocate costs unless otherwise agreed by the parties. According to Article 44 of the SCC Arbitration Rules, an arbitral tribunal may, unless otherwise agreed by the parties, order one party to pay reasonable costs incurred by another party, including costs for legal representation, having regard to the outcome of the case and other relevant circumstances. The arbitrators’ order may also include interest, if a party has so requested.
The Tribunal enjoys wide discretion in determining how costs should be allocated. However, generally, costs are allocated on the basis of the outcome of the case. If the claim is granted in full, normally full costs, if deemed reasonable, will be awarded, but if any significant part of the claim is denied, it will normally have cost implications. If only half of the claim is granted, costs will often be split, on the view that the claimant has lost as much as it has won. If even less than half of the claim is granted, the claimant can be ordered to pay part of the respondent’s costs. Filing inflated claims is thus not recommended. In this context, arbitrators also typically take into account factors such as the outcome of procedural issues or unnecessary, negligent or obstructive behavior by the parties that has contributed to the increased costs.
Under the Arbitration Act, parties are jointly and severally liable to pay reasonable compensation to the arbitrators for work and expenses. However, where the arbitrators have stated in the award that they lack jurisdiction to determine the dispute, the party that did not request arbitration will be liable to make payment only insofar as required due to special circumstances.
C.2 Security for Costs
The arbitrators may request security for the compensation due to them. They may fix separate security for individual claims, counterclaims and setoffs. This security often takes the form of an advance on costs to be paid as a deposit.
Where a party fails to provide its share of the requested security within the period specified by the arbitrators, the opposing party may provide the entire security. Where the requested security is not provided, the arbitrators may terminate the proceedings, in whole or in part.
During the proceedings, the arbitrators may decide to use the advance in order to cover expenses. Following the determination of the arbitrators’ compensation in a final award and where the award in that respect has become enforceable, the arbitrators may realize their payment from the security in the event that the parties fail to fulfil their payment obligations in accordance with the award. The right to security also includes any interest accrued or other similar income from the property.
C.3 Recovery of Costs
The costs typically include reasonable costs for legal representation, expenses for witnesses and experts, and the fees and expenses of the arbitral tribunal. The level of costs, including lawyers’ fees, is assessed on the basis of the complexity of the case and performance. Irrelevant evidence and experts, unfocused or superfluous submissions, or similar behavior may – if challenged – cause costs to be adjusted.
The Swedish Bar Rules limits the remuneration of counsel to a “reasonable fee.” In determining what constitutes a reasonable fee for a mandate, consideration should be given to what has been agreed with the client; the extent of the mandate, its nature, complexity and importance; the lawyer’s expertise; the result of the work; and other such circumstances. In Sweden, fees based on hourly rates are widely accepted. Furthermore, in addition to the fees, Swedish counsel is usually compensated for incurred cost and expenses due to travel, communication and translation related to the mandate. Costs incurred by the party itself may also be recoverable, such as costs incurred due to travel, making its personnel available to appear as witnesses, or the cost of an in-house legal department’s management of the case.
In the statement of costs provided to the arbitral tribunal, it usually suffices that the parties specify the different costs incurred, such as costs relating to legal representation, expenses for experts and expenses incurred by the party itself, as individual cost items.
- Jonas Benedictsson is a partner in Baker & McKenzie’s Stockholm office. His practice includes various aspects of arbitration, litigation, alternative dispute resolution and insolvency. He leads Baker & McKenzie’s Dispute Resolution Practice Group in Stockholm.
- Stefan Bessman is a partner in Baker & McKenzie’s Stockholm office. He focuses in particular on dispute resolution in the fields of banking, finance, insurance and reinsurance.
- Anina Liebkind is an associate in Baker & McKenzie’s Stockholm office and a member of Stockholm’s Arbitration & Litigation Practice Group.
- Judgment of the Svea Court of Appeal, 25 June 2015, Case No. T 2289-14.
- Judgment of the Supreme Court of Sweden, 17 June 2015, Case No. T 5767-13.
- “A typical case where an award can be considered to be contrary to EU-competition rules is when the tribunal has not considered the EU-competition rules at all, or if the award upholds conduct that materially breaches EU-competition rules.”
- Judgment of the Supreme Court of Sweden, 2 July 2015, Case No. Ö 6354-13.